OPPORTUNITIES AND CONSTRAINTS IN DEVELOPING
BIOMEDICAL RESEARCH SPACE
FOR TEACHING HOSPITALS
by
Thomas J. Andrews
Bachelor of Science
Cornell University
Ithaca, New York
1982
SUBMITTED TO THE DEPARTMENT OF ARCHITECTURE
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
JULY 1987
9
Thomas J. Andrews 1987
The author hereby grants to M.I.T.
permission to reproduce and to distribute publicly copies
of this thesis document in whole or in part.
Signature of Author
Thomas J. Andrews
Department of Architecture
July 31, 1987
Certified by
,Marc A. Louargand
Visiting Associate Professor
Department of Urban Studies and Planning
Thesis Supervisor
Accepted by
Michael Wheeler
Chairman
Interdepartmental Degree Program
in Real Estate Development
J Ss NST"
OPPORTUNITIES AND CONSTRAINTS IN DEVELOPING
BIOMEDICAL RESEARCH SPACE
FOR TEACHING HOSPITALS
by
THOMAS J. ANDREWS
Submitted to the Department of Urban Studies and Planning
on July 31, 1987 in partial fulfillment of the requirements
of the Degree of Master of Science
in Real Estate Development
ABSTRACT
The market for non-corporate medical research facilities was
examined to determine if the participation of the private
Research funding sources
development industry is warranted.
and their payment policies were described, along with the
activities and priorities of the institutions which house
medical research. A national market overview was provided,
which surveyed the research
followed by case studies
explored how they
institutions and
components of several
Financial
have acted to address their space requirements.
occupancy
on several different
was performed
analysis
scenarios to illustrate the varying impacts on institutional
finances.
institutions which perform medical research
Some nonprofit
facilities developed and owned by
laboratory
have leased
likely
most
The
interests.
estate
real
private
are
activity
leasing
candidates for future
institutional
on
their
capacity
little development
those which have
to capital funds,
campuses, are restricted in their access
and have the ability to recover the costs of leasing from
for
Present federal policies
their research sponsors.
reimbursement of the indirect costs of sponsored research
activities were found to produce financial incentives to the
institution for the participation of an outside developer in
a lease arrangement for laboratory space.
Thesis Supervisor:
Title:
Marc A. Louargand
Visiting Associate Professor
Department of Urban Studies and Planning
ACKNOWLEDGMENTS
The author wishes to thank all those who gave
This
their time and knowledge so generously.
production could not have come about without your
paper is dedicated to Christine, to
help. This
whom I owe my happiness.
TABLE OF CONTENTS
I.
II.
III.
Title Page
1
Abstract
2
Acknowledgements
3
Table of Contents
4
List of Tables
5
List of Figures
6
List
7
of Exhibits
8
INTRODUCTION
WHAT IS BIOMEDICAL RESEARCH?
10
WHO PAYS FOR BIOMEDICAL RESEARCH?
11
IV. THE FUTURE OF RESEARCH FUNDING
V. WHO PERFORMS BIOMEDICAL RESEARCH?
VI. THE ACADEMIC MEDICAL CENTERS
VII. THE ROLE OF RESEARCH IN THE ACADEMIC
MEDICAL CENTERS
15
19
20
23
VIII. HOW THE MEDICAL CENTERS GET PAID
FOR PERFORMING RESEARCH
24
IX. THE MEDICAL RESEARCH FACILITY
31
X. NATIONAL ACTIVITY
XI.
CASE STUDIES
IN THE BOSTON MARKET
XII. FINANCIAL ANALYSIS
XIII. CONCLUSIONS
40
46
75
92
Appendices
List of Interviews
94
Bibliography
97
LIST OF TABLES
I.
II.
III.
NATIONAL SUPPORT FOR HEALTH R & D BY SOURCE
OR PERFORMER, 1976-1986
BOSTON'S TEACHING HOSPITALS
RANKED BY 1985 TOTAL EXPENSES
48
BOSTON AREA RESEARCH INSTITUTIONS
1985 GRANT FUNDS FROM
NATIONAL INSTITUTES OF HEALTH
49
IV. NIH RESEARCH GRANTS--FISCAL 1985
EXTRAMURAL GRANTS RANKED BY STATE
LIST OF FIGURES
I.
II.
III.
GENERIC LABORATORY PLAN AND ELEVATION
CHILDREN'S HOSPITAL--ENDERS BUILDING
GENERIC LABORATORY ISOMETRIC
NEW ENGLAND MEDICAL CENTER--TUPPER INSTITUTE
33
GENERIC LABORATORY FLOOR PLAN
CHILDREN'S HOSPITAL--ENDERS BUILDING
35
IV. PROPOSED 8TH FLOOR PLAN AND PARTIAL SECTION
MASSACHUSETTS GENERAL HOSPITAL--CHARLESTOWN LABS
WELLMAN BUILDING--9TH FLOOR PLAN
36
TYPICAL FLOOR PLAN
NEW ENGLAND MEDICAL CENTER--TUPPER INSTITUTE
37
V.
LIST OF EXHIBITS
I.
II.
III.
HOSPITAL PROFORMA
TURNKEY SUBLEASE FROM DEVELOPER
78
HOSPITAL PROFORMA
HOSPITAL LEASES SHELL, BUILDS IMPROVEMENTS
INTEREST COSTS NOT REIMBURSED
81
HOSPITAL PROFORMA
HOSPITAL LEASES SHELL, BUILDS IMPROVEMENTS
INTEREST COSTS REIMBURSED
84
IV. HOSPITAL PROFORMA
HOSPITAL CONSTRUCTS BUILDING,
INTEREST COSTS REIMBURSED
87
V. DEVELOPER PROFORMA
TURNKEY SUBLEASE TO HOSPITAL
90
Chapter I
INTRODUCTION
According
to
Business Journal 1,
finding it
April
The
real estate
in
enlarge their
the 1980s,
medical schools
expand
their campuses.
lease
offsite research
the
Boston
academic medical centers were
biomedical research
culprit, reported the BBJ,
boom of
of the
1987 article
the city's
difficult to
capacity.
ability
an
was the regional
which has
constrained the
and teaching
Some institutions
facilities
others were very reluctant to
hospitals to
had decided
from developers,
do so.
to
while
The article indicated
that a shortage of expansion space would eventually threaten
the
city's
preeminent
position
as
a
world
center
of
biomedical research.
This paper will examine
and future
and look
issues surrounding the present
demand for non-corporate medical
at the potential
role of the
industry in supplying that space.
of
medical
research,
investigators,
funding
who
will be
trends ;.ill
be
who
examined,
with
academic
medical
consume
provide
the
funding
briefly profiled.
provided, as
the
particular
characteristics of
private development
First, the major sponsors
predict future patterns of support.
research,
will
emphasis
A
for
the
An overview
of
an attempt
to
Then, the performers of
sponsors'
centers.
research space
funding,
on the
role
discussion
a research facility will
will
of
of
be
the
the
be followed by
an overview of the national and regional development climate
related to medical
research.
will
Boston's
describe how
hospitals
series
have dealt
of
financial
reimbursement
decisions.
The
policies
Then a group
medical
with their
analyses
can
of case studies
schools and
research space
will
impact
show
teaching
needs.
A
how
federal
institutional
capital
paper will conclude with
some observations
and lessons for developers drawn from the case studies.
NOTES
1. Denaro, Deborah and Gendron, Marie
"Hospitals hurting for space"
The Boston Business Journal, p. 1, April 6, 1987
Chapter II
WHAT IS BIOMEDICAL RESEARCH?
Biomedical
diagnostic
research involves
and therapeutic
technology,
and
their prevention
into
asks
"what
"basic"
of
development of
advancement of
drug
therapy.
understanding of disease
or alleviation, and
improved systems
activities can
modes,
improvement
activities increase
the
of health
and
the
research,
typically
presuppositions about
is
a technique or
research and
"What if",
conducted
with
or
no
clinical problem.
seeks to create or improve
an apparatus to achieve
Biomedical
Research
two types: one
to".
its relevance to a
"How to", or "applied" research,
Research
processes and
care delivery.
other "how
medical
include investigation
be conveniently divided into
if"
new
a predetermined end
development
in
the U.S.
is
conducted in several different arenas: in university science
departments;
in
institutions
privately-funded
(such as the
in the laboratories
at
the National
Maryland; and
hospitals.
charitable
research
Howard Hughes Medical Institute);
of commercial pharmaceutical companies;
Institutes
of Health
in the nation's medical
(NIH) in
Bethesda,
schools and teaching
This paper focuses on the latter venue.
NOTES
1. Fudenburg, H. Hugh, ed.
Biomedical
Institutions, Biomedical Funding, and
Public Policy, Chapter 2 New York: Plenum Press.
1983
Chapter III
WHO PAYS FOR BIOMEDICAL RESEARCH?
Table
1
below
traces
national
support
for
health
research and development over the decade 1976-1986.
A of the table shows,
through
the
half of
the federal government, substantially
National
largest source
As part
Institutes of
of funds for
total support
Health,
health R & D,
in 1986.
The
remains
the
providing about
last decade
has seen
private industry's share of funding increase dramatically as
a percentage of
health R &
less
total support.
1986 nearly 40%
D funds came from private
than 30%
governments
funding,
By
just
have
while
ten years
provided
support
from
industry, compared to
earlier.
a
of all
State and
consistent
private
local
percentage
philanthropies
of
has
declined to less than 5% of the total.
The broad mission of
is to
and
"promote the
supporting
innovations.
The
the National Institutes of Health
well-being of citizens"
research
financed through
funds
by the
spent
on
Congress .
intramural
Bethesda campus.
will
11 institutes of
aegis of the Department of
and are
that
lead
by encouraging
to
the NIH fall
medical
under the
Health and Human Services (HHS),
a direct appropriation
of public
About
budget is
12% of
research programs
NIH activities
the NIH
conducted
on
the
are structured around four
major classifications: basic research, clinical application,
technology transfer,
has
been the
and training
mainstay
of basic
of scientists.
The NIH
medical research
support
Sector
Total of A or 8
5107
1978
1980
1982
$6,264
$7,924
$9,303
1984
prel.
1985
est.
1986
proj.
$11,619
$13,106
$14,348
i2
A. BY SOURCE OF FUNDS
Government
;93
3371 66.0%
4,182 66.8%
5,145 64.9%
5,528 59.44
6,769 58.3%
7,604 58.04
8,085 56.3%
2060 40.3%
999 19.6%
312 6.1%
2,581 41.2%
1,230 19.6%
371 5.9%
3,182 40.2%
1,541 19.4%
422 5.3%
3,433 36.9%
1,537 16.54
558 6.04
4,257 36.6%
1,830 15.8%
682 5.9%
4,828 36.8%
1,980 15.14
796 6.1%
4,977 34.7%
2,197 15.3%
911 6.3%
1469 28.8%
1,800 28.7%
2,466 31.14
3,436 36.9%
4,378 37.74
4,975 38.04
5,638 39.3%
PC
o
NIH
Other Federal
State & Local
Industry
267
Private Philanthropies
5.2%
282
4.5%
313
4.04
339
3.6%
472
4.1%
527
4.0%
625
4.44
B. BY PERFORMER
904 17.7%
1,163 18.6%
1,439 18.2%
1,595 17.1%
1,901 16.4%
2,115 16.1%
2,226 15.5%
780 15.3%
124 2.4%
1,032 16.5%
131 2.1%
1,284 16.2%
155 2.0%
1,448 15.6%
147 1.6%
1,741 15.04
160 1.44
1,943 14.8%
172 1.3%
2,048 14.3%
178 1.2%
Industry
1483 29.04
1,680 26.8%
2,256 28.5%
3,016 32.4%
3,855 33.2%
4,332 33.14
4,841 33.74
Private Nonprofit
2461 48.2%
3,084 49.2%
3,728 47.0%
4,107 44.1%
5,180 44.6%
5,862 44.7%
6,359 44.3%
1945 38.14
516 10.14
2,445 39.04
639 10.2%
2,987 37.7%
741 9.4%
3,319 35.7%
788 8.54
4,149 35.7%
1,031 8.94
4,695 35.8%
1,167 8.9%
5,062 35.3%
1,297 9.0%
Government
Federal
State & Local
Higher Education
Other
Foreign
259
5.14
337
5.4%
501
6.3%
585
6.3%
683
5.9%
797
6.1%
922
6.4%
0
C
-;
62..
5
::ll
* No-"SgIn
,I f'+' C
S:C1
r%M
P-j
co
CMis
O1
since
the
Second
expenditures
World, War.
support
basic
Approximately
research.
federal funding sources for health
Health
Service, the
Departments
60%
Other
of
NIH
important
R & D include the Public
of
Defense, Energy,
and
Agriculture, the Veterans Administration, and NASA 2
Part B
of Table 1
were spent.
shows where
Private industry is
of all health
R & D funds.
the funds from
Part A
now consuming over a third
The
federal government remains
an important research performer.
The share of funds flowing
to private educational institutions has declined slightly in
the decade.
About
half of
awarded to
these federal
health R
institutions of higher education.
spent within
federal research
agencies, and
& D
funds are
One third is
the remainder
goes to other nonprofit institutions or to industry.
The
commercial
pharmaceutical
and
biotechnology
industries spend about 95% of their R & D funds in their own
laboratories,
although
this
percentage will
very
likely
decline as universities and hospitals become more willing to
collaborate with industry 3.
achieve
a
perform
relatively
instead
on
return
The
on investment
little
applying
basic
research to
commercial firms, who must
for
their
shareholders,
research,
concentrating
marketable
products
or
processes.
