Nursing ed: Expensive, steep learning curve

RENDERING COURTESY CV PROPERTIES LLCPOWER OF PLACE: Planned for a joint URI/RIC nursing-education center, the South Street Landing project will also include other pieces, such as Brown University administrative offices, a new parking garage and a residential/commercial component.
RENDERING COURTESY CV PROPERTIES LLC POWER OF PLACE: Planned for a joint URI/RIC nursing-education center, the South Street Landing project will also include other pieces, such as Brown University administrative offices, a new parking garage and a residential/commercial component.

Building advanced nursing education centers for the University of Rhode Island and Rhode Island College was always going to be expensive.
The specialized classrooms and operating room simulators wanted by school leaders aren’t available in the kind of “off the rack” office space they could rent in downtown Providence or a suburban office park.
Throw in the complexity of building the facility in a historic former power station in Providence’s Knowledge District and the costs go even higher.
“If this were a flat, clean piece of land, we wouldn’t need to work with a developer. We build buildings all the time,” said R.I. Director of Administration Richard Licht. “But this is an extraordinarily challenging construction project because there are unknowns, and I don’t think the state is best equipped to do that. I would rather have the risk on [a private] developer.”
While the nursing center is complex, the project has a number of other moving parts that make it a much bigger project. First, the RIC/URI facility will share its footprint with Brown University administrative offices. In addition, South Street Landing includes a significant residential/commercial component as well as a new parking garage, elements that have injected that private developer, CV Properties LLC, into the process and brought the publicly stated price tag for what is known as South Street Landing to $206 million, $120 million for the redevelopment of the decommissioned South Street power station and $86 million for the rest of the project.
So how much of a premium will Rhode Island be paying to have the nursing centers located in one of the state’s largest and most prominent vacant buildings, with Connecticut-based CV Properties assuming the build-out risk?
An important piece of the financing of the project is the fact that, because the Landing, as it has become known, is being privately developed, the state has no direct construction costs to capitalize. Its costs are captured by a projected $6 million per year lease payment for 15 years, based on a plan that was made public last month, a total nominal cost of $90 million, not including options to buy or renew the lease. That projection is similar to cost estimates that were created three years ago for what it would take for the state to build the facility itself.
In 2011, consultants Robinson Green Beretta Architects and HOK Architects estimated that, including operating costs, building a shared nursing center on private land using a private developer would create annual payments of $6.1 million for 25 years, slightly more than the $6 million annual payments proposed in the South Street Landing lease.
If a private developer were to build the complex on state-owned land, such as the former Interstate 195 land, the annual lease payments would drop down to $5.7 million. And if the state were to develop the project itself on public land, annual payments of $5.2 million would cover the construction costs (likely to have been covered by a bond) that the firms estimated would total $60 million.
In any lease arrangement involving a private developer, that developer would still own the facility after the end of the lease, adding another cost for the state if it wanted to buy the facility. The Robinson Green Beretta study suggested a purchase price of between $11.6 million and $12.6 million, but assumed a slightly smaller facility, 120,000 square feet, versus the 132,500 square feet planned for the state share of the old power-station building.
Under the South Street Landing lease, the state has options to buy after year six, and the price will be set by appraisal.
Of course, one public cost of the project not included in the South Street Landing lease is the $26 million in state historic tax credits that will come out of Rhode Island revenue when the project is built. (Up to $50 million in federal tax credits are also expected to be used on the project, which could offset some state costs.) On the other side of the ledger, the presumed “pure” nursing center construction costs of $60 million means that the full project today is attracting the equivalent of $146 million in private investment that would not have occurred otherwise.
Brown University will contribute a significant share of that money by taking up more than half of the renovated former power station, 150,000 square feet, with administrative offices under nearly identical lease terms to the state schools.
And CV Properties plans to build a six-story, 220-bed student housing complex with lower-level commercial space on Davol Square parking lots just to the south of the power station, as well as a 650-space parking garage on the other side of the former power station, fronting Eddy Street.
“The most important thing I think is teaming up with Brown, even though they are doing another function there,” Licht said. “There will be more interaction with Brown, and there is talk about them using our simulation labs or perhaps larger lectures getting access to the nearby medical school. Who knows what joint programs will develop?”
The city of Providence also will benefit from the project.
Under a tax-stabilization agreement announced by Mayor Angel Taveras last month, the city will receive $9.9 million over 15 years, $660,000 per year from all of the phases of the project.
According to CV Properties President Richard A. Galvin, the current tax bills on the property would result in $5.4 million in property tax collections over the 15-year stabilization period if nothing new is constructed there.
The city also will collect between $2.8 million and $3.1 million in fees connected with construction of the project, Galvin said.
For Galvin, the proposed leases outlined this month include more than $180 million in combined revenue over their 15-year term.
The Brown students who will live in the apartment building and students, faculty and staff from all three schools parking in the garage and buying from the commercial spaces are sure to contribute significantly to CV Properties’ coffers, making the project much less risky than any other project of its size in Providence. In essence, the lease structure is an alternative way for Brown and the state to finance and outsource the construction of a building they will eventually own.
There is one other potential piece of cost savings that the state can realize. The need for advanced laboratory space and operating-room simulators have added an estimated $25 million to the nursing-center building costs. Licht called the $25 million estimate “conservative,” predicting it might end up being $22 million.
And depending on how financing for South Street Landing turns out, the state also has left itself the option of financing the URI/RIC tenant improvements itself, taking advantage of its lower borrowing costs.
Mike Giuttari, president of MG Commercial Real Estate in Providence, said even for medical space, the price of South Street Landing is high from a commercial perspective because the landlord is not picking up more of the customization costs.
“They are pushing the [improvement cost] back on the tenant, where in a private deal the landlord would eat a lot of that cost,” Giuttari said.
Looking ahead, the next steps for the landing project include having the finalized lease language approved by the R.I. Board of Education and State Properties Committee before shepherding it through the General Assembly this month, Licht said.
In a parallel process, the Brown Corporation (or its real estate and development committee) also will need to approve the lease this summer, said Russell Carey, Brown executive vice president for planning and policy.
The tax-stabilization agreement Providence Mayor Angel Taveras negotiated with project stakeholders also needs to be approved by City Council.
Galvin said hopes to break ground on the project in the “early fall.” •

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