Coming Soon: The Northumberland Medical Arts Centre
Frequently Asked Questions – General
What is the Northumberland Medical Arts Centre?
The Northumberland Medical Arts Centre (NMAC) will be a up-to-date, modern medical facility consisting of just over 40,000 square feet of rentable space on three floors. The Northumberland Family Health Team (NFHT) will rent the upper two floors. The ground floor will be rented by other health related tenants, including:
- a small pharmacy/dispensary;
- a laboratory for blood testing and related services;
- a dental clinic;
- an audiology centre;
- a physiotherapy clinic;
- acupuncture and midwife services; and
- other associated health care services.
What is a Family Health Team?
The Ministry of Health and Long-Term Care defines a Family Health Team (FHT) as:
“…an approach to primary health care that brings together different health care providers to co-ordinate the highest possible quality of care for you – the patient. Designed to give doctors support from other complimentary professionals, most Family Health Teams will consist of doctors, nurses, nurse practitioners and other health care professionals who work collaboratively, each utilizing their experience and skills so that you receive the very best care, when you need it, as close to home as possible.”
Read more about Family Health Teams at www.health.gov.ca
Where will the NMAC be located?
The NMAC will be located just east of Northumberland Hills Hospital (NHH) at the corner of Burnham Street and DePalma Drive. The total land being leased from the hospital is approximately three acres. This property will not be required by the hospital in the future as there is ample room for the hospital to continue to expand on the northwest side of the current structure.
A medical arts building was contemplated when the hospital was built in 2003 and was noted on the original site plan as “future ancillary facilities”.
Why do we need the NMAC?
The NMAC fulfils a long-standing vision to establish a medical arts building on hospital land. The short-and long term benefits that such a building will bring to the region have been understood since NHH was constructed.
These benefits include;
- Concentrated health services, including primary care and specialty care;
- An up-to-date and attractive work environment that will help to draw new physicians and other health care professionals to the area;
- Proximity to the hospital for primary care physicians leading to greater likelihood they will retain hospital privileges and be available to care for their patients when hospitalized; and
- A critical new long-term revenue source for NHH.
Will the NMAC have space for a “Walk-In” or “Urgent Care” Clinic?
Although a Walk-In or Urgent Care Clinic is not currently in the plans for the NMAC, the NFHT doctors are supporting a more flexible schedule of operation. They will be establishing a central booking system and are looking at the concept of having a more “open appointment times” for patients. The waiting room space has been designed to accommodate an “urgent care” facility in the future.
What will be the parking arrangements at the NMAC?
The NMAC will share an expanded parking lot with NHH, however the NMAI parking policy will be separate from the NHH parking policy. NMAC tenants will be issuing ticket validations and will be paying for the maintenance costs of the parking lot.
What is the involvement of the Central East Local Health Integrated Network (CELHIN) and the Ministry of Health and Long Term Care (MOHLTC) in the NMAC development?
The CELHIN and the MOHLTC both support the concept of the NMAC and have approved the leasing of the hospital land to NMAI, however neither entity is providing any capital or operating costs of the NMAC.
The MOHLTC funds 80% of hospital operating expense through the CELHIN. The rest of NHH’s operating revenue is from money received through Cancer Ontario, Mental Health, patient revenue and parking revenues.
When will the NMAC be built?
It is anticipated that construction of the NMAC will commence as soon as financing arrangements are finalized, with building completion planned for early 2017.
Frequently Asked Questions – Governance
Who will own the NMAC?
The building will be constructed, owned and managed by Northumberland Medical Arts Inc. (NMAI), a non-profit organization. NMAI is governed by a volunteer Board of Directors from the community. There are currently eleven members on the NMAI board, including three current NHH Board members, two community members from the NHH Board, a past member of the NHH Board, two physicians, an NMAC tenant, and two community professionals.
The hospital will enter into a long term land lease with NMAI for the required land to build this building and will receive an annual lease payment from NMAC for the land. The land lease is anticipated to be for 21 years less a day in order to avoid the need to sever the land under the Ontario Planning Act. At the end of the lease, there is a provision for the building ownership to be transferred to the hospital, at the hospital’s discretion.
All tenants will pay rent to NMAI and that revenue will be used to operate and maintain the building and provide an ongoing revenue stream to NHH, which will assist in the maintaining and expanding hospital services in our community.
NMAI has been incorporated under the federal not-for-profit legislation. Because NMAI proposes to operate the business of NMAI with volunteers to the maximum extent possible, they will not have the luxury of paid staff to issue notices of meetings or compile and distribute detailed minutes of meetings. Volunteer community members have developed this website to communicate important and factual information about the progress of this proposed project and the plan is to continue to focus communications on the website.
