Scramble Is On For Real Estate Of Hospitals

The potential closure of several city hospitals is setting off a scramble by real estate developers hoping to convert the medical facilities into new condominiums and rental apartment buildings.

The report released yesterday by Governor Pataki's Commission on Health Care Facilities in the 21st Century recommended that real estate assets held by Manhattan Eye, Ear and Throat Hospital on the Upper East Side, St. Vincent's Midtown Hospital in Hell's Kitchen, and Cabrini Medical Center near Gramercy Park be sold off for development as the hospitals close or consolidate. The proceeds from selling in New York's pricey real estate market would be used to help pay off existing debt and give the institutions an influx of cash that could be used to fund health activities other than acute care.

The prospect of opening up large building sites in Manhattan drew immediate interest from residential real estate developers and scorn from some local officials who do not want to see health care facilities replaced with high-rise luxury development. Unless the commission's recommendations are rejected by Mr. Pataki or the state legislature before the end of the year, they will become law and must be carried out in the next 18 months.

The chairman of Massey Knakal Realty, Robert Knakal, said that the potential sale of the hospital sites, prime for residential development, would generate top dollar on the real estate market.

"These sites would be highly sought after by the development community," Mr. Knakal said. "It's very likely that demolition of the buildings would be the most feasible, highest and best use of the property."

Assembly member Richard Gottfried, whose district includes the site of St. Vincent's Midtown, said he would fight the state commission's recommendations and that talking about selling off the site is premature. He said that if the sites were sold, he would advocate for development that includes some benefit for the surrounding community.

"If God forbid St. Vincent's Midtown disappeared, I would certainly want the property to be used for residential development including a substantial portion for affordable housing," Mr. Gottfried said.

The biggest development opportunity would be at the site of the Cabrini Medical Center, occupying a full block between Third and Second Avenues and 19th and 20th Streets, two blocks from Gramercy Park.

Known as "bed pan alley," the neighborhood contains one of the largest concentrations of medical/surgical acute care hospitals in the country, according to the state report. Hospital officials have estimated the site could be sold for about $130 million for condominium development, covering the institution's existing debt.

Selling the site of St. Vincent's Midtown, which was known as St. Clare's Hospital until a 2003 merger, would generate about $90 million, according to the report. The mid-block site contains nearly 200,000 square feet of unused air rights.

The report said, "Midtown Manhattan real estate values remain high, particularly in the up-and-coming Clinton neighborhoods where the hospital is located, and a sale of the building would cover a complete repayment of its debt."

Officials from St. Vincent' Midtown and Cabrini Medical Center said the hospitals would fight the recommendations to close and sell their real estate assets.

The commission is recommending that Lenox Hill Hospital convert Manhattan Eye, Ear, and Throat Hospital into an outpatient facility and sell part of its real estate assets. A spokeswoman for Lenox Hill Hospital, which controls Manhattan Eye, Ear and Throat, Ann Silverman, said the Eye, Ear, and Throat hospital's main building would remain open as an outpatient facility. She said its annex, located next door at 209 East 63rd St., is currently for sale.

Lenox Hill, which ran into financial straits of its own late last year, is also said to be shopping some of the pricey brownstones it owns around its main facility near Park Avenue and 77th Street.

The president of Newmark Knight Frank Capital Group, James Kuhn, who specializes in hospital and university real estate, said it would take extra "diplomacy" to build out the hospital sites because of their history as community facilities and the potential resistance by neighbors and local elected officials.

"You can't go in there like a headstrong broker and say I want to sell the property," Mr. Kuhn said."This is going to be a complicated process. The important thing is that you have to combine the desire to liquidate the asset with sensitivity to community needs."