Nursing home project

Paulbut2000

Hi, I'm hoping somebody can help me out here. I am doing a project for college which is a residual valuation for the purchase of a site in navan and construct a 72 bed nursing home on it, to let it for 10 years when complete.

I am stuck on the rate for leasing the property, there is very vague information about this. A rough rate would do me, maybe per m2 or per bed.

Also what is the average construction cost of a nursing home? Bruce shaw report 2012 says €1659/m2 but this seems very high.

Hope somebody can help.

Peterdalkey

Bruce Shaw number looks about right for greenfield build to me. After that it is simple maths!!

Paulbut2000

Cool thanks, I was hoping it was wrong because the residual value just ain't working out for me, key figures I have are: yield 10.5%, rent €90/m2 , interest rate 10% and construction costs €1650/m2. The size of the home is 4,800m2 gross. The site costs €850,000 but the residual value comes out at around minus 6 million. Not a clue what I'm doing wrong.

GDV= 3,591,771
Cost plus profit= 11,105,977
Site value= 6,169,040

Any idea what I'm doing wrong?

Peterdalkey

of course the residual is going to be above 6Million, you are only collecting just over 4M in ten years in rent and Cap ex is the bones of 9M!! excluding VAT, prof fees etc etc.

Paulbut2000

So does that mean a nursing home is not a viable business ? If you exclude the current economic situation I heard that nursing homes are a lucrative business. I need to show a profit for my project. Putting the rent to €255/m2 is the only way to show profit and reduce the building rate.

Peterdalkey

Paulbut2000 wrote: »

So does that mean a nursing home is not a viable business ? If you exclude the current economic situation I heard that nursing homes are a lucrative business. I need to show a profit for my project. Putting the rent to €255/m2 is the only way to show profit and reduce the building rate.

In the boom they were very attractive but only to investors due to the huge capital allowances on new builds!! It is a very tough business indeed and quite a number of them have gone bust including some of the big groups. You cabn buy then for less than 50% of the cost of construction and still no takers!!

Peterdalkey

this sums it up nicely http://www.independent.co.uk/news/uk/home-news/who-owns-the-care-homes--and-why-are-they-so-in-debt-8281273.html

Paulbut2000

Ok thanks for that info, might show how nursing homes are not a good investment so!

searay

Paulbut2000 wrote: »

Cool thanks, I was hoping it was wrong because the residual value just ain't working out for me, key figures I have are: yield 10.5%, rent €90/m2 , interest rate 10% and construction costs €1650/m2. The size of the home is 4,800m2 gross. The site costs €850,000 but the residual value comes out at around minus 6 million. Not a clue what I'm doing wrong.

GDV= 3,591,771
Cost plus profit= 11,105,977
Site value= 6,169,040

Any idea what I'm doing wrong?

In your example, the home is approximately 50,000 square feet for 72 beds. I don't have the HIQA guidelines to hand to check but I think the size is too large by a significant factor. This impacts on rent and running costs. You should check this with an operator as to whether or not it's a good design or and if there is excessive common areas.

shancox

i have dealt with NHI (nursing homes Ireland) in the past and found them great to deal with, im sure if you emailed them a question they would get back to you or at least point you in the right direction! A cheaper novel alternative you could look at is leasing a hotel then was closed due to the recession, they have practically all the facilities required and leases may be cheap!

flash100

Hi Paulbut,

I am wondering how you are getting on with your project in relation to the nursing home research.