Funding a new-build surgery, an extension, or reconfiguring premises that no longer fit the practice.
Why primary care development is not speculative
Most development finance is priced for the risk that nobody buys or rents the finished building. A new GP surgery does not carry that risk in the same way. The occupier is known, the practice is the developer, and the income that will service the completed facility is contract-backed.
Lenders that understand primary care price for that. Ones that do not will treat it as a speculative commercial development, which is both more expensive and frequently a decline. The choice of lender matters more here than the negotiation does.
What we fund
- New-build surgeries and medical centres
- Extensions adding consulting or treatment capacity
- Reconfiguration to meet current standards or accommodate additional services
- Conversion of existing buildings to primary care use
- Schemes including a pharmacy, dental or private clinic element let on long leases
Owning the premises, or letting a developer own them
Before a practice faces a funding decision it faces a structural one. Either the partners or the practice company own the building and receive the notional rent, or a third-party developer builds and owns it and the practice occupies under a lease.
Owning keeps the asset and the reimbursement with the partners, but they carry the borrowing and the development risk. The developer route removes both, at the cost of paying rent for the life of the lease with no asset at the end.
Neither is automatically right. Where a partnership is stable and the partners want the asset, owning makes sense. Where the partnership is ageing, or incoming partners are reluctant to take on property borrowing alongside a buy-in, the developer route removes a problem that otherwise returns at every partnership change. That last point is worth weighing early, because practice-owned premises become a live issue each time a partner retires and their share has to be bought out. See GP partnership buy-in and buy-out finance.
The reimbursement position is the exit
For a practice-led development, the exit is a term facility once complete, serviced by the notional rent on the improved premises. That makes the reimbursement position the single most important variable in the whole scheme.
It needs establishing early, ideally in principle before the build starts. A scheme built on an assumed rent that is subsequently assessed lower leaves the practice servicing a facility the reimbursement does not cover.
In practical terms, the reimbursement sets the ceiling on what the scheme can support, so it is far easier to size the building to that figure than to cut a finished design back afterwards. Practices that fix the design first and open the reimbursement conversation second regularly lose the design fees already spent.
See notional rent explained for the mechanics.
How the money is drawn
Development finance is not advanced as a lump sum. It is released in stages as the work progresses, which keeps the interest cost down but means the schedule has to be planned properly.
- A day one advance against the site or the existing building, released on completion of the purchase
- Build drawdowns, paid in arrears as a monitoring surveyor certifies the work completed
- Practical completion, when the building is finished and ready to occupy
- Refinance onto a term facility, typically over 15 to 25 years, once the premises are in use and the reimbursement is settled
Because drawdowns are paid in arrears, the practice or the contractor carries each stage before it is reimbursed. Development money is short term and priced accordingly, so lenders want the term facility identified before the first drawdown is released rather than hoped for afterwards.
Third-party income strengthens it
Where the scheme includes space for a pharmacy, a dentist or a private clinic, the rental income from those tenants counts alongside the notional rent. Lenders will take account of it where the leases are long enough and properly documented.
Getting those leases agreed before drawdown rather than after completion materially improves the funding available. An informal understanding with a local pharmacist is not something a lender can lend against.
What lenders assess
- The reimbursement position and how it has been established
- Build cost, contractor and contingency
- The partnership’s financial position and stability
- Planning and any conditions
- Leases on any third-party space
- The exit: term lender appetite for the completed facility
Scotland
The 2018 Scottish contract commits to a transition away from GP premises ownership, which changes the calculation for a practice contemplating a new build. Health board involvement in new premises is the more common route. See GP premises finance in Scotland.
Common questions
Can a practice develop without owning the site?
The site needs to be secured, whether by purchase or a long lease, before development funding can be drawn. Getting that in place is usually the first step.
Should the partners own the building or use a developer?
It depends on the partnership rather than the building. Owning keeps the asset and the reimbursement with the partners but puts the borrowing and the development risk on them, and the ownership has to be unwound each time a partner retires. A developer scheme removes both problems and leaves the practice paying rent with no asset at the end.
When should we involve a broker?
Before the design is fixed. The reimbursement the new premises will attract sets the ceiling on what the scheme can support, and sizing the building to that figure from the outset is far cheaper than cutting a completed design back later.
How is the completed facility valued?
On the reimbursement-backed income it produces rather than as a general commercial building. That is why a lender who understands primary care reaches a different figure from one who does not.
What if a partner leaves mid-scheme?
It complicates matters and lenders will ask about partnership stability before committing. Where a change is foreseeable, it is better addressed before drawdown than during the build.
Related: healthcare development finance and GP surgery commercial mortgages for the term facility on completion.
All figures are indicative and subject to lender assessment, your circumstances, valuation and prevailing market conditions. Commercial mortgages and unregulated bridging loans are not regulated by the Financial Conduct Authority. Property offered as security may be at risk if you do not keep up repayments.