Member and Industry News

June 26, 2011

Developer rosy on medical mart (Tennessean)

Developer rosy on medical mart (Tennessean)
by Getahn Ward, The Tennessean | Jun 26, 2011
By now, the developer of the medical mart planned for downtown expected to have started work to transform the Nashville Convention Center into potentially the world’s first medical trade center.

By now, the developer of the medical mart planned for downtown expected to have started work to transform the Nashville Convention Center into potentially the world’s first medical trade center.

Instead, only a handful of leases have been signed within the more than a year since Dallas-based Market Center Management Co. began marketing space to health-care companies at its Nashville Medical Trade Center, which is essentially a business-to-business medical marketplace. That leaves the developer far away from its internal goal of leasing 60 percent of the planned space before dirt can move.

But no worries as the project remains on track, insists Bill Winsor, Market Center’s chief executive, who has nearly 30 years of experience developing marts to target industries including information technology, fashion and interior design.

The developer never expected lease signings overnight, given the newness of the mart concept in health care and a lengthy sales cycle that involves discussions with multiple divisions of the targeted companies, he said.

“Real estate is basically a location and a price decision,” Winsor said. “This is a decision about marketing, selling and positioning your product, and establishing a brand. Our view is that over the next 90 days to six months, we’ll see announcements that will pull this thing further.”

Metro Nashville government, the city’s signature health-care industry and developer Market Center itself all have stakes in the success of the project, which will add eight floors atop the convention center at Lower Broadway for year-round showrooms for manufacturers of medical products, technology and distributors, trade shows and conferences.

For Metro, the mart provides a user for the building that fits with its obligation to continue operating a conference center at that location through 2017. Health-care leaders expect success of the project to further boost Nashville’s reputation as a national health-care hub. Market Center has a reputation to uphold as a respected operator of marts on three continents. They include Dallas Market Center in its hometown, the world’s largest wholesale merchandise mart showcasing apparel, gifts, home and garden furnishings, lighting, and floral and gourmet products.

Industry leaders wooed

Market Center began its marketing efforts with a simple focus: Attract an industry leader in each targeted health-care segment, and the other key companies would follow.

The recent signing of health-care furniture maker Nurture by Steelcase to take at least 4,000 square feet of space and anchor a floor in the mart dedicated to furniture and accessories fits that strategy, Winsor said.

Armed with that commitment, the mart’s developer held more than 20 meetings the following week with contract design and health-care furniture suppliers during a major industry trade show in Chicago. Several asked for proposals with information on lease rates, details on specific locations in the mart and potential duration of the lease.

In some cases, Winsor said, Market Center has had to be flexible in negotiating terms. Nurture by Steelcase, for instance, could still expand after more closely assessing how much space it needs.

Discussions with the Grand Rapids, Mich.-based unit of giant office furniture manufacturer Steelcase Inc. took at least a year. Nashville’s reputation as a health-care hub, central location, and key Nurture by Steelcase clients such as HCA and Vanderbilt University Medical Center played a role in the company’s decision to put a showroom here, said Michael Pflughoeft, its spokesman.

Herman Miller Healthcare, another major player in health-care furniture, has watched developments in Nashville and Cleveland – where a rival, but smaller, mart project is under way – but hasn’t decided whether to lease space, spokesman Mark Schurman said.

“In and of itself, a single announcement is not a driver,” he said. “But it’s certainly not a negative indicator. To the extent that any facility creates a critical mass of health-care-related infrastructure that would be presumed to be a draw for the health-care industry, that is a factor that we would need to consider.”

As a market leader, Schurman said, Herman Miller has to weigh pros and cons of adding its presence to a venue where its competitors would have showrooms. The company hosts several hundred customers a year at a new multimillion-dollar showroom at its western Michigan headquarters and also has regional showrooms plus a network of distributors for its products nationwide.

Cardinal Health Inc., the Dublin, Ohio-based distributor of medical supplies and pharmaceuticals that previously had committed to a similar project planned for New York that was put on hold, has had a change of heart about marts.

“Our customers have made it clear to us that they prefer our continued participation in industry trade shows and events that they’ve come to know and respect,” said Corey Kerr, spokeswoman for Cardinal, which doesn’t plan to lease space at either the Nashville or Cleveland marts. “It’s important to maintain personal interaction with our customers in locations that are convenient to them.”

