Vital Signs All Strong on Health Care Construction - Sector Check
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Vital Signs All Strong on Health Care Construction

By Richard R. Rogoski

Article Date: 04-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.


Looking for a genuinely healthy market to tap? Contractors and dealers say health care building is alive and well.

While the slowing economy has idled many commercial projects, general contractors who specialize in health care construction are seeing their business booming. "There's still money to invest and health care is still a hot market," said John Zaring, vice president and national director for business development in the Nashville, Tenn.-based health care division of Turner Construction Co.And there is no region in the U.S. where the health care market isn't hot, says Turner's engineering systems manager, Jim Moler. "It's everywhere. We see it from one end of the country to the other, and right up the middle."With general contractors staying busy, local subcontractors and the equipment dealers they do business with are also finding more work during these lean times. But Moler does admit that some hospital owners are proceeding with caution and are, in some cases, extending their schedules.And while interest rates remain relatively low, Zaring says some of this cautiousness can be attributed to rising construction costs. "Cost increases have been rising more than the rate of inflation," he explained. "Increases of 7, 8, or 9 nine percent a year are not uncommon."Still, the factors that are driving a growing health care industry - and the construction necessary to accommodate that growth - are not tied to national or regional economies. They are much more fundamental. A Growing NeedAn aging population, the replacement of aging facilities, a shift in strategies by hospitals to serve more people and new medical technologies are some of the reasons often given for today's growing health care sector.According to Ken Simonson, chief economist at AGC of America, two-thirds of health care construction costs are for hospitals, with the rest covering medical buildings and special care facilities. "Total spending grew 14 percent last year to $45 billion but fell 0.8 percent from December to January and rose only 6 percent compared to January 2007," he reported. "January numbers could be distorted by severe weather but I expect hospital construction to rise 10 to 15 percent again this year as hospitals remodel to fit in new technology and build new facilities in newly occupied communities," he continued. "Hospitals continue to have good access to credit. But lending has probably tightened for medical buildings and rising vacancies in other offices cut into demand for medical buildings. Demand for assisted living facilities will weaken as folks fail to sell their homes. "These patterns apply all over the country," Simonson added.Moler says he's seeing a lot of hospital renovation work being driven by the conversion of semiprivate rooms to private rooms. Not only do aging Baby Boomers want their own rooms, but the Health Insurance Portability and Accountability Act (HIPAA) also set stringent requirements for safeguarding patient information. In addition, private rooms provide a way for hospitals to better control the spread of infections from patient to patient, he says.Interestingly, construction projects in California have been on the rise because the state's seismic upgrade law is forcing hospitals to reinforce their buildings against earthquakes, Moler notes.Tim Belanger, a partner in Livonia, Mich.-based AIM Construction Inc., says the aging population also is causing hospitals to expand their emergency departments and other departments that provide care for age-related injuries and diseases.And the incorporation of newer technologies, like MRI and CT scanners, or IT centers that house banks of computer servers, are leading to major overhauls of working spaces or the construction of new wings, he says.Scott Duckworth, vice president and division manager for health care at Birmingham, Ala.-based Brasfield & Gorrie, says another trend that's driving health care construction is the strategy of many large health care delivery systems "to go where the patients are." This is leading to the construction of smaller satellite hospitals, or "healthplexes," and outpatient clinics in outlying towns or near major subdivisions. Regional RewardsNo matter what the local economy is like, health care construction is flourishing. "If it wasn't for health care construction in Michigan, a lot more people would be out of work," said Moler.Belanger agrees. "Health care, over the next five years, will be the leading construction in Michigan," he said. And while the state's economy has plummeted over the last three years, Belanger noted, "These have been three of our company's best years. Anybody who's doing health care has seen an uptick."Most general contractors have other commercial lines, but 90 percent of AIM Construction's work is in the health care sector, and most projects are in southeastern Michigan, near Detroit, he says.Current Michigan projects include construction of the $220 million, 500,000-square-foot St. John Health System, Providence Park Hospital in Oakland County and a $6.5 million renovation of the Beaumont Royal Oak Hospital pharmacy in Royal Oak, Belanger says.Turner's Zaring says his company's projects are spread throughout the U.S. Although only about 25 percent of its projects are health care-related, New York-based Turner is considered the leading builder of health care facilities in the nation, completing over 100 projects in 2007. "We do over $2 billion a year in health care construction," Zaring said.Among its current projects are the $85 million Catholic Healthcare West Mercy San Juan Medical Center Patient Tower II in Carmichael, Calif., and the $77 million Catholic Healthcare West St. Joseph's Medical Center Women's and Children's Pavilion in Stockton, Calif.For Mercy San Juan Medical Center, Turner is building the new Patient Tower II addition to the campus. The building is a six story 142,700-square-foot tower that includes 90 medical surgical