Increased Refinancing Proceeds with Sims’ HUD Plus Program
Sims was approached by an affiliate of Affinity (“Affinity” or the “Borrower”) to assist in refinancing existing subordinate debt remaining on a portfolio of six assisted living communities in North Carolina after it had been refinanced with HUD. Affinity acquired the 360 bed portfolio in June 2015. The average occupancy at that time was 69.2%. Under Affinity’s management, the performance of the portfolio significantly improved, with occupancy reaching 91.9% by the end of 2015. In June 2017, Affinity refinanced the first mortgages and repaid a portion of the subordinate debt that was used to acquire the portfolio with six HUD-insured first mortgages at an interest rate including MIP of 4.25% and a 35-year term. Using its “HUD Plus” program, Sims successfully provided a mezzanine loan totaling $4.635 million to repay the remaining subordinate debt, fund required reserves and pay transaction costs associated with the refinancing.
There were a couple of challenges associated with this financing:
- There were time constraints to complete the refinancing to accommodate the payoff of costly remaining subordinate debt.
- The debt needed to be structured in a way that was flexible and met the requirements of six recently completed HUD financings.
This Sims HUD Plus financing satisfied both the Borrower and HUD’s requirements, allowing Affinity to lower its overall cost of capital and increase the proceeds of a refinancing.
A new entity, Affinity Portfolio Funding VI, was formed to issue one series of 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 attractive investment but leaves the asset management and key decisions in the hands of Sims and its trusted partner, Affinity.
Sims was able to underwrite and then implement a subordinate debt structure that met the needs of Affinity as well as HUD. Sims’ unique “HUD Plus” program allowed the Borrower to increase the proceeds of a refinancing to refinance the higher-cost subordinate debt. Thus, the flexibility and expertise of Sims’ bankers resulted in both short- and long-term cost savings for the Borrower and allowed Affinity to preserve its capital for future projects.
This Sims HUD Plus financing solution 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 to allow an owner or developer to complete a transaction by providing custom financing such as mezzanine debt or preferred equity.
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