Bond Financing Helps Suburban Cut Cost on Building New Hospital

Article excerpt

It pays to buy wholesale.

That is the lesson of Suburban Hospital's deal to build a new 100,000-square-foot outpatient care facility in North Bethesda, said Jim Cahill, a Staubach Co. broker who helped the hospital line up the deal.

The hospital plans to break ground this fall on a site at Fernwood Road and Rockledge Drive, where it leased land for 25 years from the Camalier family. The facility is expected to open in 2001.

The location in Rock Springs Park will let the hospital expand its services in a strategically located area close to its patients, its attending doctors and its existing facilities, said David Smith, senior vice president of system development for Suburban Hospital.

However, the tight real estate market in Bethesda almost kept the hospital from finding the site it needed, Mr. Cahill said. It took a creative financing deal to secure the location - and other developers and financiers are taking notice.

"We wanted to create leverage in the marketplace, and open up locations that were out of range because of price," said Jim Cahill, a Staubach Co. broker who arranged the deal for Suburban.

Instead of following the typical process by hiring a developer and letting the developer line up financing for it, Suburban privately floated a $34.29 million bond to pay for both the construction and "permanent" financing on the project.

It's also uncommon to wrap up the short-term construction loans with the long-term financing that succeeds the construction loan.

The unusual arrangement would save Suburban more than 20 percent on its financing costs, Mr. Cahill said.

With less than 5 percent of existing office space available in the Bethesda area, rents are reaching $35 a square foot or higher for the kinds of space that medical facilities use, Mr. …