Each individual condominium is approximately 2,000 square feet and costs on average $215,000. Two options currently exist.
Option one is for us to maintain the current arrangement. This option would preserve the status quo. Annual fees would add approximately $60,000 in auxiliary and other income to the hospital at no additional new costs.
Option two is for the current physician owners to sell (back) to the hospital their condominiums at their original cost. We would then modernize the existing building and expand its capacity to 50 units with new construction. We would also build direct access to the hospital. Under this option, each medical suite (old and new) also would be linked into the hospital-wide computer information system. Physicians would rent these medical suites.
We have a legal opinion—based on recent federal and state cases—indicating that this project would be totally tax exempt. The new construction would cost approximately $19,000,000. The expected annual operating expenses, excluding depreciation, would be $2,150,300 for the principal and interest on the 20-year loan ($25M) and an additional $1,850,000 in insurance, staffing, and other operating costs.
The primary question is how much annual revenue (total rent) would need to be generated for this project to meet our threshold of a 6 percent hurdle rate and an NPV at least as high as option one.