Other research funds are disbursed by charities such as
the Robert
Society.
Wood Johnson Foundation and
Some choose
to spend
the American Cancer
their money
internally on
their
own research
grants
for
efforts,
to university-based
support
many
the basic
Unfettered by
philanthropic
medical
others simply
investigators, or
laboratory construction.
stockholders,
while
NOTES
cit., Chapter 6
2. National Institutes of Health
"The NIH Data Book 1986", Bethesda, 1987
3. Fudenberg, op.
cit., Chapter 6
the needs
choose
that industry
cost-justify.
1. Fudenberg, op.
donate funds
institutions
research
provide
of
to
cannot
Chapter IV
THE FUTURE OF RESEARCH FUNDING
the
Because
that
particularly
scientific community,
segment which conducts basic research, depends so heavily on
considerable hand-wringing occurs every
the federal dollar,
year as
the
federal budget and
the Administration proposes the
Congress acts
The Reagan
it.
upon
Administration's
Budget (OMB) has been particularly
Office of Management and
active in attempting to restrain health research funding and
increase military
D. Military
R &
72% of total
the Administration, would consume
proposed by
funded as
research, if
government R & D outlays in FY 1988, up from 50% when Reagan
1
took office
.
NIH.
towards the
magnanimity
yearly
director's
however, has a long record of
The Congress,
news account
A
presentation before
budget
of the
NIH
Senate
the
appropriations subcommittee in 1986 concluded:
the
in
which
ritual
annual
the
went
Thus
Administration proposes a pa 5 simonious budget for NIH
and Congress ups the request
Sure enough,
the
NIH had
almost
$1.2
proposed
3
.
Gramm-Rudman
when the budget
with a
ended up
billion
Some
more
of
deficit
for FY 1987
17% increase
than
the
funds will
these
control measures
effect, but the increase
to
place a
over FY
Administration
be
cut when
automatically
1986,
had
the
take
will remain very generous compared
with funding for other research agencies.
attempted
was passed,
cap
on
Also in 1986, OMB
reimbursement for
indirect
administrative
costs on
grants, but
science community was able to postpone this action 4 .
As of this
with
federal research
writing, FY 1988 funding
the Administration
increases in
likely
to
5
research5.
will
The
also
federal
some
is being debated,
again proposing
military research
shift
funding.
once
programs, and
of those
increases
escalating battle to
significant
the Congress
to
biomedical
find a cure
surely
demand
incremental
federal
the
future,
despite the
realities
In
deficit,
defense-oriented
one can
imagine
in
the
the future
administration favoring
for AIDS
research
of
a
the
less
biomedical R
& D
over military research.
University
interviewed for
and
hospital
this paper were quite
prospects for federal support
those
who
research
did not
administrators
optimistic about the
of biomedical research.
anticipate
real
increases in
Even
federal
support were confident that their institutions would be able
to garner an increased proportion of the federal pie because
of the superior qualifications of their investigators.
Nearly all the administrators suggested that the recent
trend
of greater
support from
even accelerate.
R &
D
outlays
volumes
example,
went
received
to
contracts
institutions
of funding.
budget from
continue or
Although in 1986 only about 5% of industry
some
hospitals,
industry would
were
Massachusetts
18% of
its
$75
commercial contracts 6
16
.A
with
universities
receiving
significant
General Hospital,
million 1986
July
or
for
research
1987 article in
Fortune
magazine
described
industry's reliance
on R
between
Johnson
Johnson
Research
&
Foundation.
pharmaceutical
the
& D,
firm first
the
refusal
commercial application of Scripps'
Hospital recently hired
cultivate and
her
duties,
and
the
big
gives
for the
rights to
any
health care research, in
a Vice President whose
will
Clinic
Boston's Brigham & Womens
expand alliances
she
an agreement
Scripps
agreement
return for financial support 7 .
biotechnology
and mentioned
and
The
fledgling
with industry.
negotiate
licensing
focus is to
As
and
part of
research
contracts for hospital investigators
Another encouraging development for medical research is
the increased support by the Howard Hughes Medical Institute
(HHMI).
Since the
Institute
has
sale of
embarked
research laboratories.
27
hospital-
and
Hughes Aircraft
on
a
Hughes
massive
in 1985,
expansion
of
the
its
investigators now operate in
university-affiliated
labs
around
the
country, with an annual budget in excess of $200 million and
9
growing .
Prior to the Hughes expansion, funding from
philanthropic sources had
grown at a much
slower rate than
federal and industry support 10
While
levels of
it
is
certainly difficult
to
biomedical research support, it
predict
future
seems that those
institutions who house research activities can be relatively
confident
cutbacks in
that
they
funding.
are
insulated
The Congress has
support of health research,
against
substantial
long considered the
particularly basic research, to
be an important public policy.
achieving many
to look
Finally,
fairly
to R &
Industry is on the verge of
significant breakthroughs and
D to
provide the needed
private philanthropies
constant level
of
competitive edge.
are likely
financial
will continue
to maintain
support for
research
performers.
NOTES
1. Norman, Colin
"Budget Details Released"
Science, Vol.
235, p. 628, January 23, 1987
2. Norman, Colin
"NIH Gets a Friendly Hearing on Capitol Hill"
Science, Vol. 231, March 21, 1986
3. Culliton, Barbara
"Congress Boosts NIH Budget 17.3%"
Science, Vol.
234, p. 808, November 14, 1986
4. Association of American Medical Colleges
"1985-1986 Annual Report"
Journal of Medical Education, Vol. 62, #3, Mar 1987
5. Culliton, Barbara, op.
cit.
6. Conversation with Lawrence Martin
Associate General Director, Mass. General Hospital
July 9, 1987
7. Gannes, Stuart
"The Big Boys Are Joining The Biotech Party"
Fortune, July 6, 1987
8. "BWH researchers find industry can be a valuable ally"
Boston Hospital News, April 1986, p. 32
9. Culliton, Barbara
"Hughes Settles with IRS"
Science, Vol. 235, p.
1318
10. "The NIH Data Book 1986", op.
cit.
a
Chapter V
WHO PERFORMS BIOMEDICAL RESEARCH?
Most
federal
grants
"investigator-initiated".
for
That
scientist or
physician who
The proposal
undergoes rigorous
scientific and technical
an institutional
medical
is, they
research
are
are awarded
to a
has proposed a
specific study.
peer review to
merit.
verify its
Investigators usually have
affiliation such as a
faculty or clinical
appointment at an academic medical center or employment at a
corporation or
the
research institute.
investigator
in
the
Grants are
name of
institution houses the research
the
awarded to
institution.
The
activity, and is reimbursed
for its related costs by the sponsoring agency.
Under 10%
whereby
the
of NIH
funding goes to
sponsoring
agency
direction of the investigation
research contracts,
decides
the
in advance 1 .
scope
and
Ten years ago,
this percentage was significantly higher, but the scientific
community
has
persuaded
the Congress
that
investigator-
initiated research is a better use of the federal dollar.
Industry-funded
strategists
performed by
university-
within
research
the
employees of
corporation.
the firms
or hospital-based
commercial firms,
is
usually
That
which
is contracted
investigators.
however, set
aside some of
budgets for basic research in their own labs.
NOTES
1. "The NIH Data Book 1986", op.
directed
cit.
Many
is
by
not
out to
of the
their R
& D
Chapter VI
THE ACADEMIC MEDICAL CENTERS
a
comprising
and
medical school
units
integrated
are
centers
medical
Academic
additional
or more
one
health education programs and associated teaching hospitals.
The center's role is fourfold: it is the principal place for
other health care professionals;
or
advanced
for
available
not
in
chief source of primary care
it is the
and
the uninsured
and
it provides technologically
medical treatment
complex
community hospitals;
pharmacists,
dentists, nurses,
physicians,
educating
economically
disadvantaged in
the
inner cities; and it plays a unique role in medical research
and therapeutic techniques
medicine
.
accredited institutions offering degrees
There are 126
in
in the
Medical
Hospitals
2
Colleges2.
residency
have
physicians, COTH
(COTH)
is
a
three-legged
education,
of the
or
American Association
hundreds
assist in
and
members are the major
of the medical schools.
the 6000
so
are members of the Council of
Although
programs
Of
States.
United
hospitals in the country, 430
Teaching
new diagnostic
that research to
the application of
and in
of other
the
of
hospitals
training
of
teaching affiliates
Their distinguishing characteristic
commitment
and research.
to
Indeed,
patient
care,
virtually all
medical
clinical
investigation (research directly applicable to patient care)
is performed in these teaching hospitals.
Medical
schools, which
are units
of universities
or
university systems,
sources, including
receive their income from
tuition and fees, grants
a variety of
and contracts,
patient care reimbursement from the faculty medical practice
plan, gifts, endowment earnings, and government subsidy3
Independent
generate
most of
activities.
and the
teaching
their income
private health
expenses,
reimbursement
cost
to
where the
prospective
cost-conscious
has
hospitals,
patient care
Medicare/Medicaid
insurance carriers provide
is stipulated
standards,
such as
The recent switch by
retrospective payment,
all
through their
Third-party payors
the reimbursement.
its
hospitals, like
in their
these payors from
hospital recovers
payment
in advance
forced
most of
hospitals
behavior.
(PPS),
where
based on
to
all of
be
the
national
much
more
Additionally, PPS
has
drastically reduced the average length-of-stay for patients,
producing
a glut
of hospital
beds and
generating intense
competition between hospitals for patients 4
Teaching
hospitals,
with
structures,
were
standards.
Reimbursement
hard
hit
system
for
the
switch
From
a
to
hospitals
many physicians.
income from third-party payors
function of
average
cost
national
for
their
graduate medical education is now
too
research funding.
research
the
than
fixed at low rates, partially
from producing
patient care
by
to
indirect costs related to
likely to be
higher
a
to restrain the
Furthermore,
cannot be used
financial standpoint,
teaching hospital
the
is intended
stand apart from the patient care and teaching functions5.
21
to
NOTES
1. Stark, Nathan J.
"Academic health centers: an uncertain future"
Hospitals, August 20, 1986, p. 104
2. American Medical Association
"Survey of Teaching Hospitals 1985"
JAMA, Journal of American Medical Association,
September 26, 1986
3. Eastaugh, Steven R.
Medical Economics and Health Finance, Ch. 11
Boston:
Auburn House.
1981
4. Conversation with Professor Gerard Wedig
Boston University School of Management
June 30, 1987
5. Conversation with David Shabot
Massachusetts Hospital Association
June 16, 1987
Chapter VII
THE ROLE OF RESEARCH IN THE ACADEMIC MEDICAL CENTERS
Like
medical
their colleagues
educators
activities as
Such
it
is
and
his
to
engage
will add
enhancing
or
of research
sectors of
her
findings
from peers and perhaps from
in
academia,
research
professional responsibilities.
hoped,
knowledge, while
investigator
publication
expected
part of their
research,
scientific
are
in other
to
the
the
body
skills of
of
the
students.
Furthermore,
will bring
recognition,
the public, to the investigator
and to the institution.
It
that
is widely
the
presence
held in
of
the academic
a research
quality of care available
medical community
function
to patients.
enhances
the
Competition is keen
among the hospitals as they seek to attract and retain noted
physicians
and
patients seeking
researchers,
the best
who
will
in
of medical care.
turn
attract
The sentiment
expressed in the following statement, from a recent hospital
master plan, is typical:
In order to maintain its position on the
leading edge of medical innovation, and to retain
and attract highly qualified clinical faculty, the
Hospital must develop a teaching and research
reputation
comparable to
its jeputation
for
providing outstanding clinical care
NOTES
1. M. Bostin Associates, Payette Associates
"Master Plan for New England Deaconess Hospital"
Submitted to Boston Redevelopment Authority, May 1987
Chapter VIII
HOW THE MEDICAL CENTERS GET PAID FOR DOING RESEARCH
Since the
federal government is the
for the majority of
method
of
as
all direct
each research
to
"100%"
reimburser.
and indirect
related to
However, the
for those
for allocating
Office
costs.
of
to the
government is
That
is,
costs associated
OMB
with
supporting institution
Calculation
sponsored agreements
definition of
the
The federal
.
grant, and allows the
be reimbursed
costs
or
by
is extremely important
medical schools
a "full"
recognizes
established
Budget (OMB)
hospitals and
known
non-commercial biomedical research, the
reimbursement
Management and
financial sponsor
of direct
is straightforward.
indirect costs, and
those costs, has important
the method
implications for
capital decisions related to research space.
Direct Costs
Direct
costs are
with a particular
and fringe
cost
of
and
materials
and
employees assigned to
supplies
used
travel costs incurred, and
subcontracts
related
applicant estimates
The
identified specifically
sponsored project, including compensation
benefits of
services and
those costs
sponsoring
requested amount.
to
the
either
the
approves
research,
costs of subgrants
project.
the direct costs of
agency
in
the project,
The
grant
the investigation.
or
adjusts
the
Direct cost expenditures in excess of the
amount awarded are not recoverable from the sponsor.
24
Indirect Costs
Indirect costs
common
or joint
identified
sponsored
use
are those
objectives and
readily
and
activity.
allowances,
for direct costs of
rate
a
cannot be
particular
depreciation and
and maintenance
expenses.
expenses,
After awarding
and
an amount
an investigation, the sponsoring agency
an indirect cost
used by
with
costs include
operation
incurred for
which therefore
specifically
These
various administrative
adds on
costs that are
award based on the
the institution
at which
indirect cost
the grant
will be
performed.
