Cost to Build: Sample 2-OR ASC

Written by Stephanie Wasek | August 20, 2008

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Usually running about $1 million per OR, a small, single-specialty center with two surgical suites ranges from $2 million to $3 million, with larger-multispecialty ASCs costing $4 million to $8 million, according to calculations provided by Meridian Surgical Partners, which partners with physicians seeking to develop new ASCs in addition to acquiring interests in existing physician-owned facilities.

See the chart below for an analysis from a sample project: Design and construction makes up the single greatest cost, followed closely by capital expenditures to outfit the facility after it's built.

"One aspect of the project summary not included here is the land-use portion, which captures the cost of the real estate, the shell building and typically a tenant improvement allowance for interior construction," says Kenny Hancock, president and chief development officer of Meridian. "Those TI (tenant improvements) can range from $25 a foot to $40 a foot, though land-acquisition construction costs will vary widely depending on what part of the country you're in."

Typically, the majority of the costs associated with development, including the tenant improvements and surgical equipment, may be leveraged with debt.

"The need for equity is isolated to working capital — typically four to eight months' startup operating expenses totaling at least $1 million to $1.5 million," says Mr. Hancock. "The investment ranges from $10,000 to $15,000 for a 1 percent interest in the partnership plus assumption of pro-rata debt dependent on debt structure."

Thorough analysis of historical data and strong, realistic projections will help your cause during the current tightening of the credit market.

"You're not going to be able to get a deal financed right now," says Mr. Hancock. "Most of financing is going to require individual guarantees beyond equity, a minimum amount of cash raised and a strong, vetted financial feasibility analysis. Some of those guarantees may burn off after perhaps two years if the center hits pre-specified cash-flow targets.

"There are still lenders that can handle a certain level of debt and want to loan that money, but something that was marginal before and got financed probably would not now."

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