Physician offices to serve as major tenants in "mall"

A California developer says his new project will be a mix of health care and retail, figuring stores can benefit from patient traffic.

By Tyler Chin — Posted Feb. 5, 2007

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In a twist on the traditional shopping mall concept, a real estate developer is opening what he calls a mall, in southern California, that will be anchored by medical offices whose presence will be used to lure retail businesses.

Providence Medical Center, a $50 million, 125,000 square-foot development in a suburban area of Fullerton, Calif., will be 70% filled by medical offices and 30% by retail stores, said Thomas LeBeau, chief executive officer of Accretive Realty Advisors Inc., a Newport Beach, Calif., company behind the project.

What is unusual about the project is that malls typically are anchored by a well-known department store, whose goal is to drive traffic to the mall.

The International Council of Shopping Centers, however, doesn't consider the project a mall because its retail component makes up a minority rather than a majority of the use, said Patrice Duker, a spokeswoman for the New York-based trade group.

Still, its mixed-use nature reflects a growing trend among new mall developments for the past year, Duker said. "We've seen some centers who have chosen to go the nontraditional route in regards to both tenant mix and also anchor tenants," she said. A handful of malls across the country have medical buildings in them, but not as anchors, she said.

But LeBeau said that's what he is doing. He said is pitching the project to retailers and doctors as a way to attract baby boomers who are "going to their physician more often not because they are unhealthy, but because they want to stay healthy."

LeBeau has pre-leased offices to physicians, including a dermatologist, a plastic surgery group and an ob-gyn practice. He also has signed up restaurants and beverage retailers and is looking to land other retailers.

Part of his sales pitch to both retailers, particularly restaurants, and doctors is that his development is 200 yards away from St. Jude Medical Center, which has more than 3,500 employees, LeBeau said.

LeBeau's strategy of using medical offices to attract retailers is unusual "if that's really his strategy, but I don't think it is," said Regina Herzlinger, professor of business administration at Harvard Business School in Cambridge, Mass. "I think his real strategy is to get a guaranteed source of payment by locating a building right next to the hospital."

LeBeau acknowledges he would not be doing the project if St. Jude Medical Center wasn't nearby. "The hospital is the economic driver," he said. "We have to be near the hospital. The medical drives the retail."

But whatever LeBeau's strategy is, Providence's mixed use reflects a continuing trend that "medicine is going retail," Herzlinger said. "Doctors are going to places where it's convenient to customers, and this is another manifestation of it."

It's the same strategy employed in the growth of store-based clinics, she said.

Signs of a trend?

While LeBeau is confident that the medical-retail project will be successful, developers of other medical office buildings aren't all rushing to include retail in their projects.

One naysayer is Michael R. Lombardi, president of Stonebridge Holdings Inc.

The Los Angeles developer is seeking approval to build two separate projects on 12 acres in the affluent west side of the city that includes Beverly Hills and Brentwood. He intends to construct a twin-tower medical office building on six acres. A residential, retail and commercial development will be on the remaining land.

Lombardi will not rent space in the medical building to retailers because in his view, that doesn't make economic sense. Medical buildings are much more expensive to build, given that they have to accommodate new technology and, in California, be built to stricter earthquake protection requirements.

"From my perspective, the ground floor is the most expensive space there is," he said. "I need that ground floor. I don't need to clutter it up with people selling merchandise."

Lombardi also doubts "healthy" baby boomers will be the ones coming to see their doctors. He is leasing to cardiologists, orthopedic surgeons and oncologists, among other specialists, and he figures most of the baby boomers visiting those doctors won't be in the mood to shop before or after their visits.

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