The Indirect Cost Rate
The
function
indirect
of
a
cost
teaching
re-established annually.
rate applicable
hospital
or
to
the
medical
research
school
The rate, usually expressed
is
as a
percentage of the total direct costs, is calculated prior to
the start of the fiscal year by the institution.
from the
cognizant agency
assigned
to
monitor
example; M.I.T.
(different federal
different grantee
is monitored by the
An auditor
agencies are
institutions:
for
Department of Defense;
HHS monitors hospitals) will assure that OMB guidelines have
been
adhered to.
At the
end
of the
year, after
actual
allowable costs are known, the rate is recalculated.
If the
sponsoring
institution,
agency
the
over-
or under-reimbursed
subsequent
year's
rate
the
would
artificially low or high to balance the payments.
25
grantee
be
set
Depreciation Allowance
Institutions
buildings and
depreciation
are
compensated
equipment in
allowance,
indirect cost
rate.
use
of
sponsored agreements
which
The
for the
is
through a
calculated
computation for
their
into
the
the depreciation
allowance is based on the acquisition cost of the asset, not
including cost of
on a
the land.
The asset
straight-line basis over its
building
shells are
building
fixtures and
useful life.
depreciated
finishes
is then depreciated
over
Typically,
40 years;
over 20
interior
years; and
major
movable equipment over an average of about 8 years.
Rental Costs
Rental costs
of buildings and equipment
are allowable
in full as indirect costs for both hospitals and educational
institutions,
provided
"arms-length" transaction,
equity"
in the
that
the
lease
is
and does not create
property for
the institution.
a
prudent,
a "material
A material
equity exists when the lease:
(1) is noncancelable, and
(2) has one or more of the following characteristics:
(a) Title to the property passes to the institution at
some time during or after the lease period.
(b) The term of the lease corresponds substantially to
the estimated useful life of the property.
(c) The initial term is less than the useful life of the
property and the institution has the option to renew
the
lease for
the remaining
useful life
at
substantially less than fair rental value.
(d) The property was acquired by the lessor to meet the
special needs of the institution and will probably
only be usable for that purpose and only by the
institution.
(e) The lease has a bargain purchase option.
A lease which creates a material
equity is considered to be
a "capital"
an
lease,
Rental costs
the amount
essentially
for a capital
installment
lease are reimbursable
allowed had the institution
on the date
the lease was signed.
on "sale and lease-back"
to the amount
purchase.
only to
purchased the asset
Similarly, rental costs
arrangements are reimbursable only
allowed had the institution
continued to own
the property.
Assignment of
Indirect Costs
Institutions
are
allowed
determining their indirect cost
can vary
same
institution, separate
for each
Cancer
Research Building,
Street.
indirect
facility.
Deaconess Hospital might have
its
rate.
flexibility
Research
cost
For
in the
pools might
example, New
England
Institute,
its
Shields-Warren
on Burlington
reimbursement scenario for the
three facilities is shown below.
MODIFIED
TOTAL
DIRECT
COSTS
INDIRECT
COST
RATE
TOTAL
FEDERAL
REIMBURSEMENT
$2,000,000
52%
$3,040,000
Shields-Warren
Building
1,000,000
55%
1,550,000
Burlington St.
Labs
2,000,000
60%
3,200,000
Cancer Research
Institute
Totals
$5,000,000
be
differing indirect cost pools
and its leased facilities
A possible budgeted
in
Since indirect costs
substantially between different facilities
established
for
some
$7,754,000
Note that if an unbudgeted
award caused the Cancer Research
Institute's
to
indirect
direct
cost
costs
reimbursement
($500,000 x .52).
would
resulting in
be adjusted for
An alternative
$500,000,
increase
by
an overpayment
the
$260,000
that would
in the following year's
technique for the hospital
have all its indirect research
rate, based on
by
Actual indirect costs would increase only
slightly, however,
have to
increase
rate.
would be to
costs reimbursed at the same
the total direct and indirect
costs for the
institution.
Interest Expense Reimbursement
An
important
educational
distinction
institutions
regulations published
federal
sponsors
included as
in having
not
total cost
operation and
exceed
cost
Following
the
OMB.
Traditionally,
expense
revision,
Hospitals
and
to
be
In 1982,
medical
schools,
Circular
educational
for the costs of financing
or capital equipment, "provided
or use
allowance,
maintenance costs, interest, etc.),
cost of
and
reimbursement
principles (OMB
(including depreciation
the rental
locality".
the
reimbursement.
including
their
new buildings, remodelings,
hospitals
allow interest
institutions would be reimbursed
the
in
and enforced by
institutions,
revised
A-21)
made
part of indirect cost
educational
succeeded
did
is
between
comparable assets
other research
owned by educational institutions
to their regulations.
28
does not
in the
performers
same
not
received no such revision
Deviation from Interest Expense Exclusion
Recently, a
few hospitals have
received reimbursement
for interest expense after enduring a "deviation procedure".
The hospital must persuade the
in
the
government's
institution
best
cognizant auditor that it is
interest
3
costs3.
for financing
to
reimburse
Because
the
no regulations
are in place to guide the auditors in their decision-making,
and since
there are only
would be unwise of any
a small number of
precedents, it
hospital to commit to debt financing
before going through the deviation procedure and securing an
agreement from the government to reimburse interest costs.
Reimbursement
Policies For
Funding sources
Other
Funding Sources
which are not federal
widely differing reimbursement
methods.
for example,
on a
predetermined
might be awarded
indirect
cost
industry had
research
been willing to
they sponsored
research performers
at
Federal contracts,
bid basis and
payment
contracts are negotiated between
grants may have
rate.
the parties.
Commercial
In the past,
pay only the direct
institutions.
seek to be fully
specific
use stipulations.
research
reputation are
costs of
Nowadays,
most
reimbursed for direct
and indirect costs, usually at the federal rate.
foundations or gifts may be
carry a
Funds from
unrestricted or might have very
Institutions
able to
with a
negotiate more
superior
favorable
reimbursement arrangements from non-federal supporters.
29
NOTES
1. Office of Management and Budget
"Circular A-21--Cost Principles for Educational
Institutions"
Federal Register, Vol.
44, No. 45, March 6, 1979
2. Office of Management and Budget
"Circular A-21--Cost Principles for Educational
Institutions"
Federal Register, Vol.
47, No. 149, August 3, 1982
3. Conversation with Walter Boland
Office of the Regional Director of Department of
Health and Human Services
July 14, 1987
Chapter IX
FACILITY
THE MEDICAL RESEARCH
The editor of a recent text on laboratory design stated
that three
process
1
extent
key issues
First,
.
must be responded
flexibility
possible, because
needs
which
will occur
must be
of the
over
to in
the design
achieved,
to
the
unpredictable changes
the
life of
the
in
facility.
Second, the building occupants and the surrounding community
must be
the explosive, toxic,
protected from
hazardous materials
a
providing
Finally,
be present in
which may
quality
or otherwise
the facility.
environment
work
for
the
occupants will greatly aid the institution in attracting and
retaining
true
These
scientific personnel.
for retrofitted
facilities as
challenges are
for new
as
construction.
Because of the complexity of this building type, a developer
must be
certain to hire professionals
and consultants with
experience in laboratory design.
basic laboratory
The
module,
appropriate dimensions, has
time.
Figures 1
and 2
more
benches, desks,
fume
hoods for
research practice
open
directly
to
up
below show
A
the generic
shelves, work
to
sinks, and
four investigators.
favors an open plan
adjacent
a high
module in
20- to 24- foot wide bay
labs and
one or
Current
whereby laboratories
to
corridors
researchers share equipment and support rooms.
facilitates
ergonomically
become fairly standardized over
plan, elevation, and isometric.
contains
with its
degree of interaction
where
This concept
among individual
FIGURE 1
Generic laboratoryplan
large
Generic laboratoryelevation
Source:
The Children's Hospital Facilities Planning Office
Research Expansion Update, June 1987
32
8
CD'
rtH
Ia .
(D
00 :
CD
0)
rtQ
0 E
~0CD
(D'U
'1.
0D
O P
'*1H
CD
0
0
CI
H&
ZH
researchers.
The
corridors
become
extensions
of
the
workspaces and allow for informal contact between members of
.
different research groups
the
The evolution
in lab design
plan for
Enders Research
Hospital
the
in Boston.
is depicted in
Building at
The original
Figure 3,
Children's
building, completed
in
1970, is at the left of the plan, and has closed lab modules
and limited
support facilities and offices.
of the Enders
Building, to be completed in
open lab
concept, as
well as
demanded
by
research
General
under
today's
Hospital
Building,
The expansion
employed the
completed in
construction as
the extensive
support space
activities.
Massachusetts
open
1984, and
of
1990, shows the
plan
in the
this writing.
in the
Wellman
Charlestown Labs
Floor plans
for
these two buildings are shown at the same scale in Figure 4,
dramatizing the huge
size (180' x 440')
floor plate.
5 shows a typical floor
Figure
Research Institute at New
Once again, open
of the Charlestown
at the Tupper
England Medical Center in Boston.
labs line much of
the building perimeter,
here on a very small (7500 square feet) floor plate.
The single most important distinction between lab space
and other building typologies
is the quantity of mechanical
services
engineering
challenging
different
provided.
when a
use.
One
The
building
architect
is being
is
especially
retrofitted from
estimated that
70% of
design work in a retrofit project is in the engineering.
a
the
He
even suggested that it might be appropriate to designate the
FIGURE 3
Generic laboratoryfloor plan
Key
laboratories
offices
lab support (e.g., tissue culture, darkrooms,
cold/warm rooms, etc.)
T toilets
I
2
,
0 5
existing building
10
1
20
1
-
30
Longwood Avenue
Source: The Children's Hospital Facilities Planning Office
Research Expansion Update, June 1987
FI(
1
- ------------L
e
O
Lab Saort Space
I
I
I"
i
Proposed 8th Floor Plan
Jung/Brannen Associat.s, kic..
September 29. 1986
Arcitects £ Planners
Job No. 86040
I .Labettor!t
Ij
J
otfices
Lan Supoort SPace
stai
3 -
-I
W
m
B
P
Wellman Building 9thI Floor Plan
Source:
Jung/Brann
Architects
FIGURE 5
8
2
84
.T77
61
Typical floor plan
1
2
3
4
5
6
7
8
9
Equipment and support zone
Laboratory zone
Offices
Service corridor/shared equipment
Tissue culture laboratory
Radioisotope laboratory
3-person laboratory
Warm room
Cold room
Darkroom
4-person laboratory
Offices
Source: Ellenzweig, Moore and Associates Inc., Architects
Brochure for Tupper Research Institute, 1987
37
design consultant,
firm as the lead
mechanical engineering
with the architect in the subcontractor position.
lab design, there are
criteria governing
of
jeopardize the
cycle costs and could
add to life
but will
quality
of construction,
the cost
may lower
environmental systems
few opportunities
the
in
Compromises
cutting.
cost
for
safety
functional and
many mandatory
of the
Because
safety of the occupants and the facility's neighbors3
special design
the
of
Some
can require 15-25
including
equipment;
refrigeration
emergency
power
neutralization
systems for laboratory waste
rooms or
rooms;
vibration-isolated
generators
for
sterilization
or
liquids; dry sprinkler systems
or radiation-proof
freezers; explosion-
for cold
hour; a
air changes per
air changes per hour); heavy
typical office use demands 1-2
electrical
hoods are in
air pressures (when fume
positive or negative
an
or maintain
system to exhaust fumes
elaborate air-handling
operation, labs
include:
components
facilities
electron
for
washing and sterilizing lab
microscopes; and facilities for
4
glassware .
of the
One
of a
components
most expensive
atmospheric
research facility
medical
Laboratory
Room.
and stringently
regulated
is the
Animal
tightly
controlled
air exhaust,
and special
lab bench is typically
serviced by
animals
require
conditions, filtered
water and drainage systems.
Additionally, each
hot
and
cold
tap
water, distilled
water,
natural
gas,
compressed
support
air,
and
warm
facilities include
systems.
Lab
cold rooms,
dark
air
sometimes vacuum
rooms,
rooms, and computer rooms.
Office
departmental
adjacent to
the
for
space
support
staff
investigators
principal
is
the labs themselves.
provided
The
on
each
and
floor,
quality and quantity
of this space will depend on institutional priorities.
Developers who intend to produce medical research space
recognize
must
the
complexity
of
the
facility.
The
selection of professionals with laboratory design experience
is
a
must.
Extra
development process
design
time
must
into
be built
to assure that regulatory,
the
safety, and
operational issues are adequately addressed.
NOTES
1. Braybrooke, Susan, ed.
Design for Research--Principles of Laboratory
Architecture, Preface
John Wiley & Sons, New York 1986
2. Ellenzweig, Moore and Associates, Inc., Architects
Brochure for Earl S. Tupper Research Institute, 1986
3. Braybrooke, op.
cit.,
Chapter 3
4. Braybrooke, op.
cit.,
Chapter 4
Chapter X
NATIONAL ACTIVITY
Across
the country,
the
development
of new
medical
research space continues to be performed by the institutions
who will occupy the
facilities.
Universities and hospitals
are actively producing or planning
more
competitive
indications
that
conditions may
for
new space in order to be
research
funding.
locational constraints
cause institutions
There
and/or
to seek the
the private development community
are
financial
services of
to help with their future
expansion.
Modern
Healthcare magazine's
and construction firms tallied
of medical
in the
Johns
1987 poll
41 completions and 42 starts
research facilities in 1986.
