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<\/p>\nMedical real estate developers are trying to keep up with Houston\u2019s rapid population growth. But surging operating expenses and the rapidly evolving healthcare industry make that a significant challenge.<\/p>\n
<\/p>\n
\n Bisnow\/Maddy McCarty\n <\/p>\n
\n Anchor Health Properties\u2019 Todd Graham, Transwestern\u2019s Justin Brasell, Edloe Realty\u2019s Shehzad Roopani and Hunton Group\u2019s Paul McCleary.\n <\/p>\n
\u201cNew buildings are very hard to pencil,\u201d Transwestern<\/a> Executive Managing Director Justin Brasell<\/a> said at Bisnow\u2019s Future of Houston Healthcare event at The Post Oak Hotel on Tuesday.<\/p>\n Operating costs are averaging about $17 per SF, limiting the development of medical office buildings<\/a> apart from some in Houston\u2019s urban core, where they can justify higher rental rates, Brasell said. At the same time, healthcare operators are constantly being asked to handle budget cuts and raise the standard of patient care, panelists at the event said.<\/p>\n \u201cThe landscape is clearly changing,\u201d Edloe Realty Managing Partner Shehzad Roopani said. \u201cWhat we hear when we visit with C-suites all over the country is, \u2018How do we do more with less?\u2019 And that is going to continue to be the case.\u201d<\/p>\n \n Bisnow\/Maddy McCarty\n <\/p>\n \n The University of Texas MD Anderson Cancer Center\u2019s Bhargav Goswami, Browne McGregor Architects\u2019 Cory Porter, O’Donnell\/Snider Construction\u2019s Evan Alford, Lincoln Property Co.\u2019s Tim Robinson, Palo Duro Commercial Partners\u2019 Ashley Strickland and Shaw Industries\u2019 John Bernatz.\n <\/p>\n A Kodiak Solutions study this week<\/a> warned that the One Big Beautiful Bill Act\u2019s cuts to Medicaid could cost hospitals $25B per year. As hundreds of people move to the Houston area each day, healthcare providers are scrambling to deliver care under financial constraints, meaning developers and brokers have to help find creative solutions, Roopani said.<\/p>\n Health systems are strategically deploying capital, said Todd Graham, senior vice president of debt capital markets and structured finance for Anchor Health Properties.<\/p>\n The share of nontraditional medical office buildings in Anchor Health\u2019s financed development pipeline has increased significantly, he said. These assets, like freestanding emergency departments or inpatient rehabilitation centers, make up about 20% of overall medical office buildings but more than 50% of Anchor\u2019s pipeline.<\/p>\n Those facilities help health systems capture patients long after a procedure or hospitalization, making the relationship more permanent, he said.<\/p>\n \n Bisnow\/Maddy McCarty\n <\/p>\n \n Savills\u2019 Madeline Cleary, Memorial Hermann Health System\u2019s Mital Brahmbhatt, PhiloWilke Partnership\u2019s Melissa Edwards, Shah Smith & Associates\u2019 Jon Harper, MD Anderson Cancer Center\u2019s Pouyan Layegh and MD Anderson Cancer Center\u2019s Karen Mooney.\n <\/p>\n Shifting procedures from inpatient to outpatient has been a long-term trend, but it is happening rapidly today, Roopani said. And it makes practical sense.\u00a0<\/p>\n \u201cThe cost per square foot is much higher for an acute care hospital than for outpatient facilities,\u201d HOK<\/a> Senior Healthcare Planner Davene Morgan said.\u00a0<\/p>\n It also makes care more accessible to residents of communities on the outskirts of Houston\u2019s metropolitan area.<\/p>\n \u201cThe benefit of that is we\u2019re taking care to the community,\u201d Morgan said. \u201c[There is] a lot of strategic locating of facilities in the neighborhoods that need them.\u201d\u00a0<\/p>\n Memorial Hermann<\/a> Cypress Hospital is an example of that, Memorial Hermann Chief Facilities Officer Jeff Mosely said. The system started out with convenient care centers before building hospitals in Cypress and Pearland, he said.<\/p>\n \u201cWe had the property, but we started off with \u2026 specialty clinics and let them grow organically,\u201d Mosely said. \u201cBoth those campuses are doing very well. In fact, in Cypress we are growing exponentially. It was a really good strategy for us.\u201d\u00a0<\/p>\n \n Bisnow\/Maddy McCarty\n <\/p>\n \n Perkins & Will\u2019s Ashley Dias, Austin Commercial\u2019s Ben Janes, MD Anderson Cancer Center\u2019s Pam Brink, JLL\u2019s Daina Pitzenberger, Harris Health\u2019s Esmaeil Porsa and Walter P Moore\u2019s Rachel Calafell.\n <\/p>\n The Cypress hospital is set for a $278M expansion this fall, its third since opening eight years ago, the Houston Chronicle reported<\/a>.<\/p>\n Memorial Hermann also\u00a0acquired 40 acres in Waller this summer<\/a> for potential future development, and Howard Hughes<\/a> is developing the first medical office in Bridgeland<\/a> for the health system.\u00a0<\/p>\n Getting developments off the ground requires financing, which is achievable with a certain level of creativity, Graham said. Anchor Health specializes in alternative finance methods like accessing the fixed income investment market, which can reduce the cost of capital compared to traditional development, he said.<\/p>\n \u201cMoney drives everything,\u201d Morgan said. \u201c\u2026 It\u2019s forcing us to redefine and really think outside the box.\u201d<\/p>\n \n Bisnow\/Maddy McCarty\n <\/p>\n \n Texas Children\u2019s Hospital\u2019s Cindy Lowery, Houston Methodist\u2019s Marissa Vasquez, Harris Health System\u2019s Patrick Casey, Page\u2019s Renee Fiala, HOK\u2019s Davene Morgan, Marek\u2019s Phil Nevlud and Paradigm Structural Engineers\u2019 Kurt Lindorfer.\n <\/p>\n Houston\u2019s medical office building sector saw 342K SF of positive absorption during the past year and only 91K SF of new deliveries, boosting occupancy to nearly 90%, according to Colliers<\/a>\u2019 medical building report from the first half of 2025<\/a>.\u00a0<\/p>\n The construction pipeline is growing, though, with major hospital systems leading the way, according to the report. There is about 1.2M SF under construction, putting Houston in third place nationally for medical office square footage under construction, according to a RevistaMed ranking.<\/p>\n That may pick up even more as institutional capital providers are moving off the sidelines, where they had been for about a year, Graham said.<\/p>\n \u201cYou couldn’t get a deal done,\u201d he said. \u201cWe’re now seeing that capital coming back into the game.\u201d<\/p>\n \n Bisnow\/Maddy McCarty\n <\/p>\n \n JE Dunn Construction\u2019s Sam O\u2019Connor, The University of Texas Medical Branch\u2019s Caryn Guajardo, Wolff Cos.\u2019 Carolyn Wolff Dorros, Memorial Hermann Health System\u2019s Jeff Mosely and Harvey Cleary\u2019s Justin Boehm.\n <\/p>\n Underwriting on the debt side is also getting leaner, and pricing is getting more aggressive, Graham said.\u00a0<\/p>\n \u201cAs we see interest rates continue to come down, the projects will get easier,\u201d he said. \u201cIt\u2019s all about the economics. It has to pencil out.\u201d\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"Medical real estate developers are trying to keep up with Houston\u2019s rapid population growth. 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