07.18.99
Work to Start on Hospital Site

Thomas J. Walsh
Staff Writer
Philadelphia Business Journal

Two years after acquiring it, Delancey Investment Group is finally about to begin the renovation of the oddly shaped former hospital on Franklin Square.

The new facility will be called Franklin Square Centre, and its owners are saying that the venture represents a $20 million investment so far.

Built in 1972, the building, located at 7th and Vine streets, has been vacant since its last operator, Cooper Health System, was forced by a court order to shut down operations in 1993 after a bank loan fell through.

Real estate developer Kenneth Balin, who heads up Delancey, and partner Ira Lubert bought the building in January 1997 for $1.6 million, after the building's owner, Marine Midland Bank of Buffalo, N.Y., failed on three occasions to close deals with other would-be developers of the site.

The building was purchased shortly before the formation of Lubert's real estate opportunity funds with partner Dean Adler, and is not a part of either of those two portfolios of distressed properties.

"This was in the pre-apartment and pre-hotel craze," Balin said. "The costs for those concepts here would be incredibly significant."

That's because the old hospital still looks much like a hospital. When the facility -- then known as Cooper Hospital Center City -- was ordered shut down, the judge gave Cooper 36 hours to vacate patients. All of the building's assets -- from expensive dialysis and X-ray machines to the calendars on the desks at the nursing stations -- were left in place, where they remain today.

"It looks like a neutron bomb went off in there," Balin said. "Nothing was disturbed. Only the people are gone."

Delancey has one significant tenant for the 185,000-square-foot, eight-story structure -- LifeCare Management Services of Dallas, which will take over 62,000 square feet of space on the seventh and eighth floors, as well as a portion of the first and second.

That intact and very expensive hospital infrastructure could turn out to be either an asset for Delancey or a liability, depending on who is interested in the rest of the space, now being marketed by the Philadelphia office of the Grubb & Ellis Co. real estate brokerage. There is fairly modern laboratory space already constructed in the building, kidney dialysis rooms, radiology labs and an operating room.

"We are working with some health-care-related companies for the rest of the building," Balin said last week from his office in the Cast Iron Building at 7th and Arch, which affords a clear view of the upper floors of the old hospital to the north. "It's been a bit of a struggle. The assisted-living facilities we've spoken to have said that Philadelphia is a good place to go, but the market has heated up so much that these assisted-living companies have prototyped their buildings."

Franklin Square Centre, with two large circular structures joined by an expansive middle area, is anything but typical in its layout.

Balin, though, is optimistic, and said that the location at the foot of the Benjamin Franklin Bridge is "like Switzerland," in that the building is equidistant from three hospitals -- Pennsylvania, Hahneman and Jefferson, and that doctors from those and other city hospitals would find it convenient to visit long-term-care patients -- which LifeCare specializes in -- on their way to Interstate 95 or the bridge.

"A half-dozen or so doctors who used to be there have called and said, `When can I have my old office back?'" remarked Delancey Vice President Michael Wachs.

LifeCare and other long-term-care hospitals accept patients from traditional hospitals that require stays of more than 25 days. These patients generally need acute care for respiratory failure, wounds or multisystem failure.

"We had every type of conceivable use drawn up for that place," said Peter Soens, a Flynn Co. broker who marketed the site on behalf of Marine Midland before Balin and Lubert bought it. "But Medicare and Medicaid changes were occurring at the time and nobody could pull the trigger on it. The cost was prohibitive about changing it over, too. But it is was a lot of building for that price."

The price did end up coming down, Soens said, and Balin and Lubert "really bought it at the bottom of the market. The bank saw that Ken was able to produce quickly and that he had the financial wherewithal and the backing and that it wouldn't be a long, drawn-out process. They just wanted it off their books."

The debt on the building had been well in excess of $30 million, Balin said.

Balin found LifeCare through the San Francisco office of Grubb & Ellis, where health-care real estate broker Mike Bloxberg launched a national search on Delancey's behalf. Local architectural firm J.K. Roller & Co. drew up plans for LifeCare, incorporating much of the existing infrastructure.

In addition to the existing large entrance to the building on 8th Street, there will be a new lobby on 7th -- the Franklin Square Park side (the park itself is due for a complete overhaul soon by the Fairmount Park Commission). There is also a fully functional emergency room entrance, perfect for what Delancey envisions as a "medical mall" setting for the rest of the building. LifeCare has already committed to providing food service for any other future tenants.

Other plans include a new circular driveway on the site of a current parking lot and chewed-up sunken garden, and a possible day-care center for children and seniors. The exterior of the building will also receive a renovation. The building was bought with cash, but Delancey is financing the $10 million to $12 million renovation privately. No tax increment financing or other public incentive money has been tapped, Balin said.

The new venture will have to overcome a tough history.

From 1972 through 1989, the building operated as Metropolitan Hospital, an osteopathic facility. Metropolitan filed for bankruptcy protection in '89 after financing the purchase of two other hospitals in 1981 through tax-exempt bonds.

Taking control of the hospital in 1990 was cardiologist Dr. Edward Silverman and Allentown real estate developer Mark Mendelson, who converted it to Franklin Square Hospital. The pair sought to pump life into the enterprise by specializing in cardiac care, but strengthened competition in that area by the region's established hospitals was too much for the investors. In November 1992, Cooper stepped in and less than a year later, the facility was shut down for good.

"LifeCare is really spending a lot of money on their own space," said Balin, formerly the chief operating officer of Amerimar Realty before founding Delancey in 1992. "They really see a great opportunity here."

LifeCare, with about a dozen other similar facilities nationwide, will bring about 70 new jobs to the site.