The Right Medicine: Medical Tenants Are Good for the Health of Some Shopping Centers
Beth Mattson-Tieg/Shopping Centers Today
When the time comes to make an appointment for that medical exam, cholesterol test or X-ray, the local mall is hardly the first place that jumps to mind. But so long as economic realities continue to strain the list of available anchor tenants, medical clinics could be just what the doctor ordered for ailing malls. Pursuing health care tenants has become a bigger priority for Philadelphia-based PREIT.
“Health care is not a panacea or a cure-all for malls, nor is it a solution or a use that you would want to put in every property,” said PREIT CEO Joseph F. Coradino. “It has selective applications. But we believe that there is synergy between health care and retail.” To be sure, in some respects health care is hardly different from other uses that help
draw shoppers to a mall, such as entertainment or government services, Coradino says. “People come to the mall to go to a movie, and clothes shopping occurs,” he said. The firm is therefore willing to bet that people at a mall-based medical clinic for a routine procedure may also decide to stay at the mall for a bite to eat and/or to shop.
Having launched a health care leasing initiative in early 2011, PREIT has started seeing the effort pay off: The firm secured two sizable health care tenants at suburban Philadelphia properties. Conshohocken, Pa.–based Mercy Health System opened a 23,000-square-foot ambulatory medical facility at Plymouth Meeting Mall last October. The two-level site is Mercy Health System’s first full-scale health-and-wellness center in an enclosed mall. And Radnor, Pa.–based Main Line Health is preparing to open a 32,000-square-foot medical facility on the lower level of the Exton Square Mall late this year. Main Line Health has opened physician’s offices and diagnostic and testing services in leased space at retail centers in the past, but Exton Square is its first in an enclosed mall. “This is an exciting new opportunity for our organization,” said JoAnn Magnatta, senior vice president of facilities, design and construction at Main Line Health.
Coradino acknowledges that pitching mall sites to health care providers was a tough sell initially. “We had a little bit of a hill to climb,” he said. “We had to convince health care providers that a mall is actually a place that they could be.” PREIT held roughly two dozen meetings with Main Line Health over a two-year period before the group committed to leasing the Exton Square space.
“The problem always has been that the medical community speaks one language, and retail real estate speaks a different language,” said Jeff Green, president of Jeff Green Partners, a retail consulting firm based in Phoenix.
One of the selling points with Main Line and Mercy was that the health care industry, having become so competitive, makes providers focus on market share. “We were able to convince them that their customer was coming to the mall, so they had a built-in traffic count, if you will,” said Coradino. Enclosed malls are often in top locations and draw millions of visitors each year, and they offer ample parking, with exterior signage that lends visibility, he says.
Health care providers know that their industry is undergoing a paradigm change with regard to the ways services are delivered. “The mall environment allows us to develop a comprehensive continuum of outpatient services within a single location that are state-of-the-art, patient-friendly and convenient,” said Magnatta. Patients will be able to address the needs of each member of the family, as well as accomplish some of the routine things that require a visit to the mall, she says.
At the same time, adding on-site health care is in step with mall strategies that are based on a community center theme. “The customer base for both uses is very aligned, and the retail location can provide on-site amenities that are not found within traditional medical office settings,” said Ina Sargen, vice president of leasing at Stockton Real Estate Advisors, in Philadelphia. Stockton represents PREIT in its health care leasing among its eight Philadelphia-area malls.
Negotiating with health care tenants does present special challenges. Certainly, build-out costs for a medical space are significantly higher than for the typical retail tenant. Most deals, particularly for larger clinics, require a long-term commitment to offset the higher costs. Parking for patients, especially during peak holiday shopping, has to be considered too. “We have worked diligently with PREIT to address this issue by providing dedicated parking areas and valet parking, and we are confident that this will not be an issue,” said Magnatta.
Health care tenants will not be a good fit for every enclosed mall or every market. In fact, PREIT is looking at health care uses for a relatively small number of malls in its portfolio of nearly 50 retail properties. PREIT is negotiating with a health care company to occupy a 6,000-square-foot space at its Magnolia Mall, in Florence, S.C. The mall has just one vacant spot, but that particular space has been a chronic vacancy over the years, and PREIT is hoping it will fare better as an alternative use.
“We are starting to see more interest on the side of health care,” said Green. One Hundred Oaks Mall, in Nashville, Tenn., an aging regional center, had started to see its surrounding area decline, and the property was repositioned in the early 1990s to include outlet stores on the second floor and big-box retailers on the first. That helped stabilize things somewhat, but the outlet component never really worked. The owners decided to approach Vanderbilt University Medical Center about leasing space on the second floor. Vanderbilt now fills about 400,000 square feet at the 880,000-square-foot center. Retailers have seen sales increase by 15 percent or more thanks to the medical co-tenant, says Green. “As you look at the aging of America, health care is going to become all that more important,” Green said. “PREIT is really ahead of the curve.”