Land, construction, equipment, fees, irrecoverable VAT, contingency and the finance carried through the fill, added up per bed and set against what the stabilised home is worth.
Add land, construction, equipment, fees, irrecoverable VAT, contingency and the finance carried until the home has filled, then divide by beds. On an illustrative 80-bed new-build, cost before finance is 216,358 per bed but the all-in figure is 260,631 per bed, and against a stabilised value of 264,000 a bed that leaves a profit on cost of only 1.3 per cent. Leave out the months the home takes to fill and the same scheme appears to make 15.1.
Worked in full in Senior Living and Healthcare Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Care home developers quote cost per bed because beds are what the regulator registers and what the operator sells. The trap is where the quote stops. A building that is finished is not a home that is trading, and the gap between the two is often the difference between a profitable scheme and a loss.
| Input | Value |
|---|---|
| Land | 30,000 |
| Land transaction tax | 5% |
| Gross internal area per bed, m² | 55 |
| Build rate per m² | 2,550 |
| Furniture, fittings and equipment | 9,500 |
| Professional fees, share of construction | 12% |
| Planning and statutory contributions | 5,000 |
| Irrecoverable VAT on fees, equipment and contributions | 20% |
| Contingency, share of construction | 5% |
| Finance rate; build period; months to fill to break-even | 7%; 18; 20 |
| Operating losses while filling, whole home | 360,000 |
| Stabilised EBITDARM per bed; multiple | 24,000; 11.0x |
Every rate in the table is illustrative, chosen to show the method, not a market cost: replace the land price, build rate and fee levels with your own cost plan and quantity surveyor's figures. Construction of care homes is often zero-rated for VAT while the operator's supplies are exempt, so VAT charged on fees, equipment and some contributions cannot be recovered and is a real cost. Treat that as an assumption to check with an adviser for each scheme; here it is 20 per cent on those lines.
| Line | Scheme | Per bed | Share |
|---|---|---|---|
| Land | 2,400,000 | 30,000 | 11.5% |
| Land tax | 120,000 | 1,500 | 0.6% |
| Construction, 4,400 m² at 2,550 | 11,220,000 | 140,250 | 53.8% |
| Furniture, fittings and equipment | 760,000 | 9,500 | 3.6% |
| Professional fees | 1,346,400 | 16,830 | 6.5% |
| Planning and statutory contributions | 400,000 | 5,000 | 1.9% |
| Irrecoverable VAT | 501,280 | 6,266 | 2.4% |
| Contingency | 561,000 | 7,012 | 2.7% |
| Cost before finance | 17,308,680 | 216,358 | 83.0% |
| Finance during the build | 1,041,006 | 13,013 | 5.0% |
| Finance while the home fills | 2,140,797 | 26,760 | 10.3% |
| Operating losses while filling | 360,000 | 4,500 | 1.7% |
| Total development cost | 20,850,482 | 260,631 | 100% |
Finance during the build = land and tax fully drawn for 18 months, plus the other costs half drawn on average: 2,520,000 × 7% × 1.5 + 14,788,680 × 50% × 7% × 1.5 = 1,041,006.
Finance while filling = (cost before finance + build finance) × 7% × 20 / 12 = 18,349,686 × 0.1167 = 2,140,797.
Cost per bed = 20,850,482 / 80 = 260,631. In Excel: =SUM(B2:B13)/80.
Finance and fill losses together are 44,273 per bed, 17.0 per cent of the total. The fill alone, interest plus trading losses, is 31,260 per bed: a home is a building that has to be populated, one admission at a time, and the debt is drawn in full while that happens.
At stabilisation the home earns 24,000 of EBITDARM per bed, 1,920,000 in total. At an illustrative 11.0 times that is worth 21,120,000, or 264,000 per bed. Yield on cost is 1,920,000 / 20,850,482 = 9.21 per cent, against an exit yield of 9.09: a development margin of 12 basis points and a profit of 269,518, 1.3 per cent on cost. A developer would want something like 15 per cent; on these costs that needs 27,248 of EBITDARM per bed, 13.5 per cent more than the scheme will earn.
| Build rate per m² | Fills in 12 months | 20 months | 30 months |
|---|---|---|---|
| 2,300 | 229,638 (15.0%) | 241,336 (9.4%) | 255,958 (3.1%) |
| 2,550 | 248,127 (6.4%) | 260,631 (1.3%) | 276,261 (−4.4%) |
| 2,800 | 266,616 (−1.0%) | 279,926 (−5.7%) | 296,564 (−11.0%) |
Ten more months of fill time move cost per bed nearly as much as another 250 per m² of build rate. Fill time is the input developers model least carefully, and the one the article on how long a new care home takes to fill shows is routinely underestimated. Break-even needs 23,694 of EBITDARM per bed at 11.0 times; the scheme has very little room.
Cost per bed and value per bed are only comparable when both describe the same home: the same beds, the same fee level and a trading, stabilised business. A value per bed taken from a mature home in a richer catchment says nothing about what this one will be worth.
Construction is priced per m², and 55 m² of gross internal area per bed is the conversion. A scheme with generous communal space or larger rooms at 60 m² per bed costs more per bed at the same build rate, but may command a higher fee. The per-bed figure is the one that meets revenue, because revenue is earned per occupied bed, so it is the right unit for the appraisal even though the contractor never quotes it.
Stopping the clock at practical completion. Excluding the fill finance and losses gives 229,371 per bed and a profit on cost of 15.1 per cent, a scheme that looks fundable. Including them gives 260,631 and 1.3 per cent. The building did not change; the arithmetic simply caught up with the residents.
All-in cost per bed is land, build, equipment, fees, VAT, contingency, build finance and the cost of filling, over registered beds: 260,631 here against 216,358 before finance. Compare it with the value of a stabilised home, 264,000, not with the build cost alone. The free workbook for this case carries a fill curve and a development cost sheet side by side, and the stabilised profit comes from EBITDARM built from residents and care hours.
Land and its tax, construction, furniture and equipment, professional fees, planning contributions, irrecoverable VAT, contingency, finance during the build, and finance and operating losses while the home fills. In this example those lines total 20,850,482 for 80 beds, 260,631 per bed, of which construction is 140,250.
Interest on the full cost plus trading losses until the home breaks even. With a 20-month fill at 7 per cent, that is 2,140,797 of interest and 360,000 of losses, 31,260 per bed. Ignoring it turns a 1.3 per cent profit on cost into an apparent 15.1 per cent.
Enough above the exit yield to pay for the risk. Here the yield on cost is 9.21 per cent against an exit yield of 9.09 per cent at 11.0 times EBITDARM, a margin of 12 basis points. A 15 per cent profit on cost would need 27,248 of EBITDARM per bed, 13.5 per cent more than assumed.
This article is one calculation from Senior Living and Healthcare Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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