If you’re embarking on a new healthcare construction project, you may be up against steep costs. The national average cost per square foot for new construction on a hospital is over 15% higher than it was just a few years ago.
Whether you’re adding on to your current location or breaking ground on a new commercial building, expenses can add up fast. Here are a few things healthcare organizations can do to help mitigate costs.
1. Consider your financing options
Commercial real estate loans come in several shapes and sizes. An SBA loan or traditional commercial mortgage loan can be great options. Just be sure to give yourself plenty of time as funding can take months. It’s also smart to compare interest rates and fees — total loan costs can vary from one lender to the next, and that could impact your overall construction budget.
2. Make a realistic budget
Speaking of budgets, yours will depend largely on the scope of the project. Adding a new wing to an existing building will probably cost less than new construction. Either way, a realistic budget is essential and can help healthcare organizations avoid surprise expenses. Here are some common things to plan for:
- Consulting costs: This is time spent meeting with contractors, finalizing design plans, troubleshooting snags and working through potential problems. You’ll be expected to pay contractors for time and labor.
- Building materials: You might be able to cut corners going with cheaper materials, but it could come back to bite you. The goal is to use strong, reliable materials that can stand the test of time. Be sure to talk with your project manager and compare the pros and cons of using different materials. They can also help you plan ahead for possible supply shortages.
- Labor costs: Labor shortages have presented challenges for the construction industry. In turn, many construction firms have increased their wages — and those additional costs could be passed onto you. It’s another reason why it’s so important to compare bids from multiple contractors before making a final decision.
You may also need to budget for building permits, décor, plumbing, electrical wiring and an HVAC system. There are also surprise expenses that may pop up along the way, so make sure to have an extra cash cushion just in case.
3. Build the right team
Commercial real estate has a lot of moving parts. The first step is hiring the right construction project manager. This will be your main point person from beginning to end. According to Indeed, their main responsibilities include:
- Supervising the project, which includes planning and scheduling
- Finding resources
- Handling permits
- Working with engineers, architects and site planners
- Negotiating with vendors on your behalf
Be sure to shop around and compare bids from multiple construction project managers. Checking customer reviews can give you some insight into their work ethic and experience. You can also tap your professional network to see if anyone comes recommended. A referral from a colleague might even land you a discount.
3. Invest in technology
You’ll likely have an internal manager who’s overseeing the project. This person serves as a middleman between your healthcare organization and the construction project manager — and they’ll likely have a lot on their plate. Investing in software solutions can help streamline the process and keep things organized. Task-management platforms like Fieldwire, Asana and Wrike can help different teams stay on the same page. That can save time and money if it prevents costly errors. These software programs can also help you delegate responsibilities to the appropriate teams.
4. Understand your contract options
Once you find a contractor who seems like a good fit, make sure you understand the terms of the contract and have read the fine print. For example, you might agree to pay a lump sum upfront — but if the project turns out to be faster or less expensive than originally planned, you could end up overpaying. However, it might make sense for more straightforward projects.
Some contractors charge an hourly rate. Under this type of agreement, the contractor will likely provide a breakdown of how they’re spending their time and resources. That can help healthcare organizations make changes and adapt to last-minute challenges. Take the time to review your contract and negotiate as necessary.
5. Choose your building carefully
You might find a great deal on an existing building that needs a little work. That may not be a problem if everything’s in line with your budget — or it could turn into a money pit. Choose your property wisely and get estimates from experienced contractors so you know what you’re getting into. Even if an existing building doesn’t require much in the way of renovations or repairs, you’ll still need an optimal design space. Your healthcare organization may have unique needs in terms of layout and design. In other words, don’t forget about functionality.
If building from scratch, you’ll probably want to connect with an architect who has experience working with commercial spaces. They can help you craft a plan that feels right for your needs and budget.
Joseph Muscente
Joseph is a Content Marketing Analyst at LendingTree where he works to empower people to make their best financial decisions. He earned his B.A. from Penn State University.
