ESTIMATING RENOVATION COSTS

With Aging Care Without Aging Care

Renovation costs of converting the current facility to a CCRC were estimated at $114 per square foot, including renovation of Building 2 with 50 hospital-grade aging care units. Renovation costs of converting the current facility to senior living with 165 units was estimated at $93 per square foot. Annual operating expenses of a CCRC were projected to be over twice as high as a senior living facility due to increased costs of nursing staff and medical supplies. The senior living–only option was projected to generate positive cash flow; the CCRC option was projected to have negative cash flow due to higher renovation and operating costs.

The Hutcheson Building occupies approximately half of the site’s total acreage. Researchers evaluated two alternative uses for the undeveloped half of the property: a mixed-use multifamily housing development and a high-density single-family housing development. Either, or both, of these developments could conceivably be built on the undeveloped property. Under the mixed-use residential alternative, Institute researchers modeled both higher- and lower-end mixed-use multifamily residential housing. The 200-home single-family option was modeled as a high-density development of homes valued at an average of $320K. About half of those homes would be in Catoosa County, and the other half in neighboring Walker County.

Estimated costs, economic impact, and fiscal impact

The research team calculated the economic impact of each use. Economic impact includes direct output— or capital investment into the project—as well as indirect and induced impact. Indirect output totals the secondary effects in the supply chain, such as the jobs and incomes of suppliers of the project. Finally, induced output includes the multiplier effect of the dollars as the workers spend their income in the local economy. Based on economic impact and fiscal impact (tax collections) estimates, the Catoosa County PFA may choose to go forward with one or more of the site uses analyzed by the research team. A single-family development of 200 homes would produce the largest estimated total economic output at $73.4 million. A higher-end mixed-use multifamily development would produce the second-largest economic output, estimated at $56.7 million. A lower-end mixed-use multifamily development would produce $49.8 million in economic output, followed by senior living with aging care at $44.3 million and senior living without aging care at $36 million.

Total economic impact is primarily determined by the direct output of, or initial capital investment in, the project. All three types of new residential construction on previously undeveloped parts of the property are projected to be more expensive than renovating the existing Hutcheson Building. Although senior living with aging care was estimated to have a larger direct output and total economic impact than the senior living–only option, projected cash flows were insufficient to meet operating expenses and debt obligations at current interest rate levels.

At current interest rates, many large-scale development projects are less attractive than they would have been in recent decades. In terms of renovating the Hutcheson Building, senior living only, without aging care, was the only option projected to be feasible at current interest rates. The increased cost associated with the renovation and staffing necessary for aging/memory care were projected to make annual operations cashflow negative in the current environment. Senior living with aging care would be more economically feasible at interest rates less than or equal to 5%.

The research team also calculated annual fiscal impacts of each alternative use, which is the total of county, school, and city tax collections each year. A 200-home single-family development had the largest total fiscal impact at $662K, followed by senior living with or without aging care at $639K. A higher-end mixed-use multifamily development had a total fiscal impact of $614K. A lower-end mixed-use multifamily development had the lowest total fiscal impact at $541K.

Estimated costs, economic impact, and fiscal impact

Affordability is one of the primary concerns when developing housing. Institute researchers determined that 1,600-square-foot homes built on the site would sell for approximately $320K, which would be affordable for households earning $90K annually—25% higher than the median household income in the Chattanooga metropolitan statistical area (MSA). A higher-end multifamily development would need to charge $2,200 per month in rent for a 1,000-square-foot unit, also targeting household earning $90K. The lower-end multifamily development was the most affordable option, charging monthly rent of $1,960 and targeting households earning $80K, only 11% higher than the median household income in the Chattanooga MSA.

The Institute of Government provided estimates of affordability, revenues and expenses, and economic and fiscal impacts to aid the Catoosa County Public Facilities Authority in its decision of how to redevelop the Hutcheson Building site. Any renovation of the existing facility is likely to be on hold for the foreseeable future, as the current tenant of the property, CHI Memorial Hospital, has yet to break ground on its new site. The Hutcheson Building site is expansive, with space for division into multiple parcels. The Catoosa County Public Facilities Authority could choose one or more developers to renovate the Hutcheson Building, build single-family homes, and/ or construct a mixed-use multifamily development in order to diversify economic opportunity in the area.