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Secondary medical development scarce around UMC, VA hospitals.

Byline: Andrew Valenti, Reporter

Specialty clinics and medical office buildings dot the landscape along Houma Boulevard near East Jefferson General Hospital in Metairie.

And along Interstate 10 around the Galleria office building, LCMC Health Ridgelake Health Center, Crescent City Surgical Care and Galleria Medical have opened within the last three years.

But while there has been construction related to multifamily housing, extended-stay hotels and retail near the $1 billion University Medical Center and $1.1 billion Veterans Affairs Hospital closer to downtown New Orleans, development of medical office buildings, which can include private practices or research labs, have been scarce.

Current numbers for the amount of square footage for these types of projects were not available. But a report in 2010 by engineering consulting firm AECOM anticipated 175,000 square feet of this secondary development within the five years of the institutions opening, 625,000 square feet in 10 years and 800,000 square feet of space in 20 years.

Latter & Blum senior commercial investment advisor Paul Richard said this analysis was valid, but the timeline is off. He said the hospitals would need to reach full capacity before the construction of new medical office buildings could begin.

"In every medical district that AECOM analyzed, the secondary development was substantial," he said.

Commercial broker Robert Hand, president of Louisiana Commercial Realty, said there is no demand for this type of commercial space in that area. Hand said the lack of demand stems from the doctors at UMC and the VA being employees of the hospital rather than being affiliated with the institution and having their own practice and patient base. He noted the physicians at the VA Hospital are employees of the federal government and have no need for their own building and practice.

"I never got any interest from the medical community for my listings on (Tulane Avenue)," he said. "And this was before and after the Veterans Affairs Hospital was completed."

Hand said the lack of financing in New Orleans also plays a role. In larger markets, speculators acquire the land, then develop a medical office building and wait for the physicians to come in and rent out space.

That's not the case in New Orleans, as banks in the area are very conservative and will not lend for that type of construction, Hand said. He believes this has to do with the Federal Reserve tightening restrictions after the 2008 recession as well as the 2017 collapse of New Orleans-based First NBC Bank, the largest bank failure in the last decade.

Two organizations that could assist are the New Orleans BioInnovation Center and the Louisiana Cancer Research Center.

NOBIC, which opened in 2011 with a goal of creating jobs and providing funding for startups, looked to be in murky waters after the Louisiana Legislative Auditor's Office released a report in April showing the center suffered millions of dollars in losses after state funding was severed in 2015 amid budget cuts. The auditors wrote this "creates an uncertainty about NOBIC's ability to continue as a going concern."

Gene D'Amour, senior vice president for resource development at Xavier University and who also sits on NOBIC's board of directors, said the board recently met with officials from the Louisiana Department of Economic Development, who are committed to keeping NOBIC sustainable and pledged to secure funding from the state. He added Tulane University, LSU and Xavier have "stepped up to the plate" and will provide additional funding.

"These biotechnology startups need to go through NOBIC because there is so little venture capital funding in Louisiana," he said.

Another factor that could come into play is the redevelopment of the former Charity Hospital to encourage more construction in the biomedical district. An LSU Board of Supervisors committee gave the green light in January to a preliminary agreement to start final negotiations with 1532 Tulane Partners, comprised of the U.S. branch of El-Ad Holdings, an Israel-based real estate development company, and CCNO Development, a developer-builder based in New Orleans.

The developers have proposed turning the property into 465,000 square feet of market rate, workforce/affordable and subsidized housing. Tulane University has committed as one of the tenants using office space. There would also be space set aside for parking and retail use. The projected cost to redevelop the 1 million square-foot structure is $245 million.

"It's really energized a lot of folks about the future of the area," D'Amour said.

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Publication:New Orleans CityBusiness
Geographic Code:1U7LA
Date:May 17, 2019
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