How was the land lease negotiated with NHH?
The lease was negotiated between the Board members of both NHH and NMAI. Members that were on both the NHH Board and the NMAI Board declared a conflict of interest and did not participate during these negotiations.
Frequently Asked Questions – Financial
How much will the NMAC cost, and how is it being funded?
The total project cost of the NMAC is projected to be $10.7 Million.
NMAI has received $3.7 Million in community project loan pledges from a group of approximately 40-50 community-minded citizens (including six of the eleven NMAI Board members). These loans will provide for a 4% annual interest rate, and will be repaid over the first 3-12 years as cash flow permits. The remaining cost of the project will be funded through a bank first mortgage loan to NMAI.
If you are interested in joining this group of community-minded citizens and supporting this project with a promissory note pledge, please send us an email on the “contact us” page.
What is the payment schedule to the hospital in years and amounts?
The payment schedule to NHH will be in the form of lease payments for the land. The revenue will come from the leases paid by the tenants in the NMAC and the annual amounts will increase gradually over time as the mortgage principal is reduced. Eventually NMAI may turn the NMAC over to the hospital when the complete mortgage has been paid off and all the startup funders have been repaid. NHH retains the option of extending this lease to NMAI.
Based on projections and a 95% occupancy rate, the following lease payments are expected to be paid to NHH or its Foundation to be used towards their operating budget, or for the purchase of capital equipment needed at the hospital:
Years 1-2: $50K annually
Years 3-9: $75K annually
Years 10-13: $100K annually
Years 14-20: $300K annually
Years beyond 20: $600-700K annually
Will NMAI be issuing financial audit statements?
An annual audit will be completed by an accounting firm to be selected through a tendering process.
Will the doctors have any ownership of the NMAC?
The corporation or building will not be owned by the doctors or the NFHT. The bank will hold the first mortgage, and the ownership will be listed as the NMAI. The Articles of Incorporation for NMAI stipulate that all revenue surpluses go to NHH or its foundation. Once the lease payments have been completed and the mortgage is paid off, ownership may be transferred to NHH as a revenue generator for the hospital operating/capital budget and governance could be through the Board of Directors for NHH. It is also at the discretion of the NHH Board to renew or extend the lease to NMAI at any time.
If NMAI operates at a loss for the first few years, how will the costs be covered?
The annual payment schedule above is not guaranteed and if there is a shortfall, NHH would be willing to forgive a land lease payment or part of it, and promissory note interest would not be paid until cash flow permits.
Are all tenant agreements letters of intent or leases, and how many?
NMAI has Offers to Lease on more than 80% of the rentable space at this time. These Offers to Lease are legally binding documents and are necessary to secure bank financing commitment.
Are the lease rates different for the doctors than the main floor tenants?
It is commonplace in buildings of this type for a lead tenant who leases more than 50% of the rentable space to negotiate a lower rate than that charged to tenants leasing smaller areas. Likewise, it is normal for first floor tenants to pay a higher lease rate than second or third floor tenants. So the doctors and other medical services located on upper floors will pay less than those on the main floor. It is important to note, that the rates being paid by the NFHT will be more than they are currently paying. They will, however, be located in a new state-of-the art facility that meets the current building codes for a medical facility.
If it is a good project, why is bank financing so difficult to get?
The NMAI does not match any business model the banks are familiar with as it is a not-for-profit corporation, building a medical arts centre on leased land, without a financial guarantee from the property owner (NHH). Banks want a guarantor for the building phase which is roughly $7 Million and with the land being leased it can’t be used as collateral. Furthermore, NHH is not in a position to provide a guarantee on account of the current Operational Review and working capital deficit position the hospital is in.
Why did NMAI submit a request to the Town of Cobourg to waive development charges and other fees?
NMAI submitted a request to the Town of Cobourg to waive or reduce the standard Development Charges, estimated at $237,048, Building Permit Fees, estimated at $63,548 and Plumbing Permit Fees, estimated at $3,056. There are a number of reasons for this request.
- When NHH was built in 2002, the Town agreed to waive these fees in order to invest in and support the development of the hospital. At that time, it was envisioned that a medical arts centre would be built on hospital lands in the future and services were installed to the property line for that purpose. Now that the Business Plan for the NMAC has been developed and the project is ready to go forward, the non-profit organization leading this community project is asking for the Town to once again support the hospital through a waiver of these development charges and other fees. Many other communities, such as Owen Sound, Bradford and Oshawa have taken a similar approach in waiving development charges for medical arts buildings built in those communities. In Haliburton, the County actually built a medical centre for their community physicians as a means of helping attract and retain doctors in that community.
