Re: small hospital conversion - Posted by ray@lcorn
Posted by ray@lcorn on September 19, 2005 at 15:06:10:
Alex,
The income/expense numbers look okay, but they’re projections and I have no way of knowing if the market will support your rent level and lease-up time frame (carry cost). Assuming you’ve done the requisite research and are comfortable with the market demand, then turn your attention to making sure you’ve got accurate renovation numbers.
Those look low at $10T per unit. A pure guess on my part would be at least $25T per unit, but much depends on the configuration of utilities, HVAC, ingress/egress, etc. I’d get a qualified contractor to give me an estimate based on unit sketches, general finish requirements and as-built drawings of the existing building.
A major component of cost will likely be asbestos. Anywhere you’re doing demolition or renovation that disturbs the tile, insulation or wherever it is, remediation and removal will be required. A hospital could have a whole menu of additional environmental issues, so be sure to get a full environmental survey, at least a Phase II that includes sampling and testing.
Last but not least, be sure to check the present zoning. If the current zoning district is specifically for a hospital, you’ll want to condition the purchase on getting the proper zoning for the mixed use (residential and commercial) you contemplate. Be sure to include the whole 9 acres.
I like the idea for the day care incorporated in the operation, however I hope you’ve got someone to lease it and operate it. The licensing and operations can be a royal pain.
On a similar note, I saw an item in the Wall Street Journal last week about an LA apartment owner using space for school tutoring… here’s the blurb, (from Sept 14, WSJ, Plots and Ploys)
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Home School
While apartment owners long have found value in sprucing up elevators or lobbies to attract residents, a Los Angeles firm is finding profits in a far more basic tenant need: helping to teach their residents’ children to do better in school.
Developers Joe Killinger and George Pino own five apartment buildings in Los Angeles’s Baldwin Village neighborhood, and a majority of their tenants live below the poverty line. A year ago, they opened a tutoring center for 28 kids in two of the buildings, and since then, their maintenance costs have fallen and the buildings are now fully rented.
“We have waiting lists for all of our apartments,” says Mr. Killinger, chief executive of real-estate investment firm Learning Links Centers.
The partners started the program by converting an apartment into classrooms, offering two teachers reduced rents in exchange for helping tutor residents four afternoons a week, and persuading local businesses to donate computers and software.
By this spring, they found they had filled all of the apartments in a building whose vacancy rates used to hover at 3% to 6%. They also found residents were patching up leaks and shooing away loiterers from the area who previously had left graffiti on buildings. The program’s $20,000 start-up costs quickly have been covered by $36,000 in gains from reduced maintenance costs and increased rental income.
Learning Links executives are licensing the program, trying to introduce it to a national audience. They are advising a San Francisco landlord about adopting this plan in a 1,100-unit complex. They are looking for investment partners to buy buildings and establish the tutoring programs in Baltimore, Dallas and Brooklyn, N.Y.
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best of luck,
ray