California Centers

SEP 2018

California Centers Magazine serves retailers, developers, shopping center owners, investment sales brokers and tenant representation firms throughout the state of California.

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32 California Centers Magazine | September 2018 C C MAINTAINING A HEALTHY RELATIONSHIP Convenience may be key for today's popular healthcare tenants, but their presence can be less than appreciated by some shopping center staples. San- dy Sigal, president and CEO of New- mark Merrill in Woodland Hills, is keenly aware of the lease restrictions, parking logistics and, oftentimes, the stigma that can come with the per- ception that healthcare tenants may result in contagious diseases or "sick" people entering a center. While every tenant's concerns should be heard, he believes this is a different retail envi- ronment — one that can benefit from a diversity of uses, a few precautions and some general education that can dispel many of the myths about healthcare consumers. "In a world of fewer retail users and smaller tenant sizes, the composition of shopping centers will include more services, medical, entertainment, fit- ness, etcetera, all in one place to max- imize the consumer experience and convenience," he believes. "I think dedicated parking, dedicated entranc- es and grouping medical tenants to- gether, entertainment in other areas, food in others, will provide a neigh- borhood within each center that will protect the community, yet promote convenience." Matt Hammond, a partner and se- nior vice president of brokerage for the Coreland Companies in Tustin, believes many of today's retail tenants are willing to adapt. "Anchor tenants have historically restricted medical uses as co-tenants, however, in today's market. it is com- mon practice to avoid these medical re- strictions when negotiating leases," he notes. "Older centers with established anchors can still pose challenges. In these situations, we typically have to pursue approvals but, more often than not, there is little push back." This willingness to adapt not only benefits the medical tenants, but gen- erally its neighboring retailers as well. Hammond is also quick to point out that healthcare tenants don't gener- ally result in "sick patients" walking around the center to begin with. "We haven't seen many problems or have heard many complaints from co-tenants," he continues. "A lot of these medical tenants don't just serve the common cold. A lot of the service providers are Specialists — primary care physicians, dermatology, X-rays, sports medicine — attracting custom- ers that do cross-shop before or after appointments." Another issue that may be more difficult to navigate is cost. While healthcare tenants appreciate the low- er cost of building out a retail space as opposed to a space in a medical office building or hospital campus, re- tail landlords may not be as thrilled. That's because tenant improvement costs for medical tenants in shopping centers can range from $50 per square foot to upwards of $120 per square foot, according to the International Council of Shopping Centers (ICSC). "Retail landlords will have to start getting comfortable with the higher costs of building out an outpatient space," says Mike Conn, senior vice president of Meridian in San Ramon. "While they can typically get away with providing a retailer with $20 to $40 per square foot in tenant improve- ment allowance, most healthcare us- ers are asking for upwards of $100 per square foot, with the cost of their buildout approaching $200 per square foot, in many cases. Landlords are starting to understand this but need to get their lenders on board as well in order to finance the buildouts." On the plus side, these higher up- front costs can often be offset by the fact that the retail landlord has se- cured a longer-term lease — often 10 to 12 years — during a time when re- tail leases seem to be shortening by the day and turnover remains an issue of prime concern. Parking requirements are also generally lower for health- care tenants as patients don't adhere to peak shopping times and rideshare becomes all the more prevalent. Healthcare and retail may be two different animals converging on one stage, however Wadsworth cautions that the issues caused by one type of vacancy can't necessarily be solved simply through another type of occu- pancy. "Retail is very local," he says. "Healthcare is very local. If you're a retail developer, ask the same ques- tions to healthcare consumers as you would to retail consumers. Is my center well-located? Is access good? Is visibility good? Is my center con- venient for consumers? Lots of times retail centers have dark space because access isn't good, visibility is not great and there are design flaws. Look at the physical real estate first and ask if this space makes sense. Would someone benefit from coming to this location?" Most of all — at least according to Wadsworth — never forget the new Golden Rule. "The goal for any consumer in any industry is to have a better experi- ence," he says. "If you can deliver care in a setting that is more stress-free and enjoyable, that's the goal. Nobody wakes up in the morning and says 'great, I get to go to the doctor today.' It's not something we, as consumers, look forward to. Healthcare services in a retail setting are there to enhance the consumer experience. That's it." CC Cedars Sinai leased 32,000 square feet across three floors, which includes an urgent care clinic and primary care services, at Runway Playa Vista.

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