- The waiver will reduce the project cost and the amount of money that has to be borrowed. The budget for the NMAC is very tight. Construction of a modern, accessible building, which meets all of the new building code requirements of today, will result in tenant lease rates which will be higher than is typical in this community. Through the use of volunteers and the use of “down payment” funds obtained at low rates from community supporters, NMAI has attempted to keep the lease rate premium to a minimum. Anything that can be done to reduce construction costs, be it hard costs or soft costs such as development charges, will go a long way towards allowing NMAI to borrow less and provide more cash flow to the hospital over the life of the project.
- Waiver of the development charges and other up-front fees will effectively reduce the cost of the project by approximately $300K. This has the same effect as increasing the project contingency by just over 3%. This significantly reduces the construction risk and will assist NMAI in obtaining construction financing for the 10-12 month construction period. If construction financing cannot be obtained, the project will not be able to proceed and the benefits to the community will not be achieved.
- Should this project proceed, the benefits to the Town of Cobourg are very large. The construction investment will create approximately 75 person years of construction jobs and the economic spinoffs to the community are significant. In addition, tenants in this new building will pay new property taxes to the Town which are estimated at $150-200K per year, over and above the current tax base. In effect, this will more than offset the waiver of development fees in less than two years.
- The Town’s support of the project by waiving or reducing the development charges also sends a strong sign of support to community members who have pledged to provide the necessary “down payment” funding.
Note: On February 22, 206, the Town of Cobourg denied the request to waive the development fees, resulting in increased costs for the project.
Frequently Asked Questions – Tender Process
What was the tendering process used for the NMAC and what are the results?
The architectural firm, Lett Associates of Peterborough was chosen to complete building design and procurement for the NMAC in the second quarter of 2015. Lett Associates met extensively with tenants and the working committee of the Board over a period of several months, to prepare a preliminary design and then a detailed design and site layout for the new building. Detailed specifications were prepared and a two stage public tender process was developed in accordance with the Canadian Construction Documents Committee standards for a CCDC- 2 Stipulated Price Contract.
In the late summer of 2015, Lett Associates drafted a letter of recommendation for Prequalification of six local contractors to bid on the job. The NMAI Board approved the recommendation. The tender was issued to the six contractors in early November 2015.
The first stage of the tender process was based on the total construction cost. The second stage was a breakdown of component costs which would allow for eliminating some of the components if the total project price was too high. This process also allowed for breaking out certain costs such as tenant improvements for first floor tenants, who would pay these costs on their own.
The tender for the NMAC closed on December 3, 2015, with four companies submitting valid bids. Although the low bid submitted was within project budget, NMAI is not in a position to award the tender until such time as they have their financing in place with payment terms that are manageable for NMAI. The low bidder was asked to provide an extension to the original tender bid validity date of Jan. 3, 2016, extending the tender price until March 3, 2016 which they have agreed to do.
Were NMAI Board members involved in the building design, layout and specifications?
In order to keep costs down, NMAI has used volunteers with specialty skills as much as possible, particularly in the initial phases of the project. Several Board members have worked on a building committee and assisted Lett Associates on the design of the NMAC. One of those Board Members also assisted in the pre-qualification of construction companies who would bid on the tender along with the electrical, roofing and mechanical contractors.
Do any NMAI Board members have affiliations with the company that submitted the low bid for the NMAC?
One of the NMAI Board Members was the previous owner of the company that submitted the low bid on the project. This Board member sold the company in 2011 and has no ongoing financial interest in the company. He does own the building that the company operates from and leases it to them. This was disclosed at the NMAI Board meetings and was not considered to be a conflict of interest.
What was the process used to select tenants for the NMAC?
The call for tenant expressions of interest was made in fourth quarter 2014 through a press release and a newspaper ad in local newspapers. Multiple written expressions of interest were received for Pharmacy/Dispensary space, Physiotherapy clinic space, Dental clinic space, and laboratory space. The expressions of interest were evaluated against a set of criteria and each applicant received a score. The next step was an interview conducted by members of the Hospital working committee and evaluations were completed based on the original expression of interest, the criteria and the interview.
Ratings of the various submissions were completed in a chart format with key criteria evaluations listed for each submission, without identifying the business name. This was reviewed by the working committee and a recommendation was put forward to the Hospital’s Facilities and Campus Development Committee which approved the process and the recommendations of the working committee. The process was further reviewed by the Board of Directors of NHH, as this was prior to the incorporation of NMAI.
A letter was sent to the selected firms advising them that they were the first choice and asking if they would be willing to work with the prepare a detailed “Offer to Lease”. Letters were sent to the other applicants advising that they were not successful, but asking if they would be willing to come back to the table in the event an “Offer to Lease” could not be finalized with the first choice business. A follow up call was held with each firm, in addition to the letter that was sent.