Owners of the Year

Health Care in the Pink, Even if Construction is Blue

By Craig Barner

Dr. Construction will see you now, Chicago.

Like an ailing patient, construction in the Windy City has been groaning about the sluggish economy, tight credit and declining activity.

But sighs of relief are starting to be heard, thanks to doctors’ orders: copious doses of construction.

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Chicago saw a quadrupling of starts in health care last year, to $2.96 billion, according to McGraw-Hill Construction, of which Midwest Construction is a unit. In fact, health care alone accounted for 17% of all construction in the region, a huge chunk of activity in just one segment.

Because of the vast amount of activity, Midwest Construction is naming the city’s health care providers as a group the 2009 Owners & Developers of the Year.

“Thank God for health care,” says Richard Tilghman, senior vice president of Chicago-based contractor Pepper Construction Group. “If we didn’t have the level of health care we have, we’d be singing a different song. Other markets aren’t doing so well.”

Explosion of Work

Just a year ago, health care accounted for only 3% of work when starts totaled $657 million. Health care has averaged slightly more than a half-billion dollars of work for the past five years—certainly, a tall amount of work but nothing like the Himalayan heights of nearly $3 billion.

Chicago dominated New York ($1.1 billion) and Los Angeles ($426 million) despite those cities’ greater populations, according to the data. More broadly, Illinois was No. 2 in the nation in terms of square footage of new starts after Texas.

At $450 million, the Elmhurst Memorial Hospital is one of the major health care projects in the Chicago area. (Photo by Gilbane Building Co.)

The Windy City had 204 total starts in health care, ranging from alterations to medical and dental clinics costing in the thousands of dollars to the $1-billion Ann & Robert H. Lurie Children’s Hospital of Chicago in the city’s Streeterville area. Chicago had three of the 10 biggest individual starts nationwide, comprising the $617-million Inpatient Care Facility at Rush University Medical Center on the city’s West Side and the $450-million replacement Elmhurst Memorial Hospital in the western suburb, in addition to Children’s.

Other major projects that started earlier but are still under way include the replacement $310-million Sherman Hospital in Elgin, the $250-million Patient Care Addition at Northwest Community Hospital in Arlington Heights and the nearly complete $225-million patient tower at Advocate St. Luke’s in suburban Park Ridge.

And, like a big bottle of aspirin, a seemingly endless supply of projects continues to be announced when they are needed in an ill economy. Jobs starting since New Years or expected later in the year include:

• The $700-million New Hospital Pavilion on the West Campus (medical) of the University of Chicago on the South Side.

• The $400-million replacement Silver Cross Hospital in south suburban New Lenox.

• The $100-million expansion of Glenbrook Hospital in north suburban Glenview.

Mick Zdeblick, vice president of campus transformation for Rush, says he has seen this level of activity only once before in 15 years of health care management: California in the 1990s. Back than projects aplenty were under way in health care, many at hospitals to meet building-code requirements for earthquake resistance.

“That cycle has come to the Midwest,” Zdeblick adds.

Why Hospitals are Building

The reasons behind the explosion locally are different, with age of facilities a key factor.

“At Rush, some of the buildings we’re trying to get clinical activity out of were completed in the 1890s and early 1900s,” Zdeblick says.

Others were completed in the 1950s and 1960s, but they also are outdated compared with those of other care givers. The $1-billion program at Rush involves an 820,000-sq-ft bed tower, five-story ambulatory care building, power plant and other elements.

Other executives concur that facilities’ age is a greater concern in health care than in other businesses because it impacts care.

“There are surgeons capable of doing microscopic and robotic surgery,” says Greg Werner, vice president and general manager of Minneapolis-based M.A. Mortenson Co., a joint-venture partner on the 23-story Children’s project with Schaumburg-based Power Construction Co. “If they don’t have a facility with the technology, they are unable to deliver a higher level of care.”

Pepper’s Tilghman adds: “If a new medical technology is developed, health-care providers need to have it because doctors want to use it. If the hospital doesn’t have it, they’ll send the patients to another hospital.”

Packed with high-end imaging devices, medical gases and other technology, hospitals’ building systems also change rapidly, forcing facilities managers to keep up.

For instance, less than 10 years separates the completions of two buildings on the Streeterville campus of Northwestern Memorial Hospital, the main hospital building with Feinberg and Galter pavilions (May 1999) and the Prentice Women’s Hospital (October 2007).

“The technological capabilities of the two are fairly different,” says Jim Bicak, senior vice president of facilities for NMH. A number of technologies came into being or were perfected in the intervening years, including wireless communications, interactive building controls and interoperability systems.

Beyond technology, design improvements in other areas also explain why hospitals are building. Bruce Komiske, chief of new hospital design and construction for Children’s, says virtually all rooms in new hospitals are private, and they are often large enough and well appointed with amenities so that family can spend nights comfortably.

“Sharing rooms with other patients and the small rooms [in old hospitals] are not appropriate anymore,” he adds.

Hospital Know-How

Indeed, the building savvy of hospital executives appears to be high among all buyers of construction services.

Planning is long term and often centers on cost control, phasing, technical issues and scheduling.

“In some of the large hospital projects, the preconstruction goes on for a year, sometimes longer,” Tilghman says.

Because of the complexity of these issues, hospital owners say they consider qualifications, staffing and experience—not just low cost—when selecting a contractor. The Chicago area is fortunate to have a number of contractors who focus heavily or partly on the area, including Gilbane Building Co., Turner Construction Co. and Walsh Construction, in addition to Mortenson, Pepper and Power.

“All our contractors were prequalified,” says Gene Farb, director of facilities management for the 866,000-sq-ft Elmhurst project where Gilbane is serving as the contractor. “We looked at contractors with the right experience and presence in the area. Once we had that, the cost fell into place.”

Though fortuitous, the timing of the hospital boom is benefiting owners due to lower fees than would have been the case just a year or more ago.

Children’s is halfway through bidding its project, and “we’re seeing prices 5 to 10% different than what we thought fees would be,” Children’s Komiske says. “It’s a good situation now.”

But even with the cost advantage, projects are being delayed because of the ability to obtain bonds to finance the work.

“I’m hopeful that at the end of 2009 and beginning of 2010 bonds will be easier to get,” Tilghman says. “Because of the delays in some projects, people will say that they can’t delay anymore.”