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Physician Peter Goldfarb is having difficulty interesting young doctors in the Etobicoke Medical Centre, the aging 22,000-square-foot health centre located in Toronto’s west end that he co-owns with several of the 17 general practitioners who make up the Etobicoke team. ‘[Young doctors] don’t look at this as an opportunity, they look at it as a burden, so they’d rather pay rent.’ (Michelle Siu/Michelle Siu for The Globe and Mail)
Physician Peter Goldfarb is having difficulty interesting young doctors in the Etobicoke Medical Centre, the aging 22,000-square-foot health centre located in Toronto’s west end that he co-owns with several of the 17 general practitioners who make up the Etobicoke team. ‘[Young doctors] don’t look at this as an opportunity, they look at it as a burden, so they’d rather pay rent.’ (Michelle Siu/Michelle Siu for The Globe and Mail)

Property Report

Aging medical property gets a new prescription Add to ...

For more than three decades, physician Peter Goldfarb has tended to a roster of more than 2,000 patients, managing everything from kids’ colds to seniors’ chronic ailments.

Unbeknownst to most of those patients is the amount of time he spends managing the Etobicoke Medical Centre, the aging 22,000-square-foot health centre located in Toronto’s west end that he co-owns with several of the 17 general practitioners who make up the Etobicoke Medical Centre Family Health Team.

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If his physician duties weren’t taxing enough, Dr. Goldfarb devotes the equivalent of about 15 per cent of his practice hours each month to managing the property.

Such is the challenge for doctors who choose to own and operate their own facilities, and it’s the reason why Dr. Goldfarb – now in his mid-60s – and his partners have found it nearly impossible to locate younger doctors willing to buy their building.

Gone are the days when owning a medical facility was viewed as one of the healthiest investments a doctor could make.

“[Young doctors] don’t look at this as an opportunity, they look at it as a burden, so they’d rather pay rent,” Dr. Goldfarb said.

Why? As the general practitioner explained, many of today’s doctors launch their practice with more than $100,000 in postsecondary debt, thanks to skyrocketing graduate-school tuitions, making it difficult to access the credit necessary to make such a large property investment, let alone cover the elevated costs associated with medical facility maintenance.

Dr. Goldfarb, who owns other non-medical commercial properties, estimates those extra costs at about 20- to 30-per-cent more than a standard office building, due to higher maintenance concerns, more complex HVAC and plumbing systems, and general wear-and-tear related to heavy foot traffic.

Most young clinicians also lack the formal business training to manage a medical property, and – as is typical with so many Generation Y professionals – desire a degree of work-life balance.

“In the future, I don’t think there will be many, or any, large medical buildings developed by physicians,” Dr. Goldfarb predicted.

While the realities of medical practice in the 21st century may have changed the traditional model of physician owned-and-operated medical properties, it’s opening the door to opportunity for developers intent on meeting the needs of a new generation of clinicians.

Peter Riggin, CEO of Toronto-based NorthWest Healthcare Properties REIT, is seeing several key trends emerging nationwide on the commercial medical property front.

First, provincial initiatives to create family health teams that allow for the sharing of resources such as equipment, space and staff, are resulting in the co-location of doctors under one roof.

Another key trend: older doctors selling their properties to REITs that have the resources to retrofit and modernize their aging clinics – or demolish them to build new facilities.

“We have more than 60 buildings in our portfolio and a good number of them have been acquired from groups of doctors,” Mr. Riggin says.

Medical properties make sense for developers to acquire and manage, he notes, due to their typically low vacancy rates. According to Mr. Riggin, vacancy rates within NorthWest’s medical property portfolio are low, averaging around 6 per cent. In recent years, traditional office vacancy rates have hovered around 8 to 10 per cent in major cities nationally.

The other benefit: once in a facility, doctors prefer to stay long-term and are largely shielded from the economic adversity that can financially cripple tenants in other industries.

That’s exactly the sort of stability that landlords love.

Peter Schwann, an Edmonton-based senior vice-president with commercial property brokerage Avison Young, is seeing a boom in a specific sort of one-stop health-care shop in many of Alberta’s fast-growing communities.

“There seems to be a trend toward multi-disciplinary clinics where patients can get an array of medical services in one location, be it seeing their GP or a specialist,” he points out.

Salvatore Galati, the Toronto-based property developer behind the new six-storey, 106,000-square-foot Ellesmere Medical Health Care Centre in the city’s east end, is on the cutting edge of this multi-disciplinary trend.

His new $50-million building was built with exactly that sort of convergence of primary and secondary-care clinicians in mind, and offers what he believes is a private-sector solution to help ease many of the budget challenges facing cash-strapped provinces.

His privately-funded development model is simple.

Doctors lease space in his medical facility on three-year terms for between 20 and 30 per cent of their annual billing fees. While that may sound expensive, in return Mr. Galati supplies a modern, amenity-laden building – think state-of-the art connectivity, electronic health record systems, meeting rooms, amenities such as restaurants and relaxing indoor and outdoor lounge areas – designed to appeal to their functional needs and aesthetic sensibilities.

The fee includes office space, administrative staff and a promised mix of clinicians and facilities ranging from diagnostic services and labs, to GPs and a range of medical specialists.

Practitioners provide each other with a constant stream of referrals while patients have their varying medical needs catered to in one building. New doctors can also staff walk-in clinics within the centre to help quickly build their patient rosters. He estimates the model saves young doctors upward of $200,000 in practice start-up overhead costs.

“We’re like glorified hotel developers for medicine that organize people to come together … providing direct knowledge to help physicians build and manage their practice,” Mr. Galati says.

“Doctors assume no risk here. As a new practitioner, we can save you stress and provide a better quality of life.”

Mr. Galati is betting that his development model will be a winner with doctors across Canada. He’s planning to build 24 medical centres ranging in size from 60,000 to 130,000 square feet across Ontario in the coming years, and intends to expand the model nationally.

Whether or not he succeeds, one thing is certain: from physicians nearing retirement to the profession’s freshest young faces, the days of going it on their own are gone.

Canada’s doctors are now net renters of medical space.

“We’re looking to have someone build us a new building because ours is 50 years old and this one is packed,” Dr. Goldfarb says of his property challenges. “Any developer who could provide us with a turn-key medical centre in Etobicoke would be paid a very fair market rent for that building. Physicians nowadays just won’t do it.”

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