Briefly mentioned
accompanying article were research
Hopkins Hospital
and
of architects
parks planned by
Mayo Clinic .
the
Hospitals
magazine ran an article at the same time indicating that the
medical
coast" 2 .
square
R &
D industry
Buildings
foot
is
"going bonkers
planned or
facility
for
from coast
underway include
Johns
Hopkins
to
a 300,000
University
in
Baltimore, the Institute for Advanced Biomedical Research at
Oregon Health Sciences University in Portland, and the Human
Biology Research Facility at the
University of Iowa in Iowa
City.
A number
paper indicated
common
of urban
medical centers contacted
that research
solution was
to
space was
at a
relocate administrative
40
for this
premium.
A
functions
away from the medical center
space into
New York
labs.
Columbia/ Presbyterian Medical
has considered
probably
purchase
campus.
The
Center in
some lease opportunities
a
building
Hospital/Cornell Medical
its
and convert the vacated office
off-campus.
Center has expanded
old-style
pavilions
but will
New
York
by densifying
and courtyards
are
being filled in to increase the floor area.
In Philadelphia, Children's Hospital and the University
of
Pennsylvania Medical
space on
School have
each leased
occasion from the University
research
City Science Center.
UCSC is a 20-year-old non-profit R & D park owned by several
area
educational institutions.
campus,
the park
researchers.
however,
is fairly
Rather than
the hospital
ambulatory care
Since
it
abuts the
convenient for
Medical School
taking additional
will devote
facility to
Penn
leased space,
two floors
of its
research space, while
new
Penn is
constructing a major laboratory building on campus.
Other institutions, like
able to
this
U.C.L.A.
Medical Center, are
occupy adjacent underutilized public
case, a
former Army
hospital owned
buildings (in
by the
county).
Because administrators there saw little chance of assistance
from the state legislature, U.C.L.A. hopes to fund a new $50
million
medical research
building
gift campaign is underway.
San
Francisco
situation.
Medical
A
The University of California at
Center
is
The institution continues
commitment to
with contributions.
in
a
more
difficult
to honor a decade-old
the surrounding neighborhood not
to increase
the density of its
feet of
Several hundred thousand square
campus.
administrative space
replaced with
locations and
has been moved
to off-campus
research facilities.
At this
writing, the Medical Center, which is the second largest NIH
grantee in the nation, is
300,000
square
foot
community
office building
to
research
purchased the building, which
U.C.S.F.M.C. has
but has
from campus,
litigating its right to convert a
groups.
been blocked
is one mile
forward by
from moving
Ryan of
Robert
space.
the Office
of Resource
Management at U.C.S.F. said that leasing research facilities
could well be an attractive alternative.
At
least
one
national developer
has
announced
lease to
develop build-to-suit facilities for
intention to
academic medical centers.
According
its
to Judy Glos, managing
partner of Tishman-Speyer/Mediq, research buildings are just
the firm will
types of specialty facilities
one of several
offer to construct and own for medical centers.
Tishman-Speyer/Mediq
manager
Incorporated,
services to
of
a
Class
New
development
of
Tishman-Speyer's
development
A
office
The firm
expertise in
buildings,
in
on-time
and
Mediq,
provider
of
it can
money in the
Ms.
record in
medical building
42
and
is confident that
facilities.
excellent track
Tishman-
builder, developer,
a great deal of time and
research
projects
1987 by
Jersey-based multi-line
hospitals.
save medical centers
Mediq's
in
long-standing New York-based
Speyer, a
and
was formed
Glos
cites
bringing major
under-budget,
design.
The
and
major
obstacle the firm
of understanding
has faced thus far, she added,
is a lack
proceed on the part
of how to
of medical
Because the concept of leasing major
center administrators.
facilities has not been tested
in the health care industry,
she
challenge
acknowledges
that
her
is
to
educate
administrators about the advantages of leasing.
At the University of
is
underway for
a
Maryland Medical School, planning
415,000 square
foot research
facility
which will likely cost in excess of $100 million.
Vice Dean
Dr.
developer
Marjorie Wilson
favors engaging
a national
like Tishman-Speyer/Mediq to build the facility and lease it
back to
the School
that several years
for at least
20 years.
She estimates
and up to $35 million could
circumventing the extremely
be saved by
lengthy state capital budgeting
process.
For a facility of the
wishes
to
structured
build,
a
type that University of Maryland
long-term
similar to
lease
turn-key contracts
office buildings or industrial plants.
be
set
upon
contract
completion
for headquarters
allowing
extensive level of user input into the design.
contract, the institution is
space.
All systems,
be
The lease rate would
of schematics,
lease amount, which in effect
could
for
an
For the base
is a guaranteed maximum price
provided with "finished shell"
utilities, floor,
wall, and
ceiling
coverings, and lighting would be in place, awaiting only the
movable lab equipment and
The
length
of the
lease
the more specialized instruments.
would
43
be partially
decided
by
leases
operating
governing
regulations
capital
(or
communities
are
vs.
financing) leases.
some
In
country,
the
of
parts
attempting to leverage economic development off of a medical
research
infrastructure.
efforts
of
by
companies
activities in
the
Maryland,
the
to
attract
taking advantage
of
existing
several
agencies already in place, the
described
Maryland,
With the
the area.
and
NIH,
magazine
County,
Montgomery
biotechnology
research
Nature
University of
federal
other
research
county hopes to compete with
the San Francisco Bay area and the Boston area .
Montgomery
Massachusetts
Worcester.
County's
Biotechnology
to
Adjacent
might
prototype
Research
Park,
the University
Medical Center, the park sits
of
be
the
located
in
Massachusetts
on 75 acres and is programmed
for over a million square feet of space.
MBRP is owned by a
non-profit economic development corporation supported by the
City of
Worcester.
intended to
not
Director Ray
satisfy
Quinlan said the
park is
of the
Medical
the space
needs
Rather, it is
targeted towards the growing biotech
firms that are seeking
low-cost space with immediate access
Center.
to
a
thriving
research space at
the
academic
writing, the
nearly
Quinlan
half the cost of Boston
low-rise, non-union
was surplus
community.
to a state
can
space because of
construction, subsidized
hospital),
offer
and low taxes.
first 75,000 square-foot research
land (it
At this
building is
fully occupied the second is under construction.
44
Locational
prevalent
areas.
among
constraints on
many
expansion are
older institutions
in
particularly
dense
urban
found in abundance in Boston.
Such institutions are
Their solutions to the expansion problem is illustrative for
developers
production.
seeking to
service
The case studies
a need
for research
space
in the following chapter will
examine those solutions.
NOTES
1. "Construction/Architects Survey"
Modern Healthcare, February 27, 1987
2. Cherskov, Myk
"Research and development facilities attract money"
Hospitals, February 20, 1987, p. 62
3. "Research centre gets fixed home"
Nature, Vol. 324, p. 400, December 4, 1986
45
Chapter XI
CASE STUDIES IN THE BOSTON MARKET
acclaimed.
internationally
are
hospitals
region's
the
of
Many
research.
medical
and
education,
medical
medical care,
for
world
in the
centers
premier
the
one of
Cambridge form
Boston and
cities of
The
lists
2
Table
Boston's major teaching hospitals and gives a sense of their
Harvard, Tufts, and Boston
economy.
impact on the regional
The NIH
University house their medical schools in the city.
awarded
As
shown
in
ranks
third
in
volume.
grant
Massachusetts
awards.
viewed locally,
When
Table
over
of
total
NIH
has the
& D funding in the
The region also is
in
specializing
firms
in
by NIH
state
the
metropolitan Boston
New York City.
dozen
two
4,
the country
second-highest concentration of health R
country, after
research
the city's institutions
3 ranks
Table
institutes.
to
grants
and
hospitals,
universities,
Boston-based
research
1985
of its
10%
than
more
home to
biotechnology,
including several of the leaders of this nascent industry.
the region has also
Throughout the 1980s,
been one of
the strongest markets in the country for both commercial and
residential real
prediliction
institutions
to
cases
on
has constrained
expand
on
describe
coupled with the
their
the
several
how
46
of
part
the ability
urban
and
groups
tenant-advocacy
downzoning
towards
development agencies,
following
of
activities
anti-growth
This boom, when
estate.
the
city
of some
campuses.
of
a
The
city's
institutions
have
dealt
with
research capacity in the face
the need
to
expand
their
of this difficult real estate
market.
47
TABLE 2
BOSTON'S TEACHING HOSPITALS
RANKED BY 1985 TOTAL EXPENSES
HOSPITAL
SERVIC E
OWNERSHIP
PATIENT EXPENSES EMPLOYEES
BEDS (millions) (FTEs)
1. Massachusetts General Hospital
1082
Gen'l Medical Private Non-Profit
2. Brigham & Womens Hospital
720
Gen'l Medical Private Non-Profit
3. Childrens Hospital Medical Center
339
Pediatric
Private Non-Profit
4. New England Medical Center
416
Gen'l Medical Private Non-Profit
5. Beth Israel Hospital
449
Gen'l Medical Private Non-Profit
6. New England Deaconess Hospital
489
Gen'l Medical Private Non-Profit
7. University Hospital
379
Gen'l Medical Private Non-Profit
8. St. Elizabeth's Hospital
385
Gen'l Medical Church-Operated
9. Veterans Administration Medical Center 691
Gen'l Medical VA-Operated
10. Carney Hospital
422
Gen'l Medical Church-Operated
11. Mt. Auburn Hospital (Cambridge)
305
Gen'l Medical Private Non-Profit
12. Massachusetts Eye & Ear Infirmary
Specialty
Private Non-Profit
13. Dana-Farber Cancer Institute
57
Specialty
Private Non-Profit
14. Faulkner Hospital
259
Gen'l Medical Private Non-Profit
15. New England Baptist Hospital
Gen'l Medical Private Non-Profit
Boston City Hospital
393
Gen'l Medical City-Operated
TOTALS #1 - 15
$ 296.8
6085
241.0
4760
166.9
3277
155.3
2457
154.9
3481
120.1
2433
88.7
1455
87.0
1847
79.2
1650
66.9
1541
62.5
1311
60.1
1029
59.2
1077
44.6
939
44.6
965
N/A
N/A
6,412 $1,727.8
Source: American Hospital Association
AHA Guide to the Healthcare Field 1986
Thomas J.Andrews 1987
48
34,307
TABLE 3
BOSTON AREA RESEARCH INSTITUTIONS
1985 RESEARCH GRANTS FROM NATIONAL INSTITUTES OF HEALTH
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Harvard Medical School
$
Massachusetts Institute of Technology
Brigham & Womens Hospital
Boston University School of Medicine
Massachusetts General Hospital
Dana-Farber Cancer Institute
Childrens Hospital
Tufts University School of Medicine
Harvard University
Beth Israel Hospital
New England Medical Center
Eye Research Institute--Retina Foundation
Whitehead Institute for Biomedical Research
Massachusetts Eye & Ear Infirmary
Forsyth Dental Center
Center for Blood Research
Joslin Diabetes Clinic
Boston City Hospital
New England Deaconess Hospital
University Hospital
TOTAL
56,700,000
42,300,000
33,800,000
31,900,000
29,200,000
25,300,000
18,800,000
17,900,000
12,900,000
9,600,000
8,800,000
5,300,000
5,100,000
4,900,000
4,800,000
3,500,000
3,500,000
3,100,000
2,700,000
2,700,000
$ 322,800,000
NOTE: These figures include research grants only. Training
grants, contracts, and fellowships are not included.
SOURCE: National Institutes of Health
Research Grant Directory 1985
1987
Thomas J. Andrews
49
TABLE 4
NIH RESEARCH GRANTS--FISCAL 1985
EXTRAMURAL GRANTS RANKED BY STATE
Rank
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
State
$ in millions Rank
California
New York
Massachusetts
Pennsylvania
Texas
Illinois
Maryland
North Carolina
Washington
Connecticut
519.1
504.5
382.6
214.2
173.8
128.2
117.4
108.9
101.3
100.0
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
State
Ohio
Minnesota
Michigan
Missouri
Wisconsin
Tennessee
Florida
Virginia
Colorado
Alabama
$ in
millions
93.6
87.1
85.9
77.2
69.6
62.1
50.3
50.0
49.3
48.0
All Other States 444.0
Total NIH Extramural R & D Expenditures $ 3,466,800,000
NOTE: These figures include research grants only. Training
grants, contracts, and fellowships are not included.
SOURCE:
National Institutes of Health
Research Grants Directory 1985
Thomas J. Andrews 1987
50
BETH ISRAEL HOSPITAL
Longwood Medical Area.
Medical School,
NIH
A
in
its
doubled
teaching affiliate of the Harvard
additional space
of a
Boston
a
new
cramped
the hospital
1982, when
with
space
out
operated
facility until
research
million in
$10
fifth-highest among
1985,
Its investigators
50,000 square-foot
Boston's
Avenue in
Beth Israel received nearly
research grants
hospitals.
not-for-profit
449-bed
on Brookline
hospital located
general
a
is
Hospital
Israel
Beth
building.
The
a relatively
became fully occupied within
short time.
At this
the
College,
Beth
BIH
Israel
The
campus.
has signed
has
a
hired
a
the hospital
has
with the
contractor
to
hospital.
build
funded internally.
plans to
Emmanuel
owner,
building's
ten-year lease
improvements, which will be
time,
building that
facility in a two-story
square-foot research
abuts
constructing a 30,000
writing the hospital is
out
the
At the same
construct an
additional
30,000 square feet of research space in four stories atop an
existing
hospital building.
