Healthcare Generates Big Demand For Westchester Commercial Real Estate

Medical tenants are prescribing more space.

If you spot a construction crane anywhere in the county, it’s probably erecting a new medical office, research facility, or educational institution. The healthcare industry has a “monumental” effect on Westchester’s real estate market, according to Bill Cuddy, executive vice president of CBRE’s Westchester/Fairfield office. “The level of change that we are seeing is very exciting. It’s tantamount to the change we saw in the 1960s with the office market here, or the industrialization we saw in the early 1900s with Otis Elevator Company and General Motors,” Cuddy says. 

Landlords are refurbishing buildings to suit the burgeoning healthcare market while developers are tearing down old office towers to put up new ones designed expressly for medical tenants. No other segment of the commercial real estate market in Westchester comes close to the level of activity generated by healthcare today. 

“In part, it’s due to the migration of the major hospitals to Westchester County,” Cuddy says. The consolidation provides a broader funding base for facility development, staff expansion, and creation of ambulatory care networks covering a wider geography. “It’s also due to the fact that Westchester has a solid base of basic and clinical research enterprises in place,” he says. 

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The county, just like the rest of the country, also has an aging population that is the largest consumer of healthcare. Cornell University projects that Westchester’s 65-and-older population will grow at nearly four times the rate of the total population from 2010 through 2025. An influx of newly insured patients from the Affordable Care Act, estimated by WESTMED Medical Group’s President and CEO Simeon Schwartz to be as many as 50,000 Westchester residents, adds to the demand.

One of the biggest real estate market drivers is the explosive growth in ambulatory care—in which services are delivered on an outpatient basis. “One thing that has become clear is that healthcare is no longer an institutional business; it’s a retail business,” says Guy Leibler, president of Simone Healthcare Development, the healthcare real estate development division of Bronx-based Simone Development Companies. “At the hospitals, it’s not about inpatient care anymore; it’s about ambulatory. Those facilities really don’t exist in the hospital systems, so they are creating everything from urgent care to small medical office buildings.” 

The change is driven by healthcare end-users, too, according to Leibler. “Consumers want to get their healthcare then go to a restaurant—and I‘m not talking about a hospital cafeteria. We’re working with a lot of communities in Westchester to change zoning so healthcare and retail and restaurants can work together because they serve the way we live today,” he explains. Leibler’s firm is in active talks with a few Westchester towns about potential new facilities in mixed-use locations.

A prime example of the retail trend is WESTMED Medical Group’s 83,450-square-foot facility in Westchester’s Ridge Hill in Yonkers. The facility houses 195 employees right in the middle of the retailers, restaurants, and grocery stores at Westchester’s newest shopping destination.

New locations for the Mount Kisco Medical Group, ENT and Allergy Associates, Scarsdale Medical Group, and WESTMED have moved beyond the planning stages this year, while Westchester Medical Center is just starting to plan a 250,000-square-foot Ambulatory Care Pavilion that could open as early as 2017. Once approved, it will house many of the hospital’s ambulatory services, its growing physician groups, as well as other tenants.

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Repurposing of existing office space for medical tenants is reshaping the market as well. This spring, Long Island-based Benedict Realty Group acquired the 76,000-square-foot office building at 90 South Ridge Street in Rye Brook. Medical tenants currently occupy slightly less than half the building, and the company expects to convert the upper floor to medical space as soon as the current office tenant departs. 

While repurposing existing space can save time and money, it’s not always the best solution, according to Leibler of Simone Healthcare Development. “As a developer, we look first to repurpose an existing building, but sometimes it’s better to tear it down and build new,” he says. “Medical buildings are different from traditional office buildings. The traffic is much greater. You may need more elevators, more lavatories, and you are certainly going to need more parking.

“If you look at a traditional 100,000-square-foot office building on 10 acres,” Leibler adds, “it will probably have two elevators and 300 parking spaces. That’s not enough [for healthcare purposes]. I would probably knock down the building and put up a 75,000-square-foot building with 500 parking spaces and four elevators.”

Simone is putting the finishing touches on a $22-million building at 3030 Westchester Avenue in Purchase that has been fully leased by WESTMED. The 85,000-square-foot facility will house the group’s fifth full-service outpatient medical treatment facility providing primary and specialty care, clinical labs, and radiology. It’s the third building dedicated to healthcare tenants in the Harrison Executive Park on the Platinum Mile.

Not all the demand for healthcare real estate is for more treatment space, however. Centralized back-office operations are essential to the economies of scale necessary for large group practices such as WESTMED or sprawling networks like Montefiore Medical Center, which bought the 300,000-square-foot Kraft Foods building in Tarrytown last year. It will use about half the building for its own administrative and billing operations while leasing the remainder back to Kraft.

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Last year, ENT and Allergy Associates leased an additional 9,390 square feet at 560 White Plains Road in Tarrytown to bring its total to 23,445 square feet for its billing, HR, compliance, IT, and executive offices. The practice moved marketing, customer service, credentialing, and operations functions there as well. Part of the expansion will include a call center to service all of its 38 offices, stretching from New Jersey to Long Island. 

“When you think about the capital spending, the jobs, and the momentum in these fields in a holistic way,” Cuddy points out, “healthcare is really changing Westchester going forward.” 

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