private patient rooms, 20 CCU rooms, a shelled floor, lobby, chapel, gift shop, pharmacy and a central plant. In addition the project includes 2.5 acres of site improvements and a three story parking garage. Tower completion is scheduled for November 2009.The 100,000-square-foot, 87-bed Women's and Children's Pavilion at St. Joseph's will include a futuristic pedestrian bridge connector to the existing hospital and a subterranean garage and central plant. Completion is scheduled for January 2010.Zaring says Turner's biggest competition comes from "strong regional companies."Brasfield & Gorrie is a major regional player in the Southeast and has been spending a lot of time in North Carolina. "We're doing work in Charlotte, Winston-Salem, Asheville, Raleigh and Wilmington," Duckworth said.The company has been working on 50-bed satellite hospitals in Charlotte and Winston-Salem and recently completed two major projects in and around Raleigh. The Research Triangle area that includes Raleigh, Durham and Chapel Hill is exploding in health care construction projects fueled by an overall growing population. There is currently more than $1.5 billion in hospital construction projects either proposed or under construction, including Duke University Health System's $653 million expansion of its main hospital campus and the University of North Carolina at Chapel Hill's $200 million cancer hospital.One of the area's largest health care providers is WakeMed Health & Hospitals, which operates separate hospitals in Raleigh and the town of Cary. But WakeMed also has been expanding from its base, creating a number of satellite facilities throughout the area.Brasfield & Gorrie recently completed the 105,000-square-foot WakeMed North Healthplex in Raleigh that offers inpatient and outpatient services, as well as an 85,000-square-foot healthplex in the town of Apex that has a free-standing emergency department.Three other local healthplexes are planned but have either not received state approval or are waiting to close on the land, according to a WakeMed spokesperson. Subs and Their EquipmentBecause cost-containment has now become a key factor in construction, general contractors are "brokering out a lot of risk to their subcontractors," said Tom McLaughlin, Turner's operations manager. Rather than doing a lot of the jobs they once did, like pouring concrete, they'll sub the work out.Another trend McLaughlin is seeing involves the rental of construction equipment by general contractors. "The general contractor will get with a local equipment supplier and get equipment at a discount. Then he'll put it on site and require subs to rent that equipment from him. That way, the GC makes about a 20 percent profit."There also has been a rise in the number of specialty contractors like utility companies that run water and sewer lines to hospitals or equipment installers who specialize only in medical equipment, McLaughlin says. In the majority of cases, these contractors own their own equipment.As do many other subs, adds Belanger. "Typically we sub everything out, and many of our subs own their own equipment." Those who need to rent, typically rent their equipment from local distributors. "Most people have a comfort level with a supplier," said McLaughlin.Alex Haldiman, marketing manager and used equipment manager at The Victor L. Phillips Co., says his Kansas City, Mo.-based equipment dealership regularly rents out equipment to general contractors and subs. "A lot of our machines are for dirt work, like leveling and digging out for foundations, so we're in the early stages of construction," he said. "Right now we've got a few hundred machines out."With offices in western Missouri and Wichita, Kan., The Victor L. Phillips Co. leverages its relationships with regional general contractors, like J.E. Dunn, who are involved in hospital construction, Haldiman explains.Joe Alonzo, sales director at St. Louis, Mo.-based Midwest Aerials & Equipment Inc., says most of his rentals come from subs.On many hospital jobs, for example, a number of booms are usually rented for the installation of windows. But one piece of equipment that has currently become popular is a drivable, hybrid scissor lift -HB103 and HBM30 by Custom Equipment. "We currently have about 50 scissor lifts at St. Claire Hospital in Fenton, Mo., being used by drywallers, plumbers, electricians and mechanical contractors," he said. "Our scissor lift was the only one that could meet the specs."Weighing less than 1,000 pounds, the new hydraulic-powered scissor lift can reach heights up to 14 feet, Alonzo says. And because they are light, they can be driven over a computer floor or a concrete floor after it's set. "It's going to save them about 90 days on the job because they were able to get on newly-poured concrete floors three days sooner," he said, adding that this new scissor lift is quickly taking the place of Baker scaffolding for interior jobs. Staying ConnectedGeneral contractors and equipment distributors agree that the best way to ensure that your equipment will get rented for jobs in health care construction is to forge relationships with those in the sector - a strategy that many are already doing. "Local distributors have a nose for when projects start," McLaughlin said. "But the whole process is relationships and building those relationships."McLaughlin explains that the key is not only building long-term relationships, but "being around even if there isn't a project." In this way, when a local project is planned, the general contractor or sub will automatically know who to call.Haldiman agrees, saying you have to keep in constant contact with those who typically rent your equipment in order to keep the relationship going. "We're always asking customers what's on the horizon, and we also check what projects are going out for bid."Belanger says that as long as equipment distributors are familiar with the bureaucratic process hospitals go through to build or renovate their facilities, they can always contact the project's general contractor to find out who the subs are and what their specific needs will be for that project.
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