The growth Phoenix has had in recent years equates to growth in the medical needs of its population. In turn, a greater number of medical facilities are needed within a broader area. The large inner city hospitals and satellite clinics that dominated healthcare for so long are no longer adequate to meet all of our healthcare needs, not because of a lack in quality of care, but because of proximity to the patient.
Sooner or later an organization that provides medical care must acquire a site to better serve the patient population base. The selection, evaluation and acquisition of a new site is unique, more complicated and more likely to run afoul than other non-medical site acquisitions if all of the issues are not identified and addressed before the site is acquired. The following are a few of the issues that a medical care provider must consider before closing on the purchase of a site.
The contract to purchase the site must be carefully negotiated. In the case of medical care facilities, there are at least two issues of particular note: (i) the due diligence period must be long enough to accommodate multiple inquiries and analysis well beyond even the most complex transactions; (ii) if the medical care facility is part of a larger complex, or the seller owns other adjoining property, a set of deed restrictions against the seller’s property should limit or prohibit other competitive medical care providers or incompatible uses of the adjoining property, and the provider should be entitled to enforce the restrictions.
The first step is ensuring that the zoning permits medical care, including the type of medical care, procedures and patients that will be at the facility. The zoning should be comprehensive and there should be no requirement for a special-use permit or further governmental action.
If a rezoning special-use permit is required, the contract should provide for an adequate period of time for the medical care provider to acquire the approval or otherwise terminate the contract.
Title should not preclude the variety of activities incidental to medical care, typically involving noise, radiation hazards and environmental and waste materials, which are all commonly prohibited.
Medical care facilities require substantial parking. The adequacy and proximity of parking should be confirmed as part of the zoning, any deed restrictions and as a practical matter. There should be the ability to park undercover and immediately adjoin the facility.
The medical care provider should look at several sites in several different jurisdictions. Most jurisdictions are seeking a greater core for their constituents and some may have the flexibility to offer incentives to induce the provider to locate within its boundaries.
Private developers with a large development may see a medical care facility as a highly desirable amenity to the project. They have an opportunity to seed the development and will grant substantial concessions in price, location, access, infrastructure and signage, just to name a few.
Utility, Other Needs and Incentives:
Larger medical facilities also can require substantial and reliable utility needs. The utilities may be willing, particularly in conjunction with a developer and governmental jurisdiction, to upgrade services from the entire grid by construction of additional substations, wells or plant capacity to meet the needs of the facility.
Some medical care facilities present unique issues, in particular drug abuse/half-way houses or full-care psychiatric facilities. The problem most commonly encountered is finding a location that has the proper zoning and no other restrictions on what would be viewed by neighboring properties as highly undesirable. The provider does not want to acquire a site that requires the approval of what would be certain opposition.
Ultimately, the provider has to look far enough into the future to ensure that it has acquired, or has an option to acquire, a right of first refusal that will give the provider a measure of comfort that, if the need arises, it can still expand and provide centralized service for an extended time. This is not just a question of the amount of land, but the adequacy of the utilities and all other issues revisited as well.
The most valuable part of the process is looking ahead and anticipating to the extent possible what healthcare will look like in the future and determine that there are no constraints to meet those needs.
For more information about Jennings, Strouss & Salmon and acquiring sites for medical facilities, visit jsslaw.com.
Bruce B. May is a real estate lawyer with Jennings, Strouss & Salmon’s Phoenix office. He represents national, regional and local developers, homebuilders, and institutional and individual investors involved in all phases of the investment and development process. He can be reached at 602-262-5923 or Bmay@jsslaw.com.
AZRE Magazine May/June 2008