Former Doctors Medical Center in contract to become hotel
on March 14, 2016
Since Doctors Medical Center closed its doors last year, its tall white buildings in San Pablo, California, have stood empty. However, the property may soon have a new use under a pending $13.5 million sales contract to a boutique hotel operator based in Davis, California.
The board of the West Contra Costa Healthcare district, which owns the hospital, accepted Royal Guest Hotels’ offer in January, spurning higher bids because according to a staff report, the other deals would “take too long to close and were too speculative.” The deal with Royal Guest Hotels may close within the next four months.
Doctors Medical Center (DMC) stopped seeing patients on April 21 of last year, after years of financial struggles. Officials attributed the hospital’s financial failure to low reimbursement rates for Medi-Cal and Medicare patients, who made up about 80 percent of the hospital’s patients. However, selling the hospital’s buildings is just the first step toward alleviating the healthcare district’s monetary troubles.
The board hopes that the money from the sale of the property will help fill the district’s $20 million dollar budget deficit. The healthcare district expects to get another $725,000 from selling its medical equipment. This would give the district a total of $14.2 million towards paying off its debt. The healthcare district will also continue to receive money from property taxes and a 2004 parcel tax to help pay down its debt and meet other expenses.
Money from sales of the hospital’s property and equipment would also help meet continuing financial obligations to former hospital employees including unemployment insurance, pensions, retiree healthcare benefits and worker’s compensation, said Eric Zell, chair of the West Contra Costa Healthcare district’s board of directors.
“We have about $15 million in employee-related expenses that we need to pay, and so the only way we can pay it is by selling off the property,” Zell said. Seven employees remain on the healthcare district’s payroll.
In yet another ongoing obligation of the shuttered hospital, the healthcare district is responsible for storing medical records of all of the patients cared for during its 50 years of service. Under the law, the district needs to store records for seven years after a patient is discharged. To make sure former patients have easy access to their records, the district plans to scan all the paperwork by contracting with an outside organization. This is estimated to cost $425,000 in 2016 and that cost will go down over time, said Harold Emahiser, the district’s outside financial advisor.
According to its website, purchaser Royal Guest Hotels (RGH) manages five hotels: University Park Inn & Suites, Best Western Plus Palm Court Hotel and Aggie Inn, in Davis; and Hotel Med Park and The Inn Off Capitol Park, in Sacramento. The company would renovate the Doctors Medical Center buildings to build a hotel on that site.
RGH staffers declined to comment on plans for the property, explaining that the company has not closed the deal yet. The company has four months before it is required by its purchase of sale agreement with the healthcare district to close the deal. John Troughton, vice president of Kennedy Wilson, the real estate group that represented the district, said during this period the hotel group is looking at the features of the property and confirming that its plans can be achieved as envisioned.
Zell said the board hopes the hotel group closes the deal earlier, so the district can meet its obligations to former employees.
If the deal with RGH closes, the healthcare district will end its second quarter of 2016 with $10.5 million, after paying continuing expenses. However, it may need to seek loans or other assistance to meet expenses until June, Emahiser said.
A staff report from the healthcare district states that the staff were told that San Pablo city officials “played a key role in encouraging RGH to make a bid,” on the property.
However, city officials said until a deal goes through and the city receives a proposal detailing RGH’s plans for the site, they cannot definitively say what impact a hotel would have on the community. RGH would need to gain the necessary city permits, zoning and environmental review from San Pablo to move forward with its plans.
One possibility is that a hotel could provide jobs, said San Pablo Mayor Rich Kinney.
“We want to see that former Doctors Medical Center site be an economically active area, whether it’s this transaction or any other transaction,” said Reina Schwartz, assistant city manager for San Pablo. “But having that be a source of economic activity and jobs and services to the community, that’s really the value of moving forward with a development on that site.”
Troughton added that business growth in West Contra Costa creates a higher demand for hotels. In particular, the growth of ecommerce encouraged many companies to buy warehouse space in Richmond.
He added that many companies have hotel demand that goes all the way to renting hotel rooms in Emeryville.
The healthcare district said any viable medical or healthcare options would be given greater consideration than other offers. However, district representatives said that no feasible healthcare options were presented to them.
The Salvation Army made an offer over summer but withdrew it, the district staff report states. Another offer came from Drever Capital for $19 million, which proposed turning the hospital into a dementia facility. This was withdrawn as well. V Covington LLC, also known as U.S. Healthvest, and Central Valley Specialty Hospital also made offers that did not pan out.
Zell said that the offer to the district that was simultaneously the most viable and most lucrative came from the small hotel operator RGH. “If we’re going to sell it, we need to get the maximum value of the land that we can, if we can’t serve the basic mission of the healthcare district,” he added.
But crafting a fiscal solution to paying down DMC’s debts leaves still a gap in healthcare for the region, officials said. When Doctors Medical Center closed, the number of emergency room beds in West Contra Costa County dropped from 40 to 15. That’s the loss that hit the hardest, said Contra Costa County Supervisor John Gioia.
“The sale of this hospital should not mean the end of trying to find a solution to bring back a smaller emergency room hospital in the future,” Gioia said.
LifeLong Immediate/Urgent Care, across the street from DMC, has been able to meet some of the healthcare needs provided by an emergency room, but hasn’t replaced it. Patients and employees still feel the aftermath of the hospital closure, which Richmond Confidential covered in an earlier article.
Zell said that money from property taxes and the 2004 parcel tax and will go towards paying off debt until 2021. When their debt is paid, they can explore how to use that money to support healthcare needs in West Contra Costa County.
“There’s other healthcare districts throughout the state that don’t run hospitals and that support healthcare in other ways,” Zell said. “That’s a decision of a future board.”
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