Surgery Centers are once again in the forefront of healthcare real estate investment discussions. The reason can be viewed simply. Investments from hospitals and fully leased medical facilities did not come to market as originally thought when the recession and health care reform were making everyday headlines and curtailing growth plans for the entire sector. So, as shareholder interest began to subside, and as capital burns holes, investment interest is moving back into this unique sector of real estate.
Thus, developers are actively searching for physician-investors to initiate (or complete) their thoughts of participating in a surgery center investment. This is exciting news for the building industry, most of which have gone unnoticed for a several years. But issues are still abound, especially with building costs relatively unchanged since 2008. So, the costs of building are still somewhat prohibitive and have been one of several factors that have kept some on the sidelines. But, with investors willing to pay a greater amount than the structure is worth, some looking for strategic partnerships prior to building, this sector is receiving a great deal of interest from investors.
A surgery center, shell and interior, can be between $150 per square foot to as much as $300 per square foot, let alone land costs. Any addition or reduction from the initial construction estimate could severely impact physician interest. For example, if 1,000 square feet was necessary for an additional operating room to assist a few physicians, $150,000 to $300,000 in additional construction costs would be necessary, not to mention additional operating costs. Designs have been going back to the drawing board in many situations and any addition or reduction in square footage could cause a change in the function of the building, especially for a fragile physician base that is concerned about future business profits.
Building New or Existing
There are some advantages and some disadvantages when building on a completely new construction site. For example, if you select a previously constructed building, the architect will have existing structures which may somewhat limit the facility design, but, conversely, all site development work will have been done and paid for, and construction time may be substantially reduced. In the flip side, retrofitting existing structures can reduce construction costs but prove devastating if due diligence and architectural redesign are not performed properly.
Standards of Construction
Those who have not previously developed Ambulatory Surgery Centers typically will find that ASC construction is the not the same as medical office building construction. In fact, the two types of structures are fundamentally and structurally different. And, because of the potential life-safety concerns, a single city inspection is becoming replaced by multiple inspections at the city, state, and federal levels.
On the federal level, a limited amount of construction data may be found in the Code of Federal Regulations-Ambulatory Surgical Services. We find that most consider the “Guidelines for Design and Construction of Hospital and Health Care Facilities,” produced by the American Institute of Architects, the standard-bearer for construction of ASCs.
When a layman performs an online research on construction standards for Ambulatory Surgery Centers, unfortunately, they will find little uniformity among the states. Some states have no regulations regarding Ambulatory Surgery Centers, while other states have quite lengthy regulations which include facility standards. Some states have adopted national construction codes and include a virtual itinerary of codes for ambulatory surgery center construction.
Often we tend to think of a construction team simply, beginning with a general contractor, when in fact the surgery center team consists of several more contributing members. The architect, the engineer, and on occasion, structural and civil engineers will play a role in surgery center development. The cost for each of these team members may increase the overall construction costs, but is likely necessary component to a fully functional facility. An ASC is a complex facility which requires special attention and experience on the part of the entire design team.
When selecting a contractor, always search for one who has performed similar medical projects, preferably Ambulatory Surgery Centers. It is essential to verify the references of your general contractor, AND that of the proposed subcontractors to ensure they meet healthcare requirements. The construction process can be a lengthy process, and at times uncomfortable, so be careful when selecting a relative or acquaintance as your contractor. The point person on your project should be the construction superintendent and not necessarily a good friend.
This post is an abbreviated version of an entire article written by Robert S. “Bob” Lowery. For the complete article, please contact our office or your local Texas MREA representative.