HUD Plus Financing Means More Financing Proceeds
HJ Sims partnered with Affinity Living Group (“Affinity”) to provide subordinate financing to fund the acquisition of Golden Pond Communities (the “Community” or “Golden Pond), a 78-unit assisted living and memory care community located in Winter Garden, Florida. With a footprint primarily in the southeast and headquartered in Hickory, NC, Affinity operates 93 facilities, with over 6,000 dedicated employees and the capacity to serve more than 6,500 residents. According to the 2017 ASHA 50, released by the American Senior Housing Association, Affinity ranked as the 13th largest owner and 24th largest operator of senior housing in the nation1.
As part of its strategy in acquiring Golden Pond, Affinity plans to implement its own operating systems and procedures with goals of increasing occupancy, maximizing revenues and controlling expenses. Upon achieving improvement in the operational and financial performance of the Community, Affinity plans to obtain long-term HUD insured financing.
In order to execute its acquisition strategy, Affinity secured a commitment for a short-term senior bridge loan. Affinity approached Sims to provide subordinate financing for the project. With plans to refinance the bridge loan with HUD insured debt, the acquisition provided an excellent opportunity for Affinity to take advantage of HJ Sims’ HUD Plus program. Under this program, Sims’ provides subordinate financing to supplement the bridge loan, increasing leverage for the acquisition and limiting the out-of-pocket equity requirement from the borrower. The subordinate HUD Plus loan is designed to meet HUD’s requirements in advance of a future HUD insured refinancing, allowing the loan to remain outstanding after the HUD take-out.
A new entity, Affinity Funding IV, LLC (the “Sims Issuer”), was formed to issue taxable bonds. Sims successfully sold $3.0 million of subordinate taxable bonds to its high net worth accredited investors. The proceeds from the bonds were used by the Sims Issuer to fund the subordinate HUD Plus loan to Affinity. HJ Sims funded the subordinate HUD Plus loan on June 30, 2017, meeting Affinity’s timeline to close on the acquisition under a purchase and sale agreement with the seller.
Sims was able to underwrite and implement the subordinate HUD Plus structure to meet the needs of Affinity, as well as the requirements of the bridge lender and a future HUD insured refinancing. The HUD Plus structure maximizes leverage for the borrower, providing 79% financing and allowing Affinity to preserve its capital for future projects. With the flexibility to remain outstanding upon a HUD insured refinancing, the HUD Plus loan allows Affinity to avoid potential transaction costs associated with refinancing the subordinate debt, while retaining advantages of higher leverage post refinancing. The closing of the financing marks the seventh financing Sims has completed for Affinity and the fifth financing utilizing Sims’ HUD Plus program.
1 As of June 30, 2017
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