2. 2 HEALTH101 Z-CORP
INDEX Executive Summary 4
Highlights 6
Proposal 8
Market 20
Financial 26
HEALTH101
Presented by: Z-Corp Real Estate Developers, LLC
AT 101 7TH AVENUE, MANHATTAN, NEW YORK
3. 4 5
HEALTH101 Z-CORP
EXECUTIVE SUMMARY
The Community
The Proposal
The Reason
HEALTH 101 will feature a multi-tenant health center that gives residents
a cluster of much needed medical service providers. The tenants will
be provided premium medical office space in a prime market on a busy
Manhattan Avenue.
The medical office sector is stable with solid revenues.
Older residents account for the large majority of healthcare spending in the
country.
People of wealth are willing to spend more money on their health.
Interior Renovations
Exterior Upgrades
Primarily a residential area, there are also some commercial/office buildings,
industrial/manufacturing and public facilities and institutions.
Located on 7th Avenue at the intersection of four (4) iconic Manhattan
neighborhoods; Chelsea, Greenwich Village, West Village, and Midtown
South.
The catchment area includes three (3) Manhattan community districts, CB2,
CB4 & CB5, which all have very affluent populations, even by Manhattan
standards, and contain a large contingent of older residents.
4. 6 7
HEALTH101 Z-CORP
HEALTH101 will be located at the nexus of Chelsea, Greenwich Village, West Village, and Midtown
South, where the annual median income is $40K more than the rest of New York City and 36% of
the population is over 44 years old.
Bureau of Labor statistics show that people spend more on healthcare both as they age and as their
incomes rise. Which is while this location is perfectly ideal for a medical office building.
A Unique Opportunity
Unmet Need
For all three (3) community districts within this
site’s catchment area, Medical Related Services
are prominently identified needs on their most
recent “Statement of Need” reports.
When private practitioners form an integrated
health community, everybody wins. Doctors
reap the benefits from sharing knowledge and
resources with each other. Patients get the
convenience of having a central location for a
multitude of different outpatient needs.
An Integrated Health Community
HEALTH101 will feature a central check-in and
lobby area.
Each floor will have common space for patients
that will be connected vertically with the rest of
the building via floor cut-outs.
There will be a centralized common space for
employees to interact with each other during
breaks and have informal meetings.
HIGHLIGHTS
Connectivity between ground floor retail and the HEALTH101 lobby will
offer an amenities rarely found in a medical office while waiting to see
the doctor.
Demand
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
ANNUALSPENDINGONMEDICALSERVICES
SPENDING BY AGE
UNDER 50
50 AND
OLDER
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
ANNUALSPENDINGONMEDICALSERVICES
SPENDING BY INCOME
$30K-$40K
$40K-$50K
$50K-$70K
$70K AND
MORE
5. 8 9
HEALTH101 Z-CORP
PROPOSAL
Interior Vision
HEALTH 101 will be a 5-story, state-of-the-art medical office building with
some ground floor retail. With up to twenty (20) tenants (one (1) to five (5)
per a floor) in this 56,870 gross square foot space, the building will operate
as an elite medical community attracting premium tenants.
Windows
The existing windows will be removed, as well as some masonry, in order
to allow large, new double glazed, aluminum thermally broken storefront
window systems with low-e, tinted glass to be installed. This will create a
quiet, naturally lit environment ideal for a modern day medical space.
RENOVATION
Exterior Canopies
The existing awnings will be removed, and replaced with eye-catching,
aluminum canopies, supported by the existing building. This much needed
upgrade, in coordination with new signage, will give the building a street
presence worthy of the high quality tenants within.
Through Floor Volume
Currently this building, and many others medical offices buildings are
completely segmented between floors. This removes any feeling of
connection that can be used to create an integrated health space. To alter
this, portions of floor slab on the second, third and fourth floor are being
removed to create balconies between all the floors.
Elevator
While medical office buildings do not provide in-patient services and
therefore rarely require the use of a gurney, it is a requirement to have
an elevator that can fit one, in case of an emergency. As such, having a
hospital elevator is one of the more distinguishing features between an
MOB and a traditional office space
6. 10 11
HEALTH101 Z-CORP
PROPOSAL
Amenities
New, large windows, to pull natural light deep
within the spaces
New canopies and signage to create an iconic
street presence. Everyone in the neighborhood
will know where HEALTH101 is located
Integrated lobby and check-in system for patients
shared by all tenants, which creates efficiency.