Dubbed "Research
West", that
space is expected to come on line in 1990, and will give BIH
a total
of
160,000
devoted
to biomedical
gross
research.
issue $10-12 million in debt
and
has already
square feet
applied to
The
of
building
hospital expects
area
to
to help fund the new facility,
HHS for
a deviation
from the
interest reimbursement exclusion.
The
hospital's administration
is confident
that they
will
not
future.
major
to
expand off-campus
in
the
foreseeable
The Director of Research, Joan Pinck, expressed two
concerns about
campus.
have
have
moving
research away
from the
main
First is the fact that many of the researchers also
patient
care
hospital, and they
and from
and teaching
do not wish to spend
remote facilities.
inefficiencies
because
certain
responsibilities
ancillary
off-site
services
the
time travelling to
Secondly, there
with
associated
at
and
are costs and
research
facilities
space
(for
example, animal storage) would have to be duplicated at each
site, and transportation would have
to be provided for both
employees
(like
tissue
samples,
utilization
of the
abutting
etc.).
and
Ms. Pinck noted
Emmanuel College
space
research
needs.
supplies
that
campus is
Emmanuel
a possible solution
College
has
for future
suffered
declining
enrollments in recent years.
BRIGHAM & WOMENS HOSPITAL
Brigham &
Womens Hospital,
the second-largest hospital
in 1980
BWH is
in the city when
through the merger of
a not-for-profit
Medical School.
with 720 beds,
became the
it was formed
three adjacent institutions.
teaching affiliate of
Situated on
the Harvard
Francis Street at the southern
end of the Longwood Medical Area, it encroaches more closely
on
the abutting
institutions in
some $50
Mission Hill
the area.
million, 80%
neighborhood than
With
a 1987 research
of which is
52
funded by
the other
budget of
the National
Institutes for
among
Health, BWH
hospitals
in the
is the
number one
country.
All
NIH grantee
of the
hospital's
research space is housed on its Francis Street campus.
In 1985, the sixteen-story,
W.
Thorn
Research
arrangement
Womens,
Tower
between
which
three
completed,
under
institutions:
occupies nine
Medical School,
Hughes Medical
was
180,000 square foot George
and
a
the
a
novel
Brigham
half floors,
&
Harvard
which occupies four floors,
and the Howard
Institute, which occupies the
remaining two
and a half floors.
condominium unit.
Each floor of the $28 million tower is a
The condominium owners rent the ground on
a 40-year lease from the hospital.
Harvard and the Hughes Institute paid for their six and
a half units with cash
did not
have that
from their endowments.
option because
debt issued for the earlier
building.
For
The hospital
of covenants
related to
construction of a new inpatient
this reason,
and because
OMB reimbursement
regulations would have precluded recovery of interest costs,
additional borrowing was out
considered
abandoned
issuing
of the question.
tax-shelter limited
that idea
when
The hospital
partnerships,
uncertainties
about tax
but
reform
arose.
The
institution finally
arrangement.
Hospital
counsel
nonprofit foundation to own the
units.
were
The directors
recruited
from
settled on
of
set
up
an unusual
an
lease
unaffiliated
nine and a half condominium
BioSciences Research
other research
53
Foundation
institutions
in
the
community, to
satisfy the "arms-length" requirement
OMB regulations.
lender,
in the
The Foundation then approached a long-term
Aetna Life
Insurance, to
secure construction
and
permanent financing on the basis of the hospital's intention
to lease
the nine
thirty-year
and a
half floors.
self-amortizing mortgage.
security was
a portion
of a limited
additional return.
to a
Because their
only
use building
and the
on same, the lender demanded
hospital's promise to pay rent
an
Aetna agreed
The borrower
was required
to take
down the full amount of
the permanent mortgage at the start
of
amount
construction.
hospital more
the
This
than $1 million in
construction period.
permanent lender, Bank
credit to
was
As
escrowed, costing
negative arbitrage during
further
protection for
of New England provided
cover construction
Jim Sweeney of the Bank, it
the
cost overruns.
the
a letter of
According to
was crucial that the project be
completed on time
and on budget because the
shell foundation.
A reliable contractor, George B. Macomber
& Company,
was
hired
and fully
bonded.
borrower was a
Bank
engineers
closely monitored the construction, which proceeded smoothly
to completion.
The hospital's lease
with the foundation is
set up so
that rent charged is roughly equal to the mortgage payments.
A slight
among the
overage from
the rental
research institutions
directors are drawn.
payments is
from which
The hospital is able
distributed
the foundation
to recover full
reimbursement from NIH for its lease payments, and generates
54
a nominal incremental cash flow through the ground lease.
Additional
space
research
for BWH
is
investigators
being built as needed in the old Boston Lying-In Hospital on
Longwood
Avenue, which
merger.
for
Renovation
some
was acquired
feet,
square feet
likely to follow.
funded
of
intends
Authority
to
with
in 1988
for
the
a 180,000
on the
site of
If this
growth
occurs as
campus.
The
Boston
to
research facility
30,000
renovations are being
reserves.
approval from
1980
in process
an additional
These
hospital capital
seek
of the
costing $150/square foot is
40,000 square
out
as part
hospital
Redevelopment
200,000 square
an obsolete
foot
building on
planned, the
hospital
could have nearly 350,000 gross square feet of building area
dedicated to biomedical research by 1992.
While acknowledging
that a significant portion
of the
research done on the Francis Street campus could actually be
done
off-site, Vice
John
Cupples
maintain all
He
spoke
stated that
favorably
indicating
"cross-pollenization"
different
over lunch.
benefit of the
"highly preferable"
on the
the
can
a
when
talk
to
to
hospital grounds.
three-party
that
great
ownership
deal
investigators
each
Additionally, some
scale are realized through the
support areas by the
Administrative Services
was
of
occurs
institutions
corridors or
it
research facilities
very
arrangement,
President for
other
of
from
in
the
economies of
sharing of storage and other
three partners.
condominium building:
55
Cupples noted another
if the
Hospital has a
short-term surplus of
lab space due to
a grant expiration,
the Medical School could lease the space, or vice versa.
Like his colleagues at other Boston teaching hospitals,
BWH's
Vice President
would
continue
was
to grow
premier research
in
the
hospitals, such
piece of the NIH pie,
profitable
confident
research
that research
future.
He
volume
foresaw
as BWH, getting
the
a bigger
as well as expanding into potentially
partnerships
with
academia
and
the
commercial biotechnology industry.
CHILDREN'S HOSPITAL
Children's Hospital,
located on
8 acres
off Longwood
Avenue in the heart of the
Longwood Medical Area, is one of
the
in
premier
pediatric
hospital
institutions
inpatient
is in
care.
the
world
The 339-bed
the midst
of
a major
specializing
Harvard
in
teaching
upgrading, with
entirely new inpatient building under construction.
an
Also on
campus is the 178,000
square foot Enders Research Building,
which opened in 1970.
The Children's was the fourth-largest
NIH grantee among
budget
of some
hospitals in 1986, with
$27 million.
The budget
average real annual
rate of 2.5% over the
keep
growth,
up
with this
addition to
its size.
with
the Enders
the
internally through
costs
has grown
building which will
the hospital's
56
planning
To
an
roughly double
to open in
of $200/square
at an
past decade.
hospital is
This addition, scheduled
construction
a total research
foot,
endowment and
early 1990
is
funded
through a
major gift campaign.
the form
secured in
Hughes
Howard
Additional funds for construction were
of a capital
Medical
by the
lease prepayment
researchers
Institute, whose
will
occupy 30,000 square feet of the completed building.
Because
when
the new
on-campus research
on line
facility comes
will nearly
in 1990,
double
Children's
moving any research off-campus
Hospital does not anticipate
in the foreseeable future.
space
According to the Long Range Plan
for the Hospital's PDA (Planned Development Area),
submitted
to the Boston Redevelopment Authority in April 1987:
The three activities which are central to Children's
mission -inpatient care, research, and education
-and intimately linked must remain on the central
decentralized and
other uses are
campus.
As
research expansion projects are completed, there
expansion without
for internal
be room
will
requiring major new construction for a number of
years.
The
Vice
President
surmised
that
opportunities
produce research
space for
of
Children's,
for
private
Carol
Weinrib,
developers
hospitals could occur
if three
conditions existed:
1. The institution in need of space has limited options
for
its own property because of zoning or F.A.R.
constraints.
2. The institution has limited access to capital at the
time.
is able to create an attractive
3. The developer
facility with enough critical mass to keep the
researchers from feeling isolated or segregated from
the institutional mainstream.
57
to
DANA-FARBER CANCER INSTITUTE
The
centers
leading
in
world
the
patient
The
beds.
leadership in cancer
With the study
of over $30 million.
mission, DFCI
its primary
cancer as
diagnosis,
grant monies in 1985, of a
received over $25 million in NIH
of
the
for
The Institute's researchers
treatment, and study of cancer.
total research budget
on Binney
Longwood Medical Area, is one of
Street in the heart of the
the
Institute, situated
Dana-Farber Cancer
operates only
to
commitment
Institute's
57
continued
the new Mayer
research is embodied in
Building, a 9-story, 120,000 square-foot structure now being
The entire building will be
built at a cost of $24 million.
occupied by
square
research labs,
the
feet at
Bernard Janicki says
165,000 existing
adding to the
of Research
Director
Institute.
the new space will
Dr.
alleviate a severe
overcrowding condition and allow for recruitment of some new
research faculty.
Janicki stated that it
facilities would
The Institute's
responsibilities
itself
away from the
main campus.
researchers all have clinical
and teaching
ever be built
in the
has research
several of the other
one
of New
facilities is
was unlikely that DFCI research
and
Area, and
DFCI
clinical interrelationships
with
Longwood
Longwood Area hospitals.
England Deaconess
located in
Institute's pediatric
Medical
For example,
Hospital's cancer
a DFCI
building, and
treatment
the Cancer
oncology department is housed
Children's Hospital.
58
at the
NEW ENGLAND DEACONESS HOSPITAL
New
England Deaconess
teaching
hospital located
With 56,000 square
facilities,
in
the Deaconess
a commitment that
the same
recently
the
needs.
research
the
institutional
better lab space.
facing
the need
to
care facilities.
aging patient
of the bed replacement forced
for its
less capital-intensive solution
Furthermore,
the physical
demanded that
NEDH campus
in two on-campus
made an
hospital was
The huge capital requirements
to a
Area.
teaching and research reputation,
renovate its
the hospital
Harvard
Longwood Medical
would require more and
time,
substantially
the
a 489-bed
feet of research space
commitment to upgrade its
At
Hospital is
constraints of
facilities be
new research
created off-site.
To
solve
its
research space
problem,
the
hospital
entered into an agreement with a local contractor, Kennedy &
Rossi Inc.,
leased
20,000
gross
square
warehouse near Kenmore
Children's
K & R
specialists in laboratory construction.
Hospital.
feet
of
shell
space
Square that happened to
The
space
was built
in
a
be owned by
out to
NEDH's
specifications by K & R, then subleased to the hospital at a
rate which
covered all
costs, and profit.
hospital,
as are
escalations), that
Children's.
years, as
The
of K &
R's construction
All operating expenses are
any
expense pass-throughs
K & R
lease and
has to
does the bank financing
59
paid by the
(such as
pay under its
the sublease
and carry
lease from
each run
that K & R
tax
for ten
arranged for
all the hard and
soft costs.
Hospital researchers occupied
the space in late 1986.
The hospital's
Director of Research, Robert
pleased with the arrangement,
the rental
rate is
Pence, is
although he acknowledges that
expensive.
But
because 70%
of NEDH's
research dollars come from the federal government, with full
reimbursement
operating
for
had
research facility
unable
to
on campus,
recover
indirect
cost
Furthermore,
for Pence
available
been
interest
to
a
build
new
the hospital would
have been
payments
of
reimbursement
OMB
of
Even if the land and debt
those costs are being recovered.
capacity
most
lease expenditures,
as
for
reimbursement
part
research
guidelines
their
grants.
require
the
depreciation allowance to be calculated on a building finish
useful
life of
twenty years,
whereas with
the lease
the
construction cost is essentially amortized over the ten-year
term,
thus
allowing significantly
The hospital also had the
and
running more
interest
facility itself.
reimbursements.
benefit of having the facility up
quickly than
reimbursement
higher
had it
waiver
and
petitioned for
tried
Charged with upgrading
research reputation, Pence needed space
to
build
the
the
the institution's
in a hurry in order
to begin attracting qualified people.
As
for
hospital's
being
the
facility's
main campus,
transferred
administration,
had
and
location one
mile
considerable grumbling
to
shuttle
be
endured
by
transportation
from
the
from those
the
had
hospital
to
be
for the
provided
became
of the
only minor.
Accounting and
not
Research Director
isolated
Square
Kenmore
the remainder
from
research labs
hospital
Pence is sufficiently satisfied
activity.
with the
for another lease opportunity, as
arrangement to be looking
the
the
NEDH ancillary departments
Data Processing, the
completely
routines
acknowledge that
Also, because
building was occupied by
such as
were
began to
established, people
inconvenience was
However, once
research staff.
space
is
now
fully
occupied.
He
estimates an additional requirement of 65,000-130,000 square
feet over the next 5-10 years.
NEW ENGLAND MEDICAL CENTER HOSPITAL
The New England Medical Center campus is located in the
densely
residential
Boston.
NEMC
The NEMC
(70%
a
416-bed
downtown
teaching
hospital
School of
Tufts University
Hospital had
from the
is
Hospital
with the
affiliated
near
Chinatown neighborhood
a research
federal
budget of
government) in
1987,
Medicine.
