HJ Sims Triumphs in Closing USDA Financing for Evenglow’s $32 million Expansion Project
UPDATE: NOVEMBER 30, 2022
After the construction loan had been drawn-down for seven months, HJ Sims opted to utilize the USDA take-out and minimize the overall borrowing costs for Evenglow. On November 8th, Evenglow’s construction loan was refinanced with a USDA vehicle locked-in at an interest rate of 2.25% and a term of 35-years with an additional drawn-down feature. In an environment of heightened volatility and rising interest rates, HJ Sims ensured the USDA capital structure could be implemented as soon as possible. HJ Sims creatively locked-in the USDA financing at 2.25% in late 2021, a rate which would be 3.50% if implemented at the time of the refinancing. Overall, HJ Sims and Evenglow are both pleased with the results of the financing and look forward to witnessing the expansion project come to life.
“After just stepping into my new role as CEO, the thought of handling this expansion financing was unsettling. Thankfully, HJ Sims was there to help us successfully implement the financing that would reposition our organization for years to come. Sims thoroughly understood the process involved and made sure to provide extensive education, even after closing. Lynn and Brady took great care in ensuring that our team understood all of the financing components so we could march in-step. Working with Sims truly was a pleasure and I look forward to our partnership for years to come”
– Cindy Wegner, President and CEO, Evenglow Lodge
Evenglow Lodge began providing healthcare services to the community of Pontiac in 1958. Subsequently an endowment was formed to procure additional resources of expansions throughout the years with the most recent expansion being the addition of a new memory care facility in 2001 on a separate campus. Understanding the community needed additional inventory, Evenglow’s management sought assistance in a development consultant. After engaging Plante Moran Living Forward to play the role of development consultant, Evenglow decided to expand the organization’s footprint with replacement Assisted Living and more Independent Living products. Subsequently a competitive solicitation process was conducted to identify an investment bank to assist with the monumental financing, and Evenglow elected to partner with HJ Sims. Evenglow envisioned HJ Sims as being the right fit for the puzzle that would complete this pivotal project. The project encompassed two Phases with the first phase consisting of the construction of 76 replacement Assisted Living Units adjacent to the current Memory Care facility, the demolition of the current Assisted Living Tower and the building a new “Link” with common space and for the New Independent Living and existing Health Center. Phase II would consist of the construction of 24 new Independent Living Units to be built where the current AL Tower stands. The Assisted Living building/Phase I would break ground in 2021, and Phase II would start construction in 2023.
The proposed expansion projects would be built in two distinct phases. With the Assisted Living building poised for construction to begin in 2021, followed by the Independent Living Units in 2023, HJ Sims opted to push the bounds of creativity. HJ Sims worked closely with management and Plante Moran to analyze potential financing structures. The team analyzed all-bank, all-bond, USDA and hybrid solutions to explore viable solutions which would get the buildings stabilized yet to burden the operating models. Due to USDA’s prohibition on using this USDA program’s debt for Independent Living, HJ Sims crafted a plan of finance which included USDA financing for the Assisted Living building paired with bank financing for the Independent Living Units. The latter would use two distinct tranches, one entrance fee tranche and one long-term tranche, which would allow Evenglow to lessen its long-term debt liability. Furthermore, with the low rates and long amortization available via the USDA financing, Sims worked with the USDA and Plante Moran Living Forward to include as much as was allowable into the USDA loan. Not only were we able to finance the construction of the replacement Assisted Living, we were able to include the demolition of the current Assisted Living and the construction of the “Link” building with the kitchen, therapy and other spaces used by the Health Center, which qualifies for USDA debt.
Given the lead time and regulatory hurdles for USDA financing, Sims immediately kicked off the preliminary then full application approval process for the USDA financing (which starts at the local level and ultimately gets approved at the USDA headquarters in Washington D.C.). In conjunction with the USDA approval process, Sims conducted a full bank solicitation process, and established a banking partner in BMO Harris. The banking partner would initially provide a draw-down vehicle secured by the USDA’s commitment letter for the Assisted Living building. With the USDA’s commitment for the take-out, we weren’t bound by any loan-to-value constraints by the bank. The bank vehicle would be drawn-down allowing for Evenglow to save on funded interest. Prior to or at construction completion, the USDA’s loan replaces the Bank loan providing a locked-in 35-year commitment.
With the bank commitment process underway, the Sims team dedicated all of its resources to the USDA approval process. A lengthy and cumbersome undertaking, the USDA process included a 717-page loan origination guidebook which encompassed numerous items needed for the final approval to take place in Washington D.C.; though, HJ Sims was ready for the challenge. Navigating a course to receive approval for the USDA’s rural development program, Sims braced through a rising project cost environment, rising interest rate environment, multiple government shutdowns (closing the USDA offices), and the COVID-19 pandemic to receive local and national USDA approvals. Sims worked hand-in-hand with the local USDA office in Champaign, Illinois to establish a relationship that would span over two years in length and procure items that included a feasibility study, various surveys, and even an environmental report to ensure the project was not to be built on a Native American burial site.
On Wednesday March 23rd, after 593 days from the initial engagement and financing kickoff, HJ Sims closed the $32,200,000 bank facility backed by approval received from the USDA. The draw-down bank loan will permit Evenglow to draw for construction costs on an as needed basis. Ultimately, the bank loan will be refinanced with a USDA vehicle which was locked-in at an interest rate of 2.25% and a term of 35-years, providing a capital structure which will lift the viability of the operating model and allow Evenglow to better serve the community with the benefit of a low cost of capital for years to come.
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