When real estate developer Linda Rozynes lost a South Miami-Dade apartment building to a storm in 2000, she knew she would rebuild the property -- as medical offices.
That was Rozynes' foray into the booming medical real-estate sector, a niche fueled by an expanding senior-citizen population and the trend of performing procedures outside of hospitals. Medical office rents are averaging $28.49 per square foot in Miami-Dade County and $24.05 in Broward, with occupancy at 95 percent in both counties, according to CB Richard Ellis.
The demand has drawn established medical developers and newcomers like Rozynes, as well as office condo developers targeting doctors.
Physicians seeking office space have some unique issues. First, they often spend as much as $50 to $100 per square foot to customize their offices, because they require specialized equipment -- such as plumbing and cabinetry, reinforced floors for heavy equipment and lead-lined rooms for X-ray machines and CT scanners.
''The cost for them to improve their space is extremely high,'' said Kenneth Weston, CEO of medical real-estate specialist Kenneth Weston & Associates. ``So for them to move from office to office is extremely expensive.''
Then there's that location factor: Physicians need to have their offices close to their patients and, for many specialists, near a hospital.
Rozynes' 37,000-square-foot building, for example, is on Sunset Drive near 87th Avenue, close to Baptist and South Miami hospitals.
Still, leasing was a bit slow because of competition from office condos. In 2007, 652,329 square feet of office space sold, a good chunk of it targeted at the medical industry.
BUILDING EQUITY
Owning space can appeal to physicians because of the big investment they make in equipment and because they don't move often.
''The clients they serve are generally within a radius of their location,'' said Ford Gibson, principal of Miami-based Gibson Development Partners, which has finished two medical office condos and is developing a third. ``They can be in that same location for a long period of time.''
Gibson added that some doctors like building equity in real estate. A doctor on the verge of retiring ''can sell the practice and retain the real estate and rent it or sell the real estate,'' said Gibson, who is also looking at two medical office rental projects.
The competition made leasing of Rozynes' building a little slow, but the last tenant moved in three months ago. ''I was a little blindsided by the office condo market,'' she said. ``But then as office condos became more expensive, this became more affordable.''
LOOKING FOR YEARS
Despite the options, Dr. Michael Pacin, founder of the 14-office Florida Center for Allergy & Asthma Care, had a hard time finding the right office when he needed to leave an 8,000-square-foot space.
Pacin didn't want to own. ''I don't want to have to deal with that,'' he said. ``And buying, from the business end, you really don't save any money.''
After looking for years, he moved the clinical practice into a 4,000-square-foot space in Rozynes' building and moved billing and business functions -- where location doesn't matter as much -- to Kendall.
Pacin is still looking for more locations for his practice. ``The renting market is very tight.''
Whether rentals or condos, Gibson and Weston cautioned that not every project is successful just because demand is strong. Weston said projects must be in fast-growing areas that don't have enough medical offices, need far more parking than a nonmedical office development and should contain the right mix of tenants.
RX: RETAIL
Weston is finding that formula works in an untraditional place: retail centers, which are convenient for patients.
Plaza San Remo in Coral Gables, which he and Gibson recently completed, combines retail and medical. A Whole Foods supermarket anchors the seven-story development, which has 65,000 square feet of ground-floor retail. Above it: 115,000 square feet of office condos, marketed primarily for medical use. In January, owners began moving in, and the building is sold out.
Weston, who represents healthcare providers looking for space and whose company helps develop and lease medical properties, has several other projects in the works, including one in the Blue Lagoon area across from Miami International Airport. It is proposed as a 330,000-square-foot, five-building medical campus designed to attract international patients.
Like Rozynes, developers from other sectors are getting into the market. In its first foray into medical buildings, Aventura-based Sky Development in December 2006 paid $32 million for Memorial Hospital Pembroke and several acres of undeveloped land around it. The developer plans to build 160,000 square feet of LEED (Leadership in Energy and Environmental Design)-certified rental medical space.
RELATIVELY SAFE
The first phase will be 80,000 square feet, and Sky Chief Operating Officer Gavin Susman said 25,000 of it is ''verbally spoken for.'' He expects to have leases out this month. While getting construction loans is harder than it would have been a year ago, Susman said, lenders see medical offices as a relatively safe bet.
''People still get sick. People still go to the doctor,'' he said.
