Grabbing a Share of the Medical Construction Market
The engineers at Course Doctors, a golf course construction company in Hendersonville, NC, knew who to call for the Greenville Hospital System’s Greer Campus improvement project. And Jim Miller, president of Miller Brothers, a grading contractor also located in Hendersonville, was glad to accept the work.
The project was far from a minor one. Miller and his employees in the fall of 2008 spent 90 days building an outlet structure and adding emergency overflow improvements to a dam at an existing 5-acre lake at Greenville Hospital’s campus in Greer, SC. The company’s crews also built an entirely new 3-acre body of water upstream of the campus’s existing lake.
The work included clearing the land, excavating massive amounts of earth, relocating countless piles of dirt, fashioning piping and concrete outlet structures, and installing turf reinforcement mats at the site.
“This had to be a pristine job,” Miller says. “The work was located adjacent to the hospital and to a system of walking paths that went across the hospital campus. It had to be the most pristine job you could do.”
Miller and his crew members stapled turf reinforcement mats along the lake’s emergency spillways. They also went what Miller calls the “extra mile” by sodding directly on top of these mats. Instead of relying on seed, Miller Brothers chose the more powerful erosion control properties of sod.
To Miller, of course, every job is important. But Miller knew that if he and his crew did a good job on the Greer campus project, the odds were good that his company would pick up additional erosion control and grading work on new medical and hospital construction jobs in the future.
While the sour economy, and the crash of the residential housing market, has devastated much of commercial real estate-office and retail construction, for instance, is virtually nonexistent in today’s market-medical construction projects, though slowed, too, by the economy, at least continue to break ground across the country. Health care and medical construction, though it has slowed somewhat, remains one of the stronger sectors of the commercial construction industry.
This means that erosion control contractors such as Jim Miller are hoping to grab as much of this market as possible. Medical construction projects represent an additional stream of work in an uncertain time.
Breaking into this business, though, isn’t always an easy task. It can be a challenge for erosion specialists to successfully navigate the bid-and-proposal process to gain work on major medical projects. Hospital and medical clients expect the highest level of professionalism from all the contractors and subcontractors working on their projects.
The key to earning medical construction work, according to erosion control specialists and the general contractors that hire them, is for erosion firms to emphasize any track record they have with medical projects, to demonstrate that they have the proper amount of personnel and equipment to complete the job, and to provide plenty of references from past projects who will vouch for their professionalism.
“Often, the erosion control measures on hospital or medical projects are more intense than they are on other projects,” Miller says. “That’s because the hospital is usually surrounded by other properties. You’re usually working in an area that is already developed as opposed to working on a project with 1,000 acres between it and its neighbors. Medical projects tend to be in town, close to developed areas.”
But those erosion control specialists who can meet the additional demands placed on them may gain the chance to work in one of the rare sectors-multifamily construction is the other-of the construction industry in which new projects are actually breaking ground on a fairly regular basis.
Bucking the Slowdown
The news is grim for most sectors of the commercial real estate market. For instance, Bob Bach, senior vice president and chief economist for national commercial real estate brokerage firm Grubb & Ellis Co., reports that the vacancy rate for US office space hit 16.6% in the second quarter of 2009.
More disturbing for contractors, and for the erosion control professionals who work with them, is the fact that office space under construction fell by more than 18 million square feet to end the quarter at 48 million square feet. That’s the lowest this figure has been in four years, Bach says.
The bad news isn’t confined to the office sector. Vacancy rates at industrial sites hit 9.5% at the end of the first quarter of 2009, according to Grubb & Ellis. And new construction starts in this sector, the company says, “have all but dried up.”
Residential construction, of course, has been hit especially hard. In June, new housing starts actually surprised everyone by rising 3.6%. That made June the best month for housing starts since November. But no one yet expects residential construction to embark on another boom time.
In this gloomy construction market, health care, while not booming, has been holding steady. In Columbus, OH, for instance, office developer Daimler in the last quarter of 2008 broke ground on two new medical facilities, an ambulatory facility and a physician’s office building.
In Illinois, Hoffman Estates-based Leopardo Companies, a construction firm, in 2009 started construction on five new healthcare projects. Together, these projects will total more than 130,000 square feet. The new buildings will be located in the Chicago suburbs of Naperville, Arlington Heights, Itasca, and Chicago.
Of course, this work doesn’t mean that medical construction is completely recession-proof. Even this strong industry is seeing some negative affects from the recession.