The developer of the Nashville mart has used feedback from its interactions with potential tenants to improve its plans, Winsor said. An example is inclusion of cadaver and simulation labs in the mart’s education and training center, based on feedback from medical device prospects.

Counting leases Market Center already has and those in the hands of potential tenants for review and signing, the Nashville mart would have more than 20 percent of its space reserved, Winsor said. Other signed tenants include Healthcare Information and Management Systems Society, a trade group that runs the world’s largest health-care IT exhibition. Winsor expects the group to draw up to 100 companies to its health IT innovation center, where vendors can demonstrate interoperability of their products.

Developer Market Center is seeing strong interest from overseas companies that consider the mart as a potential entry point to the U.S. market, Winsor said. To meet such needs, the local mart includes a permanent showroom for health-care products from China and a global business development center to assist international companies seeking to enter the U.S. health-care market.

“We hear this whether we’re in Düsseldorf (Germany) or Shanghai: Nashville is a natural health-care destination in the U.S.,” Winsor said, citing the city’s accessibility, low cost of doing business, and reputation for being business-friendly.

“The health-care industry is here to stay. It’s very complex, and trade show costs are spiraling for exhibiting companies. What we’ve developed here is to address that, essentially to give them a destination and make Nashville the headquarters for marketing and sales of health care.”

Economy is obstacle

One challenge for Market Center is that the company is pursuing leases at a time when businesses are watching real estate expansions and marketing spending amid a sluggish U.S. economy.

“Momentum and being able to tout signed leases or letters of intent is very important,” said Michael Hughes, managing director for research and consulting at Red 7 Media LLC, who is based out of Scottsdale, Ariz.

With margins under pressure across health care, marts like the one planned here, however, could be viewed as an alternative channel for connecting buyers and sellers in the health-care industry and helping to reduce costs, said Paul Keckley, executive director of the Deloitte Center for Health Solutions in Washington, D.C.

“Capital budgets are shrinking, and consolidation within sectors means more purchasing power in fewer hands,” he added. “So the medical mart is a parallel to auto, fashion and other industries that have adopted newer models of marketing.”

An overall bright spot for the mart industry is that convention and trade show producers across many industry sectors, not just the medical niche, see total attendance growing by 7 percent this year, according to data from Red 7 Media. Medical and health-care conventions and trade shows account for roughly 10 percent of the overall market in terms of total number of events, Hughes said.

Although the Nashville mart has a global focus, winning support from local industry players such as hospital chains and government officials is key to success of the project, said J.B. Silvers, professor of health systems management at Case Western Reserve University in Cleveland, which has a commitment to space at the mart under way there.

City has obligation

Closer to home, Metro Nashville government has much riding on success of the mart. That’s because until 2017, the city is obligated to operate a conference center at the Nashville Convention Center location under terms of a 30-year lease with the attached Renaissance Nashville Hotel.

Richard Riebeling, Metro’s finance director, said a master lease would be signed for Market Center to take over the current convention center location once the developer signs enough tenants and becomes comfortable moving forward with the mart.

“We knew going into this that this was going to be a lengthy process because it’s a new model or concept,” he said. “We remain optimistic that that mart is going to be a successful development.”

Among signs of city support, Mayor Karl Dean has made calls to potential mart tenants on the developer’s behalf and has attended meetings with prospects, Riebeling said.

If the mart project failed, the city would look at all of its options for the convention center site to prevent it from becoming dormant once its replacement, the Music City Center, opens in 2013.

The Renaissance Nashville’s owner, Ashford Hospitality Trust Inc., for instance, supports the mart but alternatively might have interest in the convention center space, Riebeling said.

“That’s always a possibility,” he added. “They would have the biggest interest because of their ownership of the hotel, which is connected.”

James Weaver, a partner at the Nashville law firm of Waller Lansden Dortch and Davis, who works with developers and property owners, expects the site to draw much interest if it becomes available.

“It’s a very interesting site,” Weaver said, citing its proximity to venues including Bridgestone Arena and Ryman Auditorium. “If they can’t get this done, you’ve still got a really valuable property.”

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