$25.5 million
up from
$12
million in 1982.
was utilizing 60,000 square feet
In 1984, the hospital
of extremely cramped lab space.
been
made,
hospital's
but
little
endowment.
capital
The
The decision to expand had
was
Medical
available
from
Center fielded
the
offers
from developers for the turn-key construction and lease-back
of off-site
the
research facilities, but
requisite
experience
in
the
few of the
development
firms had
of
such
facilities.
to the
at 25 Kneeland Street
The 100,000 square foot
into the Tupper Research Institute.
of
earlier because
the hospital had purchased
was
campus,
of
edge
on the
location
strategic
its
converted the
NEMC promptly
hospital.
14-story, 60-year-old garment factory
facility, which
when a
patient expired and left some
grateful, and wealthy, former
$10 million
suddenly appeared
for expansion
Funds
renovated at a cost of $165 per gross square foot.
The Tupper
Frank Stout says, "We really
we don't have to (ie.,
that
Administration
Research
don't want to work with anyone
solve its
to
space from a developer.
leasing turn-key
for the
right time
outside developers)", he acknowledged
have had
NEMC might
of
Director
Although
hospital.
just at the
gift came
space squeeze
by
With researchers
now moved into the newly renovated facility, the hospital is
renovating the older laboratories in the Ziskind Building to
all
bring
its
facilities up-to-date.
Funding
is
being
generated through a four-year $24 million gift campaign.
To
covered
assure
that
adequately by
costs of
the
the reimbursement
NEMC uses stringent internal
space
allocation.
medical
Each
research
are
dollars received,
productivity standards for lab
research department
must generate
$200 of direct cost reimbursement per net square foot of lab
space utilized.
Thus, if
the Neurology department occupies
10,000 net square feet of labs, it must generate at least $2
million in
or it
direct reimbursement
may be
required to
relinquish lab space to another, more productive department.
62
TUFTS UNIVERSITY SCHOOL OF MEDICINE,
SCHOOL OF DENTAL MEDICINE,
SCHOOL OF GRADUATE BIOMEDICAL SCIENCES
are housed in several
Tufts' health sciences divisions
was directed to the US Department
some $12 million of which
was flat in
renovated
Dr.
net square
Joseph
Associate
Byrne,
space by
the complex
Avenue.
Harrison
Provost
Research,
for
70,000 net square feet of
large chunk
A
1992.
136
at
buildings
older
existing
of
feet
which is scattered throughout
described plans for an additional
research
a rate of
This growth
the previous four years.
100,000
the
laboratory space
of
budget growth
1986, research funds had expanded at
saturated
80% is
$26 million,
Although
government.
over 15% per year for
has
the remaining
Of
Tufts.
the federal
funded by
which is
Human Nutrition Research Center,
of Agriculture's
operated by
million,
about $38
budget was
1986 research
university's
The
Chinatown.
in
campus
NEMC
the
abutting
buildings
would be
of this
housed in the so-called "Infill Building" that would fill in
the
said
horseshoe-shaped complex
the School's
long-range
at 136
Harrison.
plans call
for
Byrne
Dr.
a total
of
250,000 net square feet dedicated to research by 1997.
The
University
campaign to help finance
anticipates
that
the
kicked off
has
remaining capital
five-year
the planned expansions.
Infill
one-third by borrowing and
the
a
Building
would
capital
Dr. Byrne
be
funded
one-third by donations, and that
could
be secured
from the
federal
government
Although
in
the
the form
NIH
of
has
a
direct construction
issued
very
recently, Tufts' adminstration is
soon come available and that
few
grant.
capital
grants
confident that funds will
the School of Medicine will be
able to access those funds.
When
asked
alternative
if
for the
leased
School,
facilities
were
a
Dr. Byrne responded
viable
that the
option would certainly be considered if sites could be found
within walking distance to
he
noted, usually
School
have
and clinical
the main campus.
teaching
responsibilities at
responsibilities
They would be very reluctant
Investigators,
next
door at
the
NEMC.
to venture too far off-site to
reach their laboratories.
BOSTON UNIVERSITY SCHOOL OF MEDICINE
UNIVERSITY HOSPITAL
Boston
University
Schools
Dentistry
and University
fringe of
the city's
and University
of Medicine
Hospital
share a
Graduate
campus on
South End neighborhood.
Hospital had 1985 research
and
the
The Schools
grants of nearly
$35 million from NIH, most of that assigned to the School of
Medicine.
This figure
research budget for
represents
some 80%
the institutions.
of the
total
University Hospital,
a 379-bed teaching facility which is affiliated with but not
owned by the School, is
nearing completion of a $66 million
reconstruction of its patient care buildings.
Medicine
has about
180,000 square
64
feet of
The School of
research space
scattered throughout its campus.
BUSM has
state's
leased research
Department
building
next
of
door
space in
Mental
to
the
the past
Health,
School
which
of
from the
operates
Medicine.
a
This
favorable experience led the school's Dean, Dr. John Sandson
to choose the
in
1987.
lease option when expansion
The
Community
School has
entered into
Development Corporation
space was needed
an agreement
of Boston,
with
a non-profit
developer, to lease 37,000 square feet of shell space on the
top three floors of 801 Albany Street, a five-story building
located a few blocks from
former paint brush
of
Boston.
the main campus.
The 60-year-old
factory had been sold below
Since
the
structure is
in
an
cost to CDC
economically
disadvantaged neighborhood, a package of federal, state, and
city loans and guarantees will
the improvements.
options,
and
The five-year lease has
calls
improvements.
As
hospital,
can
federal
BUSM
supplement the bank loan for
government
for
an
the
School
educational
recoup
to
choose
build
institution,
its interest
should it
three five-year
to
costs
out
not
from
borrow money
the
a
the
to
construct the laboratory space.
Dean Sandson estimates that
require another 50,000 square
the next five
support any
years.
the School of Medicine will
feet of research space within
Because the existing
further development,
campus will not
it seems likely
that the
school will be looking for space around the perimeter of its
property in the South End.
65
MASSACHUSETTS GENERAL HOSPITAL
Massachusetts General Hospital, with
largest
budget
hospital in
(nearly
expenditures
affiliated
New England,
$400
($75
with
the
1987)
The
and
in
School,
in the West End of
MGH broke ground
terms of
institution,
Harvard Medical
two new, and long-delayed,
million.
both in
in
million).
densely built campus
Charles River.
million
1082 beds, is the
total
research
which
is
occupies
a
Boston, facing the
in 1987 for the
first of
patient care towers costing $250
The Hospital devotes nearly 290,000 square feet on
campus to biomedical research,
that commitment by signing
and early in 1987 reinforced
a substantial long-term lease in
Building 149 at the former Charlestown Navy Yard.
Of the $75
million budgeted for research,
the federal
government, 17% from foundations,
endowment,
and
18%
from
percentage of commercial
in recent
began
institution
its
for
funding
indirect
established by OMB.
reviewed
by the
attempts
to
sources
costs
at
aggressively
to
reimburse
the
the
overhead
rate
Any exeptions to this policy have to be
that
subsidized by patient care
be unacceptable
at the hospitals
The Hospital
Hospital Board
ensure
The
funding has increased dramatically
market promise.
all
10% from the
contracts.
years as research breakthroughs
to show
requires
commercial
55% is from
to third
of Directors.
research
operations
The policy
are
not
revenues, a situation that would
party payors and
which conflicts
with the institution's primary mission as a care provider.
66
in
Administration
former
to
by
had
into
developers
private
a ten-story, 650,000
renovated
been
a private
interests
its
sold
into
office leases
passed with no
Group
Boston
the
the Congress Group,
Congress
the
consummated,
over
Nixon
the
being redeveloped
is
warehouse,
many months
When
by
turned
space by
speculative office
closed
Building 149,
the BRA.
foot
developer.
and
other uses
and
offices,
designated by
square
1974
Authority (BRA),
Redevelopment
housing,
Yard,
Navy
Charlestown
The
in
Building 199 (which had been
Building 149 and its neighbor,
a group headed by Neil St.
made into a 1400-car garage), to
John Raymond, an established Boston developer.
Raymond planned to create
149.
center at Building
that
group,
his
the city
has
which
essentially
is
project,
a lease commitment from MGH.
the most valuable
are exercised, it will be
executed in
lease ever
sale of the
Before closing on the
two buildings, Raymond secured
If all options
an enormous medical research
of Boston.
equity
considerable
acting
as
a
Raymond says
lender
in
the
to
the
institution.
He felt that the hospital could have purchased
Building 149
had it
option
lease
chosen to, but
that by
practicing
MGH
was
to
Lawrence
selecting the
prudent
"fiscal
Assistant
General
conservatism".
According
Director of
problems
operations
the Hospital,
for
MGH.
were in
Martin,
the lease solved
First,
the
two different
67
three separate
institution's
locations on
computer
campus and
The same was true of the offices
needed to be consolidated.
of the
at
was
Building 149
Third,
reserved for
square feet
of research
into an
average of
person.
space per
The
applying for
investigators were
now some
continuations from
departments.
opened in 1984, had filled
Wellman Research Building, which
quickly, and
92,000 square feet
these two
were crammed
MGH's researchers
about 200
up
Some
fiscal affairs department.
lab space was
their sponsors because no
available in which to start their experiments.
lease
The
Research
be occupied in September 1987;
feet office and computer, to
January 1988).
research, occupancy
and 83,000
square feet
An option,
to be exercised
additional 205,000
Biotechnology
175,000 square feet (92,000 square
is for
Associates, Inc.,
and
MGH
between
by March 1988, provides
square feet of research
writing, Assistant Director Martin
space.
for an
At this
reports that the initial
research space, plus three quarters of the option space, has
been subscribed to researchers
Hospital fully expects
to "sell out" the rest
initially being
As new
in that
density
to settle
of the space
researchers at Building
allocated some 500 square
researchers.are
The
This enormous space consumption is
and exercise the option.
somewhat illusory
who are already funded.
feet per person.
added, however, Martin
around a
149 are
comfortable and
expects the
efficient 350
square feet per person.
The term of the lease is 15 years with 5 year renewals,
except for the office/computer
component, which runs for 10
68
years.
rental rate is
Because the base
amount.
base property tax
over a
for escalations
electricity and
pays for
Hospital
and the
up during the term,
rental rate bumps
The
fixed and incorporates a "standard" level of lab finish, the
administration has
hospital
to pay
a fund
for
allocates this
The administration
lab spaces.
customized
set aside
money based on institutional research priorities.
Navy Yard is
Since the
surprised to hear of
the Hospital
research community
the medical
many in
campus,
over a mile from
were very
MGH's major commitment in Charlestown.
Medical research had always been carried out in the heart of
administrators predicted
Even some MGH
hospital campuses.
researchers to relocate to
extreme difficulty in persuading
a remote facility, away from their patient care and teaching
facility
agreed
were apparent,
to make
the move
however, a
These respected
mass and were followed by
to maintain
who wished
investigators
few key
to Charlestown.
individuals provided the critical
many others
the new
the quality of
the spaciousness and
Once
duties.
proximity to
the most
prestigious research activities.
The
competitive
research space available
Dr. Kurt
which will
having
extra
article in the
Describing a program headed
Isselbacher, Director
Research Center,
of
was detailed in an
June 1987 Boston Hospital News.
by
for MGH
advantage
of the
be housed in
article stated:
69
new MGH
Cancer
Charlestown, the
One of Dr. Isselbacher's major tasks will be to
recruit additional top-flight scientific talent for
the center. He anticipates an almost 30 percent
increase in personnel, now that the availability of
space in Charlestown has made expansion possible.
Many of the new researchers are expected to be young
who already have excellent records of
scientists
can "come on-board" as
accomplishment and who
quickly as laboratory space is set aside for them.
"The whole excitement is to create an even better
intellectual scientific environment, which in turn
will improve patient care," Dr. Isselbacher said.
Several factors
conspired to make the
Navy Yard lease
First,
an appropriate solution to MGH's space requirements.
$250
tax-exempt bonds
million in
new patient
the
Hospital
to fund
auditors
predicted that
out
as
an
or constructing a research
option.
This
experience with
Hospital's
& Poor's
stance
was
the Wellman
the
Hospital
would
more debt
issuance of
the
issued by
care towers.
institution's Standard
jeopardize the
Thus, buying
had been
AA rating.
building was ruled
fortified
by
the
Research Building.
Built with tax-exempt bonds, Wellman drained MGH coffers for
a year when HHS enforced
the OMB provision against interest
cost reimbursement and an expected gift fell through.
After
protracted negotiations, HHS finally agreed to reimburse for
interest
expense, and
expense for
operating
to pay
double interest
operation.
Nonetheless, an
even agreed
the second year of
lease arrangement
would obviate
the need
for a
waiver application and lengthy negotiations with the federal
government.
the
Another important factor
opportunity
Should Building
for future
expansion
149 fill up, Developer
70
in MGH's decision was
at
the Navy
Yard.
Raymond promised to
199, to research
the huge garage, Building
convert part of
14 vacant acres still under BRA
space, and beyond that were
control.
MASSACHUSETTS EYE & EAR INFIRMARY
Infirmary is a 174-bed Harvard
Massachusetts Eye & Ear
teaching hospital specializing in eye, ear, nose, and throat
(EENT) care.
The Infirmary received 90% of its $6.5 million
1986 research budget from the
NIH.
Most of MEEI's physical
plant, including about 40,000 square feet of research space,
is contained in a twelve-story building squeezed between the
Suffolk County
The Infirmary
campus.
