Clark-Lindsey Village (July 2023)

In 2022, during the financing process associated with the second phase of the master plan, HJ Sims solicited banks for financing proposals to fund both the second phase as well as the third phase of the master plan. A banking partner was identified and selected with the mutual understanding that the bank had enough capacity to fund the subsequent Phase 3, independent-living expansion. Fast forward to March of 2023. Several banks had already shuttered and credit standards tightened. On March 10, 2023 Silicon Valley Bank endured a historic collapse, for a bank of that size, and sent shockwaves through the capital markets as well as the banking sector. HJ Sims was in the middle of structuring the plan of finance for CLV, when suddenly the bank market shriveled and previously eager-to-lend institutions were cautious to deploy any new capital. The banking partner for the financing had retreated – once again, HJ Sims had to craft a creative solution to bring the client’s project to life.

With bank options eliminated, the feasibility of the project was hinging on a draw-down vehicle which would lower capitalized interest. CLV wanted to execute a GMP approximately 4-months before construction would begin to lock-in material costs, so the organization would benefit if the they could deploy loan proceeds months after closing. HJ Sims prides itself on having a deep tool box which includes relationships with institutions as well as alternative capital providers, which allowed the plan of finance to successfully pivot to an alternative capital provider that still produced a draw-down benefit.  The plan of finance would now be entirely executed with fixed-rate draw-down bonds, placed with a single investor. This vehicle would allow CLV to incrementally draw construction funds on a quarterly basis, while fixing the interest rate at each draw. The end result was a product which could be drawn down, but would lock-in current interest rates and mitigate future interest rate increases.

With a new capital partner in-place and a debt vehicle that would benefit the feasibility of the project, HJ Sims continued to advocate on behalf of CLV. HJ Sims negotiated even more favorable financing terms to further bolster the project’s viability. The plan of finance, with the new capital partner, contemplated two tranches of debt: a tranche of debt which would be repaid by 80% of the initial entrance fees associated with the new project; and a tranche of long-term debt to be serviced by the community over time. HJ Sims was able to strike a deal which allowed both tranches of debt to be interest-only through the respective maturity dates. Noting that the interest-only period would have no principal repayment, HJ Sims also introduced a third tranche of debt. The third tranche of debt would be $3,000,000 of long-term debt which could be repaid at any time; though, also did not require principal repayment. This third tranche of debt allowed CLV the flexibility to paydown debt and reduce the overall outstanding principal of the long-term debt (not repaid by entrance fees) when the commitment from the capital provider matured.