Capital Infusion for Recently Developed Portfolio
Sims was approached by an Affinity-led joint venture (“Borrower”) to assist in refinancing a portfolio of four newly developed assisted living and memory care communities in North Carolina comprised of 120 assisted living beds and 152 memory care beds. The portfolio which is currently in lease-up, is managed by Affinity and was developed by the Borrower who contributed over $7 million of equity to the projects. Despite the large equity contribution by the Borrower, the communities have faced some unexpected challenges since opening between August, 2015 and January, 2017 which resulted in a need for additional capital. In order to recapitalize the portfolio, the existing subordinate loan on one of the communities required repayment. Using its “HUD Plus” program, Sims successfully provided a mezzanine loan totaling $6.080 million to fund working capital and reserves, purchase FF&E and payoff the existing subordinate debt.
There were several challenges associated with this financing:
- The debt needed to be structured in a way that met the requirements of three different Senior Lenders who provided the four construction loans.
- Sims had to underwrite the loan to allow for the current and future capital needs of each community which are in varying states of lease-up.
- The terms of Sims’ mezzanine financing had to be flexible enough to allow for a potential refinancing of the construction loans with HUD in the future as well as a potential increase in the Sims’ Loan.
To effectuate the refinancing, a new entity was formed to issue taxable bonds. The bonds were successfully sold to Sims’ high net worth accredited investors. The proceeds from the bonds were used by the Sims Issuer to fund the subordinate loan to Affinity. This approach allows Sims’ high net worth clients to participate in an opportunistic investment but leaves the asset management and key decisions in the hands of Sims and its partner.
Sims was able to underwrite and then implement a subordinate debt structure that met the needs of Affinity as well as the Senior Lenders. Sims’ ability to be flexible allowed the Borrower to refinance higher cost subordinate debt and avoid making further equity contributions to the portfolio. The creativity of the Sims’ structure resulted in both short and long-term cost savings for the Borrower and allowed Affinity to preserve its capital for future projects.
A creative financing solution for increasing the proceeds of a refinancing is an example of Sims using its extensive investor base to provide attractive financing to one of its trusted partners. Sims excels in filling the niches that allow an owner or developer to complete a transaction by providing custom financing such as mezzanine debt or preferred equity.
For more information, please contact: