3 min read April 2024 — In an interview with Invest:, Brannen Edge, president and CEO of Flagship Healthcare Properties, discussed the company’s recent achievements, strategic focus on the outpatient healthcare sector, the advantages of being headquartered in Charlotte, and how technology and AI are shaping their services. “The goal is to automate more routine, less impactful tasks with AI, thereby allowing our team to focus on tasks that add greater value to our clients and our business,” said Edge.
What has been keeping Flagship busy over the past year?
A few months ago, at a senior leadership meeting, I introduced an agenda item that piqued the team’s curiosity: a series of zeros. This was significant because, over the past year, Flagship achieved three major milestones. Firstly, we surpassed 100 employees, with our current count at approximately 111 across the Flagship network. This achievement accounted for two of the zeros in my presentation. Secondly, our Real Estate Investment Trust (REIT), the vehicle through which we acquire and manage long-term outpatient healthcare properties, now encompasses 107 assets. This milestone added two more zeros to our discussion. Lastly, the combined value of these 107 properties has exceeded $1 billion, bringing a few more zeros into the mix. Despite the slower market conditions attributable to interest rates and inflation, these milestones highlight our continued growth.
How are you adapting your services to meet the evolving needs of healthcare decision-makers amid challenges in the sector?
Flagship maintains a focused and deep engagement with the clinical outpatient sector, steering clear of in-patient locations (those requiring an overnight stay component) and concentrating exclusively on outpatient facilities. This strategy aligns with the shift in care delivery from hospitals to outpatient settings, which offer greater convenience, cost-efficiency, and outcomes. These settings allow healthcare providers more flexibility in staffing, procedures, and building utilization, adapting swiftly to their needs. We support this transition by providing capital to healthcare providers, empowering them to unlock the capital tied up in their real estate and allowing them to concentrate on their core mission of delivering care.
What strategies have been key to achieving growth under the current economic landscape?
In 2021 and 2022, Flagship experienced record investment levels, reflecting similar volumes of business and investment dollars. However, 2023 saw a significant downturn, with our real estate transaction volume dropping by about 60%, a trend consistent with the broader healthcare real estate sector. This decline was influenced by higher interest rates, which complicated financing and affected real estate valuations. Our approach has been cautious; we have not focused on pursuing growth for its own sake or on overpaying for assets.
Despite the reduced deployment of capital into real estate in 2023 and continuing into 2024, other areas of our business, such as property management and engineering, have experienced substantial growth. We manage over 100 buildings within our REIT and provide services for an additional 200+ buildings owned by others, including public REITs, physician groups, individual investors, and healthcare systems. This diversification has kept our business robust, even as the investment landscape has shifted.
Our service offerings haven’t slowed down, even with higher interest rates. Healthcare providers still require well-maintained facilities to ensure not only the delivery of medical care but also a positive physical environment for patients and staff. Although we don’t directly engage in healthcare delivery such as treating patients or performing surgeries, we contribute significantly to the healthcare experience by ensuring the real estate aspect is top-notch. This approach has been crucial in navigating the challenges presented by the current economic conditions.
Considering Flagship has a footprint beyond Charlotte, what are the benefits of being headquartered here?
Flagship chooses to concentrate our investment activities in the Southeast and Southern Mid-Atlantic regions, largely because Charlotte exemplifies the advantages of these areas. Our headquarters in Charlotte benefits from a reasonable cost of living and excellent weather, complemented by top-notch healthcare providers and a wide range of choices for consumers. Its location offers proximity to both the coast and the mountains, attracting a diverse population from across the country, including a significant influx from other regions.
Charlotte is particularly appealing not just to young professionals starting their careers but also to the 65-plus demographic, which is relocating here at an even faster rate than the overall population growth. This was somewhat surprising but understandable, given the draw of being closer to family, as well as the allure of the climate, cost of living, and healthcare benefits. Many are moving from densely populated, higher-cost, and higher-tax areas to enjoy what Charlotte and the surrounding regions have to offer.
How are you leveraging technology and AI to enhance your services?
We’re just beginning to explore the potential of AI and its impact on our operations. I believe AI holds significant potential to enhance our efficiency, especially in how we manage our processes. For example, I’ve scheduled a discussion with a colleague in the real estate sector to understand how they’re leveraging AI to improve customer service, particularly in handling tenant maintenance requests. At this stage, we’re cautiously exploring AI’s applications but have not yet fully integrated it into our operations.
I view AI not as a replacement for our workforce but as a tool to reallocate our human resources towards more value-added activities. The goal is to automate routine, less impactful tasks with AI, thereby allowing our team to focus on tasks that deliver greater value to our clients and our business. This approach aims to streamline operations and enhance service quality, rather than reducing the size or importance of our team.
What is Flagship’s focus and future direction within the outpatient healthcare sector?
Our commitment to the outpatient healthcare sector is poised to deepen further. Last year, the United States saw approximately 65 million surgeries, with about 65% of these occurring in outpatient settings. This trend marks a significant shift from three decades ago when surgeries like knee procedures, tonsillectomies, or rotator cuff repairs would have required a hospital stay. Nowadays, such procedures rarely require an overnight hospital stay, indicating a continued rise in outpatient care.
One trend that even began before the pandemic — but was certainly accelerated by it — is the increasing financial strain on health systems. Factors like soaring labor costs, the relentless pace of technological advancement, and the rising expenses associated with protecting consumer data are squeezing operating margins. Consequently, we anticipate that more health systems will choose to monetize their outpatient healthcare real estate. This strategy allows them to reallocate resources towards their core mission of delivering care, while real estate experts manage the property aspects.
We’re actively raising capital to seize these opportunities and enhance our partnership with healthcare providers. By offering capital and real estate expertise, we enable healthcare professionals to focus on what they do best: caring for patients.
What are your top priorities to ensure continual growth in the next few years?
Our mission centers around providing exceptional stewardship and outcomes for all involved in healthcare real estate, including tenants, patients, investors, and employees. Our primary goal is to ensure our services and actions consistently align with this mission, delivering the results our clients expect.
Our second priority is to create a supportive and positive workplace culture that fosters employee satisfaction and growth. We recognize that fulfilled employees are crucial to providing outstanding service, which directly impacts tenant satisfaction and retention, thereby securing investor returns.
Acknowledging the vital role our employees play, we prioritize their well-being to ensure they can effectively support our tenants and investors. This approach is key to achieving our mission and maintaining the success of our business.
How do you anticipate Charlotte’s role in the medical world evolving and growing in the coming years?
Charlotte is on the brink of a significant boom in the medical sector, driven by existing healthcare expertise and the development of new facilities such as the Pearl and a medical school. These initiatives will not only train future physicians but also draw companies, technology, jobs, and talent to the city, fostering widespread growth and innovation.
Recent real estate activities, such as Vanguard’s acquisition of Centene’s campus, showcase Charlotte’s appeal to major corporations and its potential as a healthcare hub. These moves bring both financial and human capital to the city, supporting and expanding the community’s investment.
With a strong foundation of companies already recognizing Charlotte’s business value, the city is set to attract even more prestigious firms. The combination of educational advancements and corporate investments highlights Charlotte’s growing importance in both the medical and corporate arenas. It’s an exciting time for Charlotte, and Flagship is eager to contribute to this promising future, confident in our perfect positioning.
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