Staffed by building management, the front-desk
group will be experts in patient relations and
assisting in the completion of necessary basic
forms and paperwork
Connectivity between the floors with open
stairways, creating an inclusive community of
medical professionals
Communal building break area for medical
professionals to interact, network and share
knowledge
New hospital grade elevator between all floors
“Healthy” space design:
Natural light and indirect lighting
Clean air ventilation systems
Bacteria resistant materials
Secured basement storage/server space for all
tenants, easily accessible via elevator.
7. 12 13
HEALTH101 Z-CORP
Lobby Space
The lobby will be designed with the intent of
creating a comfortable, inviting atmosphere for
patients A precise aesthetic will be employed
using lighting, furniture and finishes to create
this environment. There will be direct access to
both retail spaces from the lobby to give patients
various options on how to spend the time prior
to going in to see their doctors.
Mechanical
An HVAC system will be carefully selected to
assure the highest air quality in a quiet and
energy efficient way. It is understood that indoor
environment is a critical aspect of any high
performing medical space.
Lighting
HEALTH101 will use this high quality direct/indirect
lighting, in combination with smart technology,
to control light levels and the balance between
artificial and natural sources. The result will be,
efficient usage and inviting spaces.
PROPOSAL
8. 14 15
HEALTH101 Z-CORP
Ground Floor Second Floor
A break room that can be utilized by all tenant
employees creates a collaborative health
community while reducing the costs of TI a tenant
would typically help pay.
Patients may be expecting a more institutional
setting at the doctor’s office, that is NOT what
HEALTH101 is about. Open lounge areas on
each floor are part of an uncommon medical
environment.
PROPOSAL
9. 16 17
HEALTH101 Z-CORP
Third Floor
Each floor can be leased out to individual medical
office tenants or subdivided. There could
feasibility be up to 5 tenants per floor. Tenant
space per a floor can range from 2,000 SF to
11,000 SF.
Fourth Floor
The common space available throughout
the building allows medical office tenants to
utilize their spaces more efficiently to provide
patients with a more pleasant visit than typically
experienced when visiting the doctor’s office
PROPOSAL
10. 18 19
HEALTH101 Z-CORP
Cellar
The cellar will offer a feature specific to medical
office tenants. Secure, conditioned space for
tenants to install their servers.
PROPOSAL
11. 20 21
HEALTH101 Z-CORP
RENDERING
The most recent “Statement of Need” reports
for all three Districts within the catchment area
mentioned either a direct need for medical
related services or as having issues with accessing
services throughout the city, especially for
seniors.
Being positioned on 7th Avenue means that the
site will have the traffic and visibility needed to
attract the best medical office tenants.
A survey of the health providers in the area
reveals a health presence. This offers an
opportunity to draw local tenants to our newly
renovated facilities, with the added benefit of
them already having a loyal patient contingent in
the neighborhood.
HEALTH101
A report from CoStar/C&W on market
fundamentals data released in the 4th quarter
of 2012 identifies the healthcare tenants as part
of a group of “High-Growth Industries” that will
represent 60% of total growth in New York city
office between 2013 and 2025.
TIMING THE MARKET
MEDICAL OFFICE IS A SAFE BET
MOB vacancy rates are historically lower than
traditional office. Further, they provide quicker
absorption and longer lease terms.
101 7th Avenue, due to existing ceiling heights,
can not be renovated to higher than a Class B
office stock. Medical Office lease rates are higher
than Class B Office, making it a more appealing
choice for the repositioning of this asset.
MARKET
12. 22 23
HEALTH101 Z-CORP
Get the Price Right
Property prices in the area, and especially commercial condo/offices are heavily influenced by the quality of the building. Run
down sites that will clearly need work are heavily discounted. While 101 7th Avenue is not in a state of disrepair, it is showing
signs of its age and will need a large influx of capital for the renovation to get it into shape to be repositioned. This should
provide some flexibility when negotiating price and it is not expected that the highest prices in the market will be approached.
MARKET
Define the Neighborhood
The catchment area for this project has a tremendous density of residences. Further, the community is aging and wealthy.
These are the the premium patients that our target tenants want to attract.
13. 24 25
HEALTH101 Z-CORP
Know The Leasing Market
Knowledge of current lease rates and terms
and an understanding of what kind of growth
to expect during the span of ownership
informs what variables to use for the proforma.
What was apparent looking around the
Manhattan medical office rental market, and
particularly around the 101 7th Avenue site, is
that there is a very large range of lease rates.
