At Live Oak Bank, we are fortunate to work with veterinarians across the country who are looking to grow or expand their businesses. If you’re looking for the next steps for your veterinary practice, building a new facility is one option.
If you currently lease your space, consider the advantages of owning the real estate and building. Combining practice ownership with property ownership creates an opportunity for a long term investment. As you pay down the loan, you build equity and net worth. When it comes time to retire, you will be able to sell both the practice and real estate. Secondly, property ownership comes with certain tax benefits, including mortgage interest deductions. Owning the real estate and building also allows you to plan for the future without the variables associated with lease agreements or future increases in lease payments. Lastly, you have the ability to renovate the actual building as the practice grows. Owning the real estate and building comes with several benefits.
But how do you know if you’re ready to take on a ground up construction project?
- Your current space is feeling crowded. We see many new vets start out in a leasehold space or acquire a practice that is in an older building. As they grow their practices and take on new clients, they simply need more exam rooms or space to add services such as a surgical suit or boarding.
- Your revenues are maxed out. If your practice has been growing but the lack of space is preventing you from growing your revenues, it may be time to consider building a new facility. It will be important to determine what your new building should include to help you continue growing the practice financially.
- Upgrades are needed to keep up with the competition. If competition has entered your market, building a new facility is worth considering. The ability to customize the space to meet the needs of your community can increase your number of new clients. It also makes a statement that you are dedicated to the community.
While these are not the only reasons to build a new facility, they are often good indicators that it is time to consider a ground up construction project. As you begin your planning, there are a few things to keep in mind. In our years of financing veterinary construction projects, we’ve seen success when veterinarians properly plan for their construction projects.
Particularly for ground up construction projects, we recommend you involve a lender early in the process. A lender will run an analysis of the business and tell you what the practice can afford. It does not make sense to pay an architect to design a building before you know how much you have to spend. Getting both the bank and architect involved early will make for a smoother process.
When picking “your team,” keep in mind veterinary practices have unique needs, which is why it’s important the lender, architect, contractor or design/build firm have experience in the veterinary industry. The plumbing, HVAC, electrical and flooring should be specific to the needs of a veterinary hospital. An experienced team can guide you through the process and help you make decisions that will prevent costly delays later on.
A major factor, if you choose a ground up construction project, will be the location. You do not want to move too far from your current client base. Depending on the area, we typically recommend staying within five miles of your current location. By pulling a list of your clients’ addresses, you can choose an area of town that is convenient for them.
When choosing a lot, there are several important things to keep in mind. Is it visible from the main roads? Is it easy to access from the street? In addition to accessibility, you will need to ensure the lot is zoned correctly. A lot and environmental survey will also be done to prevent any surprises. If you buy a lot with contaminated soil, you will be responsible for cleaning it, which can be expensive. Doing your due diligence up front will save you both time and money.
You and your architect will design the practice working with the lender to determine the budget. During this initial phase, you will determine the square footage, number of exam rooms and overall design. Once the design is finalized, subcontractors will be selected, and the construction phase will begin.
During construction, your lender will disburse payments to the contractor as work is completed. Typically it will take around 12 months to design and build the veterinary hospital. Of course, this depends on the city permits, third party surveys and the experience of your team.
Taking on a ground up construction project is a big step for your veterinary practice. With proper planning, working with a team that understands hospital design and veterinary financing, the process will run much smoother. You’ve built the best practice, now build the best facility for your clients!