A feasibility study is paramount before investing in a nursing home in Spain
In recent years, Eai Consultoría has established itself as a recognized knowledge manager within the gero-care sector. Dependencia.info spoke with Xavier Paradell , a consultant from the firm specialized among other areas in the preparation of market studies and economic-financial viability in the field of nursing homes in Spain, who makes it clear that "a feasibility study allows the promoter of a residence to know the factors that will guarantee the project".
Is it common for promoters of a care home project to request a market study and economic and financial feasibility study?
My impression is that it is less common than it should be, considering its strategic relevance, since a market study allows the promoter to know the main key factors that will facilitate the viability of the project. Those can be very different in each particular case.
At Eai Consultoría we have extensive experience in private initiative projects -both with for-profit entities as well as non for profit- but also in projects whose promoters are public administrations, especially local ones.
With the increase in aging, could we think that many new nursing homes will be needed in Spain?
Without a doubt, the general aging of the population is an unappealable reality. And consequently the need to have more residential places for the elderly (along with many other services).
Official population projections indicate that people over 75 will grow by 36.6% in the next 15 years (in just 15 years). According to OECD recommendations, this would mean the need to create 168,500 new residential places in 15 years (11,200 each year) and 45,500 day centers (3,000 each year).
At the macro level, therefore, the need for new places is evident. However, to conclude on the viability of creating new residential facility in certain municipalities or neighborhoods of large cities (micro level), it is essential to analyze each specific local market, and evaluate not only the local or regional demographic projections but also the existing competition and potential in the projected location and its area of influence.
On many occasions, the strategic vision of the promoter is essential, since moving quickly to execute (even promote) a rational and coherent project in a certain location gives it the strategic advantage of being the first (first mover) covering a greater potential market and / or discouraging other promoters.
What are the most important keys for a project to be economically viable?
Without a doubt, the main key factors for the economic and financial viability of a long-term project are the initial investment made and the way it is financed. Each project, depending on the market orientation and the promoter's own resources, will require a greater or lesser disbursement of resources to invest initially, and a greater or lesser pressure to recover the investment or to return the principal of a loan, tensing to a greater or lesser extent the economic capacity and financial profitability of the project.
Thus, a project that involves a relatively low initial outlay of resources (because the partners contribute the site or a building of their own, acquired at prices 10/20 years ago, for example) but that requires relatively high bank financing, may be subject to to more economic and financial pressure, due to the need to repay the principal of the loan in 10/12 years, than would be another project that requires paying the plot and construction at current market prices, but financing the project mainly with its own resources (not subject to a specific return obligation).
It will also be different if the project is developed within the framework of an administrative concession that will require the reversion of the property to the administration after a few years.
Undoubtedly, other feasibility factors will already depend on the management costs of the center and the economies of scale that its management may entail depending on the size of the projected center or the fact that it is the object of shared management with other centers.
However, we must not forget that a very relevant part of the management costs will be "decided" at the time of designing and building the center. An initial design with functional criteria and logistical, energy and technological efficiency will mean significant structural savings in some of the future management costs: energy, personnel, maintenance (…).
Is there an ideal size?
Although this is a frequently asked question, I must say that it does not have a clear and straightforward answer, since the economic and financial viability of a project depends not only on the initial investment to be made, even though it is one of the most important factors relevant, as I have commented, but also of the form of financing of the project and its functional and energy efficiency design; the manager's care model (care and hotel); its ability to generate commercial attractiveness; the existence of demand for this care model and the price level it implies, within the project's area of influence; the costs of acquiring the site or construction; promoter profile ...
For a center that will charge an average market price and that must disburse all the investment at current market prices and finance it by bank above 40%, the size ideally it would be between 80 and 120 seats.
However, due to my experience as a business consultant for 30 years, including 8 years involved in the direct management of centers for the elderly, I must advise assessing each opportunity individually and not base decision-making on generalities that ignore many other factors relevant.
As a professor at ESADE Business School, do you think that the study plans place enough emphasis on the aging of society and its economic repercussions?
Undoubtedly, the training of business schools such as ESADE is based both on the imparting of technical knowledge (finance, marketing, accounting, information systems, logistics, people management ...) and on helping the student to know and understand the environment socioeconomic level in which business activities take place, and thus be able to act in a coherent and responsible manner with said environment
Already in the 80s, when I was a student -of those baby boom generations, by the way-, we had subjects on analysis of the economic environment where clear demographic trends were pointed out towards the global aging of society and the need to rethink policies to face their challenges (viability of the pension system, increase in life expectancy, ...).
In any case, perhaps due to the vital moment in which the students of the business schools or the public faculties of business sciences are, the attention to the management challenges and business opportunities of the "senior consumer" are not usually the object of interest. .As an example: in the tutorials of students and participation in the oral defenses of the Final Degree or Master's Thesis in which I have participated, I do not remember any that was linked to the management of services and / or products directly linked to the care for the elderly. Perhaps this is symptomatic of the opportunities and challenges still to be faced in this industry.
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