Nursing Home Construction Cost – What Are the Drivers?

Nursing home construction cost calculations and considerations

“What are some key drivers for nursing home construction cost?”  It’s a question we get asked and a good one to ponder.  With current California skilled nursing construction costs in the $200-$210 per square foot range, it’s no wonder that nursing home providers are paying close attention to factors which drive nursing home construction costs.  While this post may address nursing home construction cost, our discussion is also applicable to assisted living construction costs and long term care construction in general.

Okay, so you’ve decided make that leap into nursing home construction.  There’s plenty of things to be concerned about but cost must be one of the top items on your mind.

Nursing home construction cost considerations

Financing

It seems intuitive that financing options will affect your expenses, but how does it have an effect on nursing home construction cost?  If you choose to pursue financing through governmental means (such as the HUD 232 program) you should be aware that you will be required to comply with prevailing wage (Davis Bacon rates).  Depending on your geographic area, this can tack on as much as 30% to your costs.  Of course, there are many advantages to these programs and as an owner, you must weigh these factors before making your decision.

Your Design Team

This one is a biggie since it can not only have a substantial effect on nursing home construction cost, but also a whole host of other important items too.  At the top of the design team list is the selection of the right architect.  It should go without saying (although I feel the need to say it anyway) that experience in skilled nursing construction and design is an important consideration.  You would be surprised to see how many developers (especially those new to SNF construction) do NOT work with properly experienced architects.  The proper architect can save you lots of money through understanding how to properly design for patient care programming while enhancing operational efficiency.  Without that understanding, an owner can end up with a more expensive project and a lower return on investment.  In addition, the right architect can help save time and money in several other key areas, such as federal, state and local entitlements, regulatory compliance and change orders (my favorite!).

General Contractor

Before I started consulting, I never realized how many people know or are related to a contractor.  As is the case with your design team, your contractor should have experience in long term care.  A large contractor can offer a broader range of experience and a good level of reliability.  In the case of smaller contractors, there might be additional opportunities to reduce costs.

Material costs

A few years ago, shortages in concrete, wood and steel drove prices up and had a significant effect on nursing home construction costs.  Of course, there’s nothing that can be done if China decides to build a dam but you must be aware that these factors play a role in determining costs.

Some additional nursing home construction cost drivers

In addition to the above factors, here are some other elements that have an effect on nursing home construction costs:

  • Building height-one story versus multiple stories
  • Lot shape-regular versus irregular
  • Architectural consultants
  • Local permit costs

Ownership influence has a wide reaching impact on the cost of construction

An owner can have a substantial effect on nursing home construction cost.  SNF construction or LTC construction experience is definitely a plus.  A clear and decisive vision of the project can be a great tool in containing costs.  It serves to provide an excellent road map for your design team and can eliminate lots of going back and forth.  An experienced owner that is hands on and involved with the project can be a positive catalyst and can move a project along.  But of course, an inexperienced one can have the opposite effect.  Overall, a well conceived project (starting with ownership) and a well thought out plan are crucial aspects of keeping your costs reasonable.

Nursing home construction cost … a final thought

There are increasing opportunities existing in the market to develop new skilled nursing facilities and I would expect to see greater instances where both experienced and inexperienced owners will look to build new nursing homes.  The financial commitment to develop a long term care facility is both large and lengthy and thus, current and prospective owners would do well to carefully consider the factors which drive nursing home construction cost.

 

When you need proven expertise and performance

Craig Fukushima, NHA, MBA

Mr. Craig T. Fukushima’s health care experience spans more than 35 years with special expertise in the long term care sector, including implementation of innovative health care projects in domestic and international locations.

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