1990.
was outbid by MGH in
site, which is to be vacated
secure the Jail
by
Because
of the
Park neighborhoods,
River
limited
for
General Hospital
Jail and the Massachusetts
the
negotiations are
expansion options
underway for
MEEI researchers would
As
a lease
by the County
Hill and
nearby Beacon
institution.
its attempt to
of
Charles
are extremely
this
writing,
arrangement whereby
occupy a portion of
Building 149 at
the Navy Yard in Charlestown.
Vice President of
Finance Patrick Capobianco explained
the interest in the Charlestown building:
has been
research volume
of our
The growth
constrained for several years by space limitations.
Our investigators are clamoring for more space so
they can apply for more grant money. With NIH
in EENT
per year
awarding about $200 million
this
certain that
feel
grants, we
research
institution can secure a bigger share of that pie.
an initial 15-year
is seeking
The Infirmary
lease of
149, with options to roughly
40,000 square feet at Building
double that amount after three years, and additional options
at
subsequent
intervals.
Capobianco
expects
that
a
diffusion of existing research will fill most of the initial
space.
Meanwhile,
for
proposals
investigators
future
research
additional
laboratories
Capobianco
noted
that
will
the
submission, and
preparation,
can
grants
begin
to
knowing
be
available
time
required
in
for
award notification
prepare
that
the
Year
3.
proposal
can often
take around two years.
MEEI
will attempt
laboratory
to
have
construction rolled
as much
into the
of
the cost
of
lease payment
as
possible, since the institution will be fully reimbursed for
the amount
costs
that
payment
expense
the developer
would
possibly
payment by NIH.
of the lease
have
through
would
to
does
be picked
borrowing,
not
be
not
roll into
up
by
in which
reimbursable
Any construction
the
the
case
without
lease
Infirmary,
the
a
interest
deviation
procedure.
MEEI administrators were
distance
from
the
Infirmary
comforted by MGH's success in
research activity
not
expect any
initially concerned about the
to
but
are
assembling a critical mass of
at Building 149.
difficulty in
Charlestown,
The
Infirmary now does
persuading investigators
relocate to the planned new facility in Charlestown.
to
CASE STUDY SUMMARY
The
for
Boston cases
developers
to
demonstrate that
service
teaching hospitals and
have entered
the research
medical schools.
into agreements
and a fourth is pending.
following
space
of
Three institutions
for leased
steered the
First, the
laboratory space,
institutions to
the
institution is in a competitive
environment.
Though
others, it is
very difficult to make money
some
high-quality, expanding
needs
The presence of one or more of the
conditions has
lease decision.
opportunity exists
institutions fare
better
than
on research.
research program serves
A
to attract
capable clinicians and enhance the institution's reputation,
which
then attracts
existing campus
available is
Most
patients.
has no expansion capacity,
reserved for
academic medical
campuses.
Finally,
leasing.
The
expansion,
future patient
centers exist
there
hospital
and
impossible.
Second, the
adding
may
new
The following
federal reimbursement
are
or the capacity
care facilities.
on constrained
financial
be funding
debt
would
chapter
institution's
urban
incentives
a
be
major
capital
imprudent
will demonstrate
policies favor leasing
for
or
that
turnkey space
over shell space.
A developer who is attempting
hospital's needs must be
occupied
by
the
to build space to suit a
cognizant of the delicate position
hospital
administration.
A
hospital's
reputation is created in large part by the doctors who treat
its patients.
The hospital administration's challenge is to
retain these key people by servicing their needs while still
operating the
institution as
develops its own new
a smaller issue
a business.
When
a hospital
research facilities, schedule is often
than budget.
The administration
will move
methodically to collect the input of the investigators, many
of whom will have very specific request for customization of
their research
spaces.
Institutional priorities
will then
determine whose requests are met within the realities of the
budget.
Some
design professionals
suggested
that the
interviewed
developer could
for this
leverage his
paper
position
outside the institution to expedite the design process.
lease agreement
should stipulate realistic time
the collection of user input,
design time
input from the investigators who
full
insists on
disposal, the
associated with
in extracting
will occupy the space.
having the
developer
this level
frames for
with penalty to the tenant if
overruns because of difficulties
the institution
The
design team
must assure
at its
that the
of service, including
If
costs
costs of
delay in project completion, are borne by the institution.
Chapter XII
FINANCIAL ANALYSIS
Because institutions have traditionally built and owned
all
of
their facilities,
arrangement
should
be
a
prepared to
justifications to overcome
lack of control.
in Exhibits
The
developer
proposing a
offer
some
lease
financial
the institution's concerns about
proforma cash flow analyses presented
1-4 illustrate the
impact of the
federal cost
reimbursement policies on various occupancy arrangements for
research
performers.
Exhibit
5
looks
at
a
particular
arrangement from the developer's cash flow statement.
Except
for Exhibit
similar
in
assumes
that
order
to
4,
the facts
facilitate
laboratories are
for
each case
comparison.
built
out
are
Each
in shell
case
space
rented from a taxable entity on a 15-year triple- net lease.
Exhibit 4
shows cash flows
for a new
building constructed
and held for 15 years by the nonprofit research performer.
All cash flows
year, then
are assumed to come at the
inflows are
netted against outflows.
flows are then discounted back to
of 9%.
cost
these
The discounted cash
or net
present value
discounted
Time-Adjusted
15-year annuity
end of each
flows
Annual Cash
Time 0 at a discount rate
flows result in a
at Time
are
The cash
0.
For
equalized
Flow
Equivalent,
which would have
value as the cash flows shown.
75
net present
Exhibits 1-4,
to
produce
which is
same net present
a
the
cost or
Exhibit 1
HOSPITAL PROFORMA
TURN-KEY SUBLEASE FROM DEVELOPER
This case
assumes that
lease for shell
space.
the developer signs
The lease is
triple-net with small
escalations after Years 5
and 10.
the Director
Administration at
teaching
of Research
hospital
laboratory
in
construction.
and
the
The developer approaches
offers
shell
to
a medium-sized
produce
space
The hospital
a 15-year
after
a
6
turn-key
months
would have to agree
of
to sign on
for the remaining 14.5 years of the base lease.
The developer
with
whom
he
has approached
has
done
a local
business
commercial bank
before.
The
bank
is
interested in establishing a relationship with the hospital.
The lender,
comfortable with
lab construction
and with the hospital's
prospects, agrees to finance
costs.
This includes
construction period,
developer's
8%
the developer's
lease payments
all construction
self-amortizing mortgage
credit and future
all of the developer's initial
the base
fee.
expertise in
The
bank
costs, and
writes
secured by the
during the
a
even the
15-year
hospital's ability
to pay rent.
The hospital's rental rate
developer's base
payment,
is calculated by adding the
lease payment to the
then multiplying
by
a debt
which the lender feels comfortable.
developer's mortgage
coverage ratio
with
The hospital would also
be responsible for paying property taxes above the base year
amount.
For ease
of illustration the Exhibit
all of the hospital's research
indirect cost
fund sources are paying full
reimbursement, as
the NIH would.
guidelines, the hospital's operating
research facility qualify as
supporting
research.
periodically
scenario,
for
the
its
assumes that the
Under OMB
lease payments for its
reimbursable indirect costs of
The
hospital
would
lease payments.
hospital's
cash
be
Thus,
position
is
reimbursed
under
this
completely
neutral.
The
biggest drawback
from the
would be the loss of control of
term.
There is
also the
tax
and developer
profit
the space at the end of the
risk of
research funding environment.
the indirect
decide
to cap
are rolled
in the
hospital's
likely be at the higher
rates, or
cost efficiency, the
program could suffer.
into the
cost percentage spectrum.
indirect cost
consideration for
major upheavals
For example, because property
lease payment, the institution will
end of
hospital's perspective
Should OMB
award grants
with
hospital's research
EXHIBIT 1
ASSUNPTIONS--TURN-KEY SUBLEASE FROM DEVELOPER
LEASE TERNS--DEVELO PER
Developer lease (GSF)
Lease term (yrs)
Lease rate ($/GSF/yr) Yr 1-5
% Bump (Yr 6, 11)
Lease start date
Time
Lease end date
Time
Property tax rate ($/GSF/yr) Yr 1
Property tax rate ($/GSF/yr) Yr 2-4
Property tax bump (%)Yr 5,8,11,14
PROJECT COSTS
0
15
$1.25
$2.50
15.00%
$/GSF
Hard project costs
Soft project costs (not incl interest)
Major movable equipt costs
Total construction costs
Developer's fee ()
20,000
15
$5.00
10.0%
8.00 %
Total project costs
TOTAL
$105.00 2,100,000
20.00 400,000
25.00 500,000
150.00 3,000,000
12.00 240,000
$162.00 3,240,000
CONSTRUCTION/PERIANENT LOAN
Developer loan term (yrs)
15
Developer dovnpayment
0.0%
Construction period (montbs)
6
Constr. per. ave. bal. (%of tot. cost)
50%
Interest rate (annual %)
9.5%
Total costs
3,240,000
Less: downpayment
0Total costs to be financed
Construction period interest
Construction period rent
3,240,000 =
76,950 +
50,000 +
Developer loan principal
Loan payment (annual)
Debt coverage ratio
3,366,950
$430 107
Hospital
Hospital
Sublease
Sublease
Property
1.15
HOSPITAL SUBLEASE
sublease (GSF)
sublease term (yrs)
start date
Time
end date
Time
tax allowance ($/GSF/yr)
20,000
14.5
0.5
15
$2.50
$/GSF
Hospital lease rate (first 4.5 yrs)
DC ratio I (loan payt + lease payt)
Lease rate (next 5 yrs)
Lease rate (last 5 yrs)
HOSPITAL INCOME
Lab opening date
Research volume ($/GSF/yr) Yr I
Time
Research volume ($/GSF/yr) Yr 2
Research volume ($/GSF/yr) Yr 3
Research voluse growth %/yr) Tr
s 4-15
Full reimbursement %
Discount rate ()
ANNUAL
TOTAL
30.48
609,623
31.06
31.69
621,123
633,773
0.5
100.00
$120.00
$150.00
5.0%
100.0%
9.0%
(C13flN
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eoI
CA
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-
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ri
Exhibit 2
HOSPITAL PROFORMA
HOSPITAL LEASES SHELL, BUILDS IMPROVEMENTS
INTEREST COSTS NOT RECOVERABLE
The
scenario depicted
hospital has gone
and secured a
in Exhibit
2 assumes
directly to the owner of
the shell space
15-year lease agreement exactly
the developer secured in
that the
like the one
the previous Exhibit.
Once again,
construction will require a period of 6 months, during which
base lease payments and property taxes are due.
Unlike
the
developer,
leverage the project.
drawn
from
the
the hospital
The 25%
endowment
that the
not
fully
downpayment is assumed to be
or
cash
downpayment was generated through
be argued
will
reserve.
If
the
a gift campaign, it could
financial analysis should
not consider
that a cash outflow.
The
hospital's
reimbursement
is
calculated
by
depreciating the building finish over the term of the lease,
equipment over 8
years, and adding those
base
property
lease
initial
and
cash outflows
cash flow
the lease.
tax payments.
and the
lack of
is substantially negative
This is
not a
allowances to the
Because
of
the
interest recovery,
in the early
years of
favorable arrangement
from the
hospital's perspective.
80
EXHIBIT 2
ASSUMPTIONS -- HOSPITAL LEASES SHELL, BUILDS INPROVEMENTS
INTEREST COSTS NOT RECOVERABLE
LEASE TERNS--HOSPITAL
Hospital lease (GSF)
Lease term (yrs)
Lease rate ($/GSF/yr) Yr 1-5
% Bump (Yr 6,11)
Lease start date
Lease end date
Time
Time
PROJECT COSTS
20,000
15
$5.00
10.0%
0
15
$/GSF
TOTAL
Building shell costs
Building finish costs
Major movable equipt costs
$0.00
0
125.00 2,500,000
25.00 500,000
Total costs (not incl. interest)
150.00 3,000,000
CONSTRUCTION/PERKANENT LOAN
Hospital loan term (yrs)
15
Hospital downpayment (%)
25%
Construction period (months)
6
Constr. per. ave. bal. (%of tot. cost)
50%
Interest rate (annual %)
9.5%
Total costs
3,000,000
Less: Downpayment
750,000 Total costs to be financed
Construction period interest
Construction period rent
2,250,000 =
53,438 +
50,000 +
Hospital loan principal
Loan payment (annual)
2,353,438
305,525
USEFUL LIVES
Building shell useful life (yrs)
Building finish useful life (yrs)
Major movable equipt useful life (yrs)
PROPERTY TAXES
Property tax rate ($/GSF/yr) Yr 1
Property tax rate ($/GSF/yr) Yr 2-4
Property tax bump (%)Yr 5,8,11,14
HOSPITAL INCOME
Lab opening date
Research volume ($/GSF/yr) Yr 1
Research volume ($/GSF/yr) Yr 2
$1.25
$2.50
15.0%
Tim
Research volume ($/GSF/yr) Yr 3
Research volume grovth (%/yr) Yrs 4-15
Full reimbursement %
Discount rate
n/a
15.0
8
0.5
$100.00
$120.00
$150.00
5.0%
100.0%
9.0%
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Exhibit 3
HOSPITAL PROFORMA
HOSPITAL LEASES SHELL, BUILDS IMPROVEMENTS
INTEREST COSTS RECOVERABLE
Exhibit 3
the
with
shows the results of
HHS auditor
over
is now
being reimbursed,
hospital
and
the
interest
Because the interest expense
there are actually
annual cash flows during the
the
allowability of
the
cost.
payments as an indirect
successful negotiation
some positive
first half of the lease.