Bill Palmer, vice president for business development at Hunt Construction Group’s Indianapolis office, says that healthcare will remain one of the few stable sectors of the construction business in the next four to five years. But he agrees this doesn’t mean that hospitals and other medical centers are completely immune to today’s economic woes.
“For-profit hospitals are putting a lot of their projects on hold right now,” Palmer says. “A lot of their capital has been invested, and they are seeing the fluctuations of their returns just like everyone else.”
Commercial real estate pros have called healthcare construction a recession-proof industry. But Mike Leopardo, vice president of the healthcare group at Leopardo Companies, disagrees.
“In actuality, the construction starts in the healthcare industry are down substantially,” he says. “A lot of the hospitals are in planning mode right now. They are being very selective as to what projects they actually construct and complete. There is a lot less work to go around because of that.”
Much of the commercial construction industry has been severely hampered by financing problems. Banks and lenders, burned by economic recession and government criticism, are no longer lending money as freely as they once did. More equity is required in those projects fortunate enough to receive financing.
This has stalled several construction projects, Leopardo says. It’s even hit hospital and medical projects, which, traditionally, had little trouble obtaining financing.
It all equals an industry that, while not as dead as retail and office construction, is still down from its highs. Leopardo, in fact, estimates that the amount of healthcare construction starts-which includes hospitals, ambulatory care facilities, and medical office buildings-is down about 80%.
Leopardo Companies traditionally takes on 80 to 100 healthcare projects a year, Leopardo says, which means the company should be working on 25 medical projects now. That’s not the case, Leopardo says.
But even the realists such as Leopardo point to healthcare as one of the few solid bets in today’s commercial real estate industry. The industry may be slumping now, but it should recover nicely once the economy begins showing signs of life, Leopardo says.
And healthcare construction’s recovery should happen at a quicker pace than any comebacks by retail, office, or industrial construction, say commercial pros who specialize in the field.
“I have to be optimistic,” Leopardo says. “Hospitals still need to do things, despite the economy. Technology drives a lot of their projects. Market share is something they are all interested in. I think once everybody gets to a comfort level as to where they’re at financially, and that things get a bit steadier economically, we’ll see hospitals begin building again.”
Part of the reason for the relative strength of healthcare construction is that the US population continues to get older. People are living longer. It all means that more people will need medical care.
“From the age of 25 to 55, virtually nothing goes wrong with us, but when you get past 55, all of a sudden you find yourself needing more medical treatment,” Palmer says. “And we’re now seeing a mass of people that is either in that age range or quickly getting to it. Then there’s the fact that everyone is living longer. Medicine has progressed. Everyone has better healthcare now, so we need medical services more than we ever have.”
But just because a growing number of developers and construction firms want to work in the healthcare field, that doesn’t mean they will find work in it.
Palmer says that general construction firms-and the subcontractors who work with them-often won’t get the healthcare jobs unless they already have a history of working in this field.
Getting the Job
Nato Flores, president of Tower General Contractors in Sun Valley, CA, has one strict rule when it comes to hiring subcontractors, including erosion control specialists, for any medical jobs his company takes on: They better have experience working on projects that have been overseen by the Office of Statewide Health Planning and Development.
In California, that office holds jurisdiction over all acute-care hospital construction jobs. This means that inspections aren’t run by a local municipality. Instead, the more stringent Office of Statewide Health Planning and Development performs the inspection.
“The people with that office have certain procedures and parameters that they expect contractors and subcontractors to follow,” Flores says. “It would be desirable if subcontractors here had a familiarity with the office’s rules and regulations governing whatever task they do. That is foremost what we look for in a subcontractor: that they have worked with that office before.”
This is just one example of some of the specialized skills that erosion control specialists should have if they want to work with Tower Construction on any of its medical jobs. But it’s not the only one that Flores wants to see.
He also wants subcontractors to come with strong references who can attest to the company’s professionalism. Of course, it’s important to work with professional subcontractors on all projects. But this need is even greater on medical jobs.
“Hospital work is very stringent work,” Flores says. “This is especially true when it comes to cleanliness and knowing the procedures. Do the company’s workers conduct themselves professionally? Are they clean?”
Cleanliness is important, Flores says, because Tower might be called upon to build a new wing next to a portion of a hospital that is already up and running. All subcontractors, then, including those working on controlling erosion, must make sure to keep any particles or airborne dust to an absolute minimum.
