modeling risk in the real estate portfolio of healthcare institutions ir. i.h. gotink dr. j.j.a.m....
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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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
Broader view on real estate
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
3. Risk-identification
• Political factors• Economical factors• Social and demographical factors• Technological factors• Market developments
Modeling risks in the real estate portfolio of healthcare institutions
4. Risk Assessment
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
8. Monitoring
• Risk management is an ongoing process• Takes place in various orders• Dynamic portfolio tool
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare institutions
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
Modeling risks in the real estate portfolio of healthcare 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
Modeling risks in the real estate portfolio of healthcare institutions
Risk management is a necessary part of the transition from traditional housing management to strategic real estate management in the care sector.
Modeling risks in the real estate portfolio of healthcare institutions
Thanks for your attention