Modeling risk in the real estate portfolio of healthcare institutions

1. 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

2. Healthcare sector provides plenty of opportunities to real estate sector Healthcare properties, risky or promising? To a different vision on healthcare properties Investing in healthcare properties is no longer without risks

3. Modeling risks in the real estate portfolio of healthcare institutions • Content • Introduction: Dutch Healthcare sector • Risk and risk management • Risk management cycle as base for design of instrument • Case study • Discussion

4. 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 Nursing and care Mental healthcare Care Disabled care Homecare General practitioners Cure Hospitals Rehabilitation

5. Modeling risks in the real estate portfolio of healthcare institutions ‘Supply driven’ Transition ‘Market driven’ Coverage costs of capital related to production Coverage cost of capital related to building permit For the account of institutions Budget and costing Cure Care normative housing component WMO ZVW WTZi Gewijzigde AWBZ 2e kapitaal-lastenbrief 1e kapitaal-lastenbrief 2005 2006 2007 2008 2009 2010 2011 2012 2013 ZVW: Zorgverzekeringswet WTZi: Wet toelating zorginstellingen WMO: Wet Maatschappelijke ondersteuning AWBZ: Algemene Wet Bijzondere Ziektekosten 4

6. 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

7. Modeling risks in the real estate portfolio of healthcare institutions • Broader view on real estate Image Healing environment Efficiency Competition Effectiveness Flexibility Revenues Expenses Life cycle Supporting healthcare Healthcare properties Real estate as an added value + Covering risks and cost-effectiveness

8. 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.

9. Modeling risks in the real estate portfolio of healthcare institutions • Risk management

10. Modeling risks in the real estate portfolio of healthcare institutions • 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

11. Modeling risks in the real estate portfolio of healthcare institutions • 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

12. 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

13. Modeling risks in the real estate portfolio of healthcare institutions • 4. Risk Assessment 0% 100%

14. Modeling risks in the real estate portfolio of healthcare institutions • 5. Risk response • 4 Response strategies: • Tolerate • Treat • Transfer • Terminate

15. 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

16. 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

17. 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

18. 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

25. 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

26. Modeling risks in the real estate portfolio of healthcare institutions • 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

27. 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

28. 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. Thanks for your attention