Both
be
more
hospital's
lender
will
comfortable with this arrangement.
is the fairly high indirect
One cause for concern here
cost rate during the early years, which could be problematic
if
research sponsors
attempt to
future.
83
trim their
costs in
the
EXHIBIT 3
ASSUMPTIONS -- HOSPITAL LEASES SHELL, BUILDS INPROVENENTS
INTEREST COSTS RECOVERABLE
LEASE TERNS--HOSPITAL
Hospital lease (GSF)
Lease term (yrs)
Lease rate (S/GSF/yr) Yr 1-5
% Bump (Yr 6,11)
Lease start date
Lease end date
Time
Time
20,000
15
$5.00
10.0%
0
15
$/GSF
PROJECT COSTS
TOTAL
Building shell costs
Building finish costs
Najor movable equipt costs
0
$0.00
125.00 2,500,000
25.00 500,000
Total costs (not incl. interest)
150.00 3,000,000
CONSTRUCTION/PERNANENT LOAN
15
Hospital loan term (yrs)
25%
Hospital downpayment (%)
6
Construction period (months)
50%
Constr. per. ave. bal. (%of tot. cost)
9.5%
Interest rate (annual %)
3,000,000
Total costs
750,000 Less: Downpayment
Total costs to be financed
Construction period interest
Construction period rent
2,250,000 =
53,438 +
50,000 +
Hospital loan principal
Loan payment (annual)
2,353,438
305,525
USEFUL LIVES
Building shell useful life (yrs)
Building finish useful life (yrs)
Najor movable equipt useful life (yrs)
PROPERTY TAXES
Property tax rate ($/GSF/yr) Yr 1
Property tax rate ($/GSF/yr) Yr 2-4
Property tax bump (%)Yr 5,8,11,14
HOSPITAL INCONE
Lab opening date
Research volume ($/GSF/yr) Yr 1
n/a
15.0
8
$1.25
$2.50
15.0%
Time
Research volume ($/GSF/yr) Yr 2
Research volume ($/GSF/yr) Yr 3
Research volume growth %/yr) Yrs 4-15
Full reimbursement %
0.5
$100.00
$120.00
$150.00
5.0%
100.0%
9.0%
Discount rate
84
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Exhibit 4
HOSPITAL PROFORMA
HOSPITAL CONSTRUCTS BUILDING
INTEREST COSTS RECOVERABLE
The scenario shown in Exhibit 4 differs in several ways
leases
shell
the
from
is built
structure
discussed
expected to
in lieu
a payment
make
non-profit entity,
the
no
In reality, the institution may
property taxes are assumed.
be
by a
and owned
Because
above.
of
taxes to
the
As a new construction project, it will be one
municipality.
year from Time 0 before occupancy can occur.
Once again the
of the project cost, which of
institution will put down 25%
course is higher ($200/sf) because it is new construction.
Because of
the early
positive in
occurs despite
on the
cost recovery, cash
the interest
the relatively small useful
building's shell (1/40
per yr.).
Value to
The reason for
this case
period.
and
This
life allowances
finishes (1/20
Net Present
assumption about appreciation
Unlike the lease scenarios detailed above, in
there is
at the
a residual
end of
the holding
This analysis assumes that the building's shell has
appreciated by 9% per year
finishes
per yr.)
period.
the large, positive
the hospital is the
of the asset.
the holding
years of
flows are
have depreciated
over the holding period, and the
on
a
their 20-year useful life.
86
straight-line basis
over
EXHIBIT 4
ASSUMPTIONS -- HOSPITAL CONSTRUCTS BUILDING
INTEREST COSTS RECOVERABLE
20,000
15
Building area (GSF)
Holding period (yrs)
S/GSF
PROJECT COSTS
TOTAL
Building shell costs
Building finish costs
Najor movable equipt costs
50.00 1,000,000
125.00 2,500,000
25.00 500,000
Total costs (not incl. interest)
200.00 4,000,000
CONSTRUCTION/PERHANENT LOAN
15
Hospital loan tern (yrs)
25%
Hospital downpayment (%)
12
Construction period (months)
50%
Constr. per. ave. bal. (%of tot. cost)
9.5%
Interest rate (annual %)
4,000,000
Total costs
1,000,000 Less: Downpayment
Total costs to be financed
Construction period interest
3,000,000
142,500 +
Hospital loan principal
Loan payment (annual)
3,142,500
415,024
USEFUL LIVES
Building shell useful life (yrs)
Building finish useful life (yrs)
Najor movable equipt useful life (yrs)
HOSPITAL INCOE
Lab opening date
Research volume ($/GSF/yr) Yr
Research volume ($/GSF/yr) Yr
Research volume (S/GSF/yr) Yr
Research volume growth (%/yr)
Full reimbursement %
Property appreciation rate (shell)
Discount rate
Time
5-15
40
20
8
1
$110.00
$120.00
$150.00
5.0%
100.0%
9.0%
9.0%
§8
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88
Exhibit 5
DEVELOPER PROFORMA
TURN-KEY SUBLEASE
Exhibit 5 shows the cash
flow to the developer for the
turn-key sublease
deal described under Exhibit
1.
the
100% financed
development
fee,
developer is
this arrangement
including the
carries
analysis does not even take
an
Because
infinite return.
This
into account the tax advantages
that will occur because of interest and depreciation charges
against the
hospital
rental income.
in
place, the
income stream
if he
With
a credit tenant
developer
needed to take
could
like the
easily sell
the
extra cash
during the
of potential financial
returns to
term of the lease.
Further examination
developers
is beyond
the scope
studies
presented earlier
returns
are
long-term
available
lease
of this
suggest that
to
developers
situations.
structure the deal to
The
case
superior financial
in
The selection
institution with a commitment to
compete for funding is
paper.
build-to-suit
of
a
stable
research and an ability to
imperative.
The developer must then
minimize his construction, financing,
and operating cost risks.
89
EXHIBIT 5
ASSUMPTIONS--TURN-KEY SUBLEASE
LEASE TERMS- -DEVELOPER
Developer lease (GSF)
Lease term (yrs)
Lease rate ($/GSF/yr) Yr 1-5
% Bump (Yr 6, 11)
Time
Lease start date
Time
Lease end date
Property tax rate ($/GSF/yr) Yr 1
Property tax rate ($/GSF/yr) Yr 2-4
Property tax bump (%)Yr 8,11,14
PROJECT COSTS
20,000
15
$5.00
10.0%
0
15
$1.25
$2.50
15.00%
S/GSF
TOTAL
Hard project costs
Soft project costs (not incl interest)
Major movable equipt costs
Total construction costs
Developer's fee (%)
8.00%
$105.00 2,100,000
20.00 400,000
25.00 500,000
150.00 3,000,000
12.00 240,000
Total project costs
$162.00 3,240,000
CONSTRUCTION/PERMANENT LOAN
Developer loan term (yrs)
15
Developer downpayment
0.0%
Construction period (months)
6
Constr. per. ave. bal. (%of tot. cost)
50%
Interest rate (annual %)
9.5%
3,240,000
Total costs
Less: downpayment
0Total costs to be financed
Construction period interest
Construction period rent
3,240,000
76,950 +
50,000 +
Developer loan principal
Loan payment (annual)
Debt coverage ratio
3,366,950 =
$430 107
1.15 x
Hospital
Hospital
Sublease
Sublease
Property
HOSPITAL SUBLEASE
sublease (GSF)
sublease term (yrs)
start date
Time
end date
Time
tax allowance ($/GSF/yr)
20,000
14.5
0.5
15
$2.50
$/GSF
Hospital lease rate (first 4.5 yrs)
DC ratio X (loan payt + lease payt)
Lease rate (next 5 yrs)
Lease rate (last 5 yrs)
Discount rate ()
ANNUAL
TOTAL
30.48
609,623
31.06
31.69
621,123
633,773
9.0%
-0
.2
-
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8
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EXHIBIT 5
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XIII
Chapter
CONCLUSIONS
This paper set out to examine a small niche of the real
estate market, the biomedical research facility.
Because of
the narrow market and the nature of the institutional users,
the
development
industry
has
in
the
past
been
under-
represented in the production of medical research space.
Demand for research space is driven by the availability
of funds from government, industry, or philanthropies.
sector has demonstrated a
commitment to research support in
the past.
Future prospects for
fair
might
and
be
Each
very
funding levels are at least
good
under
certain
political
and economic conditions.
Academic research performers throughout the country are
intent
on fulfilling
competitive
their research
for funding.
To achieve
mission by
remaining
this end,
many will
seek to upgrade or expand their facilities.
Opportunities for the
laboratory facilities for
development community to produce
research institutions could occur
if certain conditions exist:
1. Institutional growth is constrained by campus density and
surrounding competing uses.
2. The
institution
is
construction funds.
unable
or
unwilling
to
secure
3. Occupancy
cost reimbursement
by the
institution's
research sponsors allows recovery of leasing costs.
92
4. The institution is able, if necessary, to persuade its
investigators to perform their research at a site which
is not
immediately adjacent to the sites of their
teaching and clinical duties.
the
Because of
the specialized nature of
difficulty
of
developer
the
who establishes
planning
a
and
level of
the product, and
design
skill in
process,
a
producing
these facilities will probably be faced with few competitors
in a
given market.
Prudent deal
structuring should result
in excellent financial returns to the developer.
LIST OF INTERVIEWS
Aetna Realty Group
Nick Aponti
Bank of New England
James Sweeney
Boston Redevelopment Authority
John Avault--Deputy Director for Policy Development
and Research
Larry Koff--Development Specialist
Beth Israel Hospital
Joan Pinck--Director of Research Administration
Michael Lanner--Assistant Director
Gene Wallace--Vice President of Finance
Frank Holmes--Director of Grants and Contracts
Boston University School of Medicine
John Sandson--Dean the School of Medicine
Ann Der Hagopian--Director of Grants & Contracts
Boston University School of Management
Gerald Wedig--Professor
Brigham & Womens Hospital
John Cupples--Vice President of Admin. Services
Childrens Hospital Medical Center
Carol Weinrib--Vice President
Childrens Hospital (Philadelphia)
Karen Duffy--Research Administrator
Columbia/Presbyterian Medical Center
Richard Sohn--Director of Grants & Contracts
Dana Farber Cancer Institute
Bernard Janicki--Director of Research
William Corbett--Research Administration
Ellenzweig, Moore and Associates, Inc.
Randall Imai--Associate
Harvard Medical School
Nick Johnson--Assistant Dean for Facilities
and Administrative Services
Hospital Corporation of America
Barbara Sirochty--Director
94
of Corp.
Communications
Howard Hughes Medical Institute
Nelson Pleau
James Potter--Public Relations
Humana Corporation
Patrick Stone--Public Relations
Jung/Brannen Associates, Inc.
E. Crawley Cooper, AIA--Principal
Kennedy & Rossi, Inc.
Rich Presti--Business Manager
Massachusetts Biotechnology Research Park
Ray Quinlan--Director
Massachusetts Eye and Ear Infirmary
Patrick Capobianco--Director of Finance
John Slymon--Director of Research
Massachusetts General Hospital
Lawrence Martin--Assistant General Director
Kathy Robbins--Cost and Payment Administrator
Massachusetts Hospital Association
David Shabot--Vice President for Health Systems
New England Deaconess Hospital
Robert Pence--Director of Research
Joseph Flaherty--Office of Grants and Contracts
New England Medical Center
Frank Stout--Vice President of Research Admin.
Judith Kurland--VP of Strategic Planning
& Corporate Public Affairs
Floyd Lane--Director of Reimbursement
Rackemann, Sawyer, and Brewster
Michael O'Connell--Partner
The Raymond Group
Neil St. John Raymond--Principal
David Francis--Project Director
Snyder, Tepper, and Komen
Paul Hestrom--Partner
Tishman-Speyer/Mediq
Marty Hopwood--Partner
Judy Glos--Partner
Tufts University School of Medicine
Joseph Byrne--Associate Provost for Research
95
University of Maryland Medical School
Marjorie Wilson--Vice Dean
University of California at San Francisco Medical Center
Robert Ryan--Department of Resource Management
University of California at Los Angeles Medical Center
Renee Fortier--Capital Programs Analyst
University of Massachusetts Medical Center
George Clark--Director of Grants and Contracts
University of Minnesota
Richard Oszustowicz--Professor of Finance
University of Pennsylvania Medical School
Doug Strong--Director of Research Planning
U.S. Government Department of Health and Human Services
Walter Boland--Office of the Regional Director
John Strauck--Office of Procurement and Logistics
Whitehead Institute for Biomedical Research
Cheryl Cathcart-Maxim--Director of Sponsored Programs
96
BIBLIOGRAPHY
American Hospital Association
Guide to the Healthcare Field, Chicago 1986
Bayless, Mark E. and Diltz, J. David,
"Leasing Strategies
Reduce the Cost of Financing Healthcare Equipment"
Healthcare Financial Management, October 1985
Beardsley, Tim
"Winners and losers worry aboutGramm-Rudman"
Nature, Vol.
322, p. 487, August 7, 1986
"Capital Projects"
Berriman, W. Thomas, ed.
Topics in Healthcare Financing, Vol. 2, No.
Winter 1975
2,
Braybrooke, Susan, ed.
Design for Research--Principles of Laboratory
Architecture
John Wiley & Sons. New York 1986
Bryant, L. Edward, Jr., et al
"Roundtable on Capital Financing"
Healthcare Financial Management, August 1986
Carr, Lynch Associates
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