Past experience providing erosion mitigation services on medical projects is also a key factor for Flores. In fact, he says he hires only erosion control subcontractors for hospital or medical jobs that already have experience on similar projects. It’s important, then, for erosion firms to include a list of the types of medical projects on which the firm has worked, and to describe in detail what type of duties they performed on these projects.
Erosion specialists should also know the language of medical jobs, Flores says.
“If a company sends an advertisement to a general contractor, to us, and mentions that it specializes in erosion mitigation plans, we look for certain things. If the company mentions that it has experience in OSHPD [Office of Statewide Health Planning and Development] work, that helps. That is a buzzword. It’s an acronym that people in this business know. It shows that you can speak the language of hospital construction. There is a lot of jargon in this field.”
Leopardo agrees that erosion control companies that want to take on medical work need to emphasize certain skill sets while bidding for a job.
Leopardo Companies, for instance, looks for subcontractors that have direct experience in the healthcare market. The company also works only with subcontractors who know how to work properly in a hospital environment: This means that subcontractors must be clean, efficient, reliable, and at all times professional.
“We need people who know how to function on a hospital campus where patients’ and staff safety is of the utmost importance,” Leopardo says. “We place a high priority on the safety of all our clients. There are some unique factors involved with working on a medical project. You are functioning on a campus that is in operation seven days a week, 24 hours a day. There are no off hours. You have to coexist with patients and staff all the time.”
Erosion control specialists might want to take Flores’ and Leopardo’s advice seriously. While much of the commercial construction industry continues to struggle, Flores sees busy times ahead for health- and medical-related projects.
Even the healthcare construction business suffered a slowdown during the very worst days of the recession, Flores says. Tower, for instance, saw several scheduled medical projects suffer postponements that are still ongoing. This included several projects with a price tag of under $5 million. That is unusual for most recessions, Flores says. Usually it’s the larger projects that are postponed, not the smaller ones.
Still, Flores says, construction activity in the medical field is again increasing. When he looks ahead, he sees a lot of projects ready to come back online.
“Activity in this field is picking up again,” Flores says. “In our conversations with the owners of these projects, we’re being told to get ready. They’re telling us that things will be picking up soon.”
At Walton Construction, a construction company based in Kansas City, past experience is also key for any erosion control firm that wants to land a healthcare construction job with the company.
Walton officials expect erosion professionals to provide a list of clients they’ve worked for in the past when submitting a bid for work for them.
“Anybody you talk to over the phone will tell you that they can install silt fence or repair silt fence. From our perspective, though, it has to go a little further than that,” says Mike Leopold, senior project manager with Walton. “We tend to contact their clients and the contractors that they have worked for in the past to find out how good of a job they have done. We’re interested in finding out if they have incurred any fines from the EPA or state or local agencies.”
Walton is extremely careful when it comes to hiring erosion control professionals, not only for the company’s medical projects, but for any job Walton takes on that requires erosion control services.
“In the old days, erosion control wasn’t as much of a concern of companies,” Leopold says. “But recently with the new laws that have come into effect, the EPA has come down a lot harder on companies. There has been more attention paid to the erosion control industry.”
Healthcare projects have long been an important part of the mix of jobs that Walton takes on each year. The company, for instance, is now building a consolidated family care/troop medical facility at the Fort Bliss army base in El Paso, TX, and is currently building the Turner Center, a healthcare facility, in Springfield, MO.
Leopold says that erosion control measures on hospital and medical construction projects are similar to those associated with other construction projects. Walton officials, then, go through the same detailed process when they obtain bids from erosion control specialists.
“We offer a best value to our clients. We owe it to them to be thorough and to get the best people to do their projects,” Leopold says.
This extra scrutiny is fine for Miller. He’s worked in the construction field for 30 years, and has owned his company since the mid-1990s, when he and his younger brother purchased Miller Brothers from his father.
Gaining healthcare jobs is little challenge for Miller Brothers. Part of the reason is the company’s long list of healthcare projects it has taken on over the years. This experience puts general contractors at ease. Miller Brothers also boasts enough equipment-the company owns its own hydroseeding machines and vacuum tank-to demonstrate to potential clients that the company is professional enough to take on healthcare projects.
“We’ve been entrusted with local hospital work in the past,” Miller says. “We try to stay with the times. If there’s a bigger, better way of doing it, that’s what we go after. We may not be a big company, but we try to be one of the responsible ones. We take erosion control very seriously.”