This indicates a nuanced market that is more
dependent upon the product being offered
as opposed to a standard rate. There are still
some fundamentals that can be observed
within the medical office market. Being on an
avenue increases value as well as being on the
ground level. What this means for HEALTH101
is that it has the required fundamentals to
demand the highest rents, and with the
ameneties provided after the renovation, the
space wil be competative will any space in the
city.
MARKET
14. 26 27
HEALTH101 Z-CORP
The Basics
This project consists of five (5) distinct phases:
Acquisition
Construction
Lease-Up
Stabilized Hold
and Disposition
Acquisition
After verifying the feasibility of the project,
a target acquisition price needed to be
determined. A number was chosen based
upon market comps. and then sensitized to
determine the flexibility that was available to
move on the price. For every $100 more per
square foot, over 1% of return was lost, making
the negotiation process one of the more
pertinent factors to project success.
Construction
In a renovation project such as this, where the
purchase price is so much greater than the
construction cost, the priorities can often be
different than a typical ground up project. Per
Michael Stern of JDS, maintaining schedule is
more important to returns than budget. That
will especially be the case for HEALTH101.
Increases in construction costs of up to $35 per
square foot reduce returns by less than 0.5%,
making construction cost less impactful than
some other variables, such as acquisition or
disposition.
Construction (cont.)
Execution of design intent is critical for the
success of this project. Only by accomplishing
the vision of an integrated health services
space that patients embrace, will the quality
of tenants that are being sought be attracted.
To this end, the highest quality of construction
and finishing techniques will be employed.
Big ticket items, such as the MEP package and the
Hospital Elevator are key to attractors for high
credit tenants.
To maintain the overall schedule, sophisticated
sequencing of submittal, abatement,
demolition and construction will be exploited.
While aggressive, this is a very obtainable
time-line for a renovation project.
Lease-Up
Preliminary lease-up efforts will realistically
begin during the construction period, but will
not occur in earnest until the completion of
construction. Twelve (12) months have been
earmarked to complete a full lease-up. That
is 8% per a month, the equivalent of about
4,300 sf. An achievable goal with diligent
identification and pursuit of potential tenants.
Charges for communal spaces (IE lobby, lounges and break room)
will be proportionally allocated to tenants based upon the size of
their space.
FINANCIALS
15. 28 29
HEALTH101 Z-CORP
Stabilized Hold
Determining the appropriate hold period
is often based upon the general partner’s
corporate strategy or the strategy of their
limited partners. For HEALTH101, the thesis
of the project also informs the decision. If
the goal is to create an integrated health
center that caters to the needs of residents
and creates a collaborative community
of professionals, it is imperative that the
ownership of the project exhibit a similar
mindset. The current holding period is set
at 10 years, after stabilization is achieved.
However, if interest is shown by a private
medical group or corporation, and they
can demonstrate their commitment to the
foundational tenants of HEALTH101, an earlier
exit could be considered.
Disposition
Determining the appropriate hold period
is often based upon the general partner’s
corporate strategy or the strategy of their
limited partners. For HEALTH101, the thesis
of the project also informs the decision. If
the goal is to create an integrated health
center that caters to the needs of residents
and creates a collaborative community
of professionals, it is imperative that the
ownership of the project exhibit a similar
mindset. The current holding period is set
at 10 years, after stabilization is achieved.
However, if interest is shown by a private
medical group or corporation, and they
can demonstrate their commitment to the
foundational tenants of HEALTH101, an earlier
exit could be considered.
Exit NOI is critical, which is why the management
of HEALTH101 will be mandated to ensure tenant
satisfaction with the intent of retaining exisiting
tenants and creating a reputation as a superior
landlord within the health community.
Project Financing
Debt financing will play an important role in this
project. The decision was made not to over-leverage
and expose HEALTH101 to undue risk. That was
balanced with the need to generate a certain level of
returns .
A limited partner has the opportunity to enter this
deal at a relatively low cost for a Manhattan property
and be a part of a special project that will help
redefine outpatient healthcare facilities in the city.
With a 90/10 equity split, the LP can achieve returns
hard to find in today’s tight market.
A tranched promote structure assures the LP of the
commitment to the project by their partner, but still
allows the GP to receive incremental cash flows
Sensitizing LP IRR and Equity Multiples helps give a
picture of potential upside and downside scenarios.
While every project inherently has risk, even in the
worst scenario modeled for HEALTH101the LP still
gets their money back and with a return above
projected growth.
FINANCIALS
