Modeling risk in the real estate portfolio of healthcare institutions Ir. I.H. Gotink Dr. J.J.A.M....

Modeling risk in the real estate portfolio of healthcare institutions

Ir. I.H. Gotink

Dr. J.J.A.M. Smeets

Ir. L.A.M.C. van de Ven

Healthcare properties, risky or promising?

Investing in healthcare properties is no longer without risks

To a different vision on healthcare properties

Healthcare sector provides plenty of opportunities to real estate sector

Content

• Introduction: Dutch Healthcare sector• Risk and risk management• Risk management cycle as base for design of instrument• Case study• Discussion

Modeling risks in the real estate portfolio of healthcare institutions

Introduction: Dutch healthcare sector

• Focus on mental healthcare sector• Diversity • Split between intramural and extramural care• Institution grounds versus buildings


Healthcare institutions

Care

Cure

Mental healthcare

Nursing and care

Hospitals

Disabled care

General practitioners

Homecare

Rehabilitation

5

Cure

Transition

2005 2006 2007 2008 2009 2010 2011 2012 2013

‘Supply driven’

Coverage cost of capital related to building permit

Coverage costs of capital related to production

Care

‘Market driven’

Budget and costing For the account of institutions

ZVWWTZi

Gewijzigde AWBZ

WMO

ZVW: ZorgverzekeringswetWTZi: Wet toelating zorginstellingenWMO: Wet Maatschappelijke ondersteuningAWBZ: Algemene Wet Bijzondere Ziektekosten

normative housing component

2e kapitaal-lastenbrief

1e kapitaal-lastenbrief


Changed legislation

Central supply-driven tot regulated market-driven• Integral performance funding (DBC and ZZP)• Normative housing component• Institutions become responsible for investment decisions

Results:• Incentives to increase effient use of real estate• Changed position of real estate within organization• Changed demand for the function of real estate


Broader view on real estate


Covering risks and cost-effectiveness

Real esta

te a

s a

n a

dd

ed

valu

e

+

Image

Healing environment

Efficiency

Competition

Effectiveness

Flexibility

Revenues ExpensesLife cycle

Healthcare properties

Supporting healthcare

http://www.gettyimages.nl/detail/6578-000016/Photodisc


Risk is the uncertainty that a negative effect will occur. Whereby the likelihood, the effect and the ability to influence determine the exent of risk.

Risk management


Risk assessment Chance, result, ability to influence

Risk response accept, reduce, assign and avoid

accept

reduce

avoid

assign residual risk

strategy

Objective setting

Control activities

Information & Communication

Monitoring

Event identification

Internal environment (risk attitude)

1. Internal environment

Risk attitude: risk averse, risk neutral and risk taking

3 categories: • Ability to take risks within the organization• Political climate • Economical climate


Very large (++) Undesirable

Large

threatening

Large (+)

Moderate (-)

Eff

ect

Small (--)

Acceptable

Normal

uncertainties

Small (--) Moderate (-) Large (+) Very large (++)

Likelihood

2. Objective setting

• Main goal is the supply of good health care• Real estate is supporting• Goal for real estate: being at least cost-effective on

portfolio level


3. Risk-identification

• Political factors• Economical factors• Social and demographical factors• Technological factors• Market developments


4. Risk Assessment


Type of risk Ability to influence Class

Acceptable + Safe

O Safe

- Safe

Normal uncertainties + Low

O Low

- Middle

Undesirable + Middle

O Middle

- High

Large and Threatening + High

O High

- Fatal

Safe Low Middle High Fatal

0% 100%

5. Risk response

4 Response strategies: • Tolerate• Treat• Transfer• Terminate


6. Control activities

Database with control measures is no solution, because managers must become aware of risks

7 criteria for control measures:• Appropriate• Affordable• Actionable• Achieveble• Assessed• Agreed• Allocated• Accepted


7. Information and communication

The instrument:• Provides insight in current state of real estate portfolio• Applied by managers real estate, finance and healthcare• Outcome submitted by management team for validation


8. Monitoring

• Risk management is an ongoing process• Takes place in various orders• Dynamic portfolio tool


Risk management instrument and case study

• Instrument built up going through 8 steps of ERM-model• Case study at Emergis, institution for mental health care


Case study

• Test of design, descriptions and relation literature and applicability• Test on selection of buildings

• Power to distinguish main risks and riskiest properties• Rented properties show significantly lower scores• Clear differences in scores that match the state as known by

Emergis


Very large (++) Undesirable

Large threatening

Large (+)

Moderate (-)

Large threatening

Undesirable

Effe

ct

Small (--)

Acceptable

Normal

uncertainties

Small (--) Moderate (-) Large (+) Very large (++)

Likelihood

Conclusion

• Complementary in the process to get a grip on real estate portfolio

• Most important risks and properties with highest risk can be discovered

• Response strategies can be connected to risks • Risk score is input for portfolio strategy and real estate

strategy• Benchmark: between buildings or institutions


Discussion

• Instrument focuses on risk identification and risk assessment, subsequent step extend risk response and control steps

• Risk assessment by using quantitative methods• Risk identification for rented properties


Risk management is a necessary part of the transition from traditional housing management to strategic real estate management in the care sector.


Thanks for your attention

Modeling risk in the real estate portfolio of healthcare institutions Ir. I.H. Gotink Dr. J.J.A.M....

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