Darren Lizzack, MSRE Associate VP NAI James E. Hanson 201 488 5800 x104 dlizzack@naihanson.com More Info

Case Study: Today’s cost to build out medical office space in Bergen County, NJ and how it equates to $32.63 per sq. ft.

The subject property was a 2,500 sq. ft. medical office condo owned by an elderly eye doctor who was behind on his mortgage payments, and the bank that held the mortgage worked out a deed in lieu of foreclosure. In other words, the bank worked out a friendly foreclosure which ultimately saves the bank and the borrower time, money and aggravation of going through a formal foreclosure proceeding. The property was a state-of-the-art facility back in the 1980’s, however, the space was functionally obsolete given its age and lack of maintenance from the previous occupant.The best attributes of the property are its proximity to HUMC coupled with the fact that this space offered a doctor the exclusive rights to 15 dedicated parking spaces which equates to 6 per 1,000 sq. ft.

Dr. Phil Kim, a chiropractor and founder of Premier Health Center, was renting space in a Hartz Mountain building just down the street from this location, paying rent of approximately $30 Per sq. ft. Dr. Phil had been trying to relocate his offices for over two years before identifying the Bristol House as the perfect opportunity for his practice. And when Dr. Phil found this property, he had already been under contract to acquire another property in Hackensack that was positioned for redevelopment. The only problem with that project was the extreme difficulty and challenges having to deal with a full team of professionals to get approvals for his intended use. Not only was it going to be an extremely expensive to pay for this full team of professionals, but having to work with the City of Hackensack presented challenges that, after a full year, seemed to be leading to a dead end! After spending almost $100,000, the doctor pulled the plug on the project to move forward with his purchase of the Bristol House medical office condo, the only commercial space located on the ground floor of this 1.24 acre, 19 story, 141 apartments, 153,000 sq. ft. residential high rise building; this is typical of the many high rise residential buildings located on Prospect Avenue.

Project Cost

The base cost of the medical office condo from the previous ownership ended up being $630,000 or $252 per sq. ft. based upon 2,500 sq. ft. It is noteworthy to mention that a premium was paid simply due to the fact that this unit came with 15 dedicated parking spaces for the doctor and his patients to utilize; this parking ratio is ideal for most medical practitioners and finding it in Hackensack is very unique given the parking constraints of many properties in the area.

The doctor placed the property under contract, and simultaneously, Dr. Kim engaged a contractor, James Mason, from Chafia, LLC, who helped with the design of the new project and coordination of the construction from the demolition phase to the final construction details. The doctor waited diligently for 8 months for this project to come to completion and ready for occupancy. The total cost of the construction ended up costing the doctor an additional $200,000 on top of the purchase of the condominium.

The doctor was able to arrange his financing with Bank of America over a 25 year period with a down payment of $170,000. If you do the math, the mortgage payment equates to $4,298 plus an additional $2,500 per month for real estate taxes, maintenance, and miscellaneous condominium fees. The total overhead to carry this project going forward is $6,798 per month or $81,576 per annum. And to bring things into perspective, this total carry cost is the equivalent of paying $32.63 per sq. ft. per annum on top of the down payment to secure the financing.

Conclusion

The project that Dr. Kim has undertaken has been a very exciting and stressful roller coaster ride for him and his family throughout this entire process. Hindsight is always 20/20 and the doctor has agreed to allow me to share with you the expenditure for this new project and for this I want to take this opportunity to thank him for allowing me to use him for my case study. Feel free to reach out to Dr. Kim for further discussion and/or to arrange your next chiropractic visit. This case study is a good frame of reference if you are trying to acquire and/or lease space in northern Bergen County. For further discussion regarding your specific needs, please contact me at your earliest convenience by sending me an email at dlizzack@naihanson.com.

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