HJ Sims Secures $87.7M of Bank Financing for Expansion Project and Refinancing
“The HJ Sims team was an invaluable partner and advisor for the financing of The Farmstead by Resthaven. We were very grateful to have engaged the Sims team early in the process of the most significant expansion of Resthaven’s history. They were able to help navigate the financing amidst a challenging environment including quickly rising interest rates, inflated construction prices, and an ongoing pandemic all while providing clear communication and education to management and the Board of Trustees of Resthaven. Their ability to think creatively and pivot as necessary ultimately allowed us to close on our financing. Resthaven and the future residents of The Farmstead couldn’t be happier and we have HJ Sims team to thank for that.”
–Deedre Vriesman, CEO
Resthaven is a not-for-profit corporation based in Holland, Michigan that provides housing, healthcare and other related services through the operation of 145 skilled nursing beds, 116 assisted living units, and 60 independent living rental units. The organization also owns a community-based service organization.
In 2019, the organization purchased nearly 40 acres of land in Holland to develop a new campus with 104