Unanticipated consequences of a loan to a nursing home management company have created yet another obstacle to reopening the Key West Health and Rehabilitation Center on Stock Island.

The Lower Keys Hospital District board canceled today's meeting while it tries to iron out issues related to a proposed $2.98 million loan to Senior Care Group to renovate the facility, which has been closed for more than a year. Board members also want more information about the actual cost of construction.

The district board agreed Oct. 1 to lend Senior Care the money required to renovate the building, which had fallen into disrepair while under the management of another company, MidCare Inc. District staff subsequently realized the U.S. Housing and Urban Development's (HUD) $5 million mortgage on the building would take precedence over the construction loan should Senior Care default.

According to board attorney Lew Fishman, the hospital district can't sign the construction loan papers for Senior Care until HUD loosens its rules, which he said puts the hospital district on financially tricky ground.

Terms of the HUD mortgage also prevent the district from selling its loan to another lender without HUD approval, Fishman said. The hospital district could benefit from selling the loan to a lending institution because the district would immediately recoup its money.

Fishman also objects to a requirement that the construction loan be the same duration as the HUD mortgage.

"If HUD extends the terms of its loan to Senior Care, we would have to extend our loan too," he said. "We would not get repaid as quickly as we would have otherwise."

Senior Care spokesman Daniel Charpentier said his company would focus on ironing out regulatory wrinkles.

"Our primary focus, once we close with HUD, will be our Key West facility," he said. "We'll do whatever it takes to get it done."

The construction blueprints for the building are being reviewed to nail down the exact cost of the renovation, and ensure the work meets Florida Agency for Health Care Administration code for convalescent centers. That agency's inspections contributed to Midcare's loss of Medicare reimbursement, which contributed to the facility's closing in November 2008.

Though Senior Care asked for $2.98 million from the hospital district, actual renovation costs could be higher, said Henry Hamilton, chairman of the hospital district board.

"Senior Care has given us estimates in the past, but also have said total construction costs could go as high as $4 million to $5 million," Hamilton said.

Hamilton asked Key West general contractor Bill Sprague to review Senior Care's blueprints.

"Mr. Sprague advised us to send out subcontracting bids -- for electrical, plumbing and other work -- to determine as closely as possible what it will cost to do the work. Once those costs are finalized, the board will meet to hear the final numbers," Hamilton said.

"I'm hopeful it's not going to be that high," board member John Padget said. "What guarantee is there that Senior Care can make up the gap? I don't want to end up with a building that's not finished."

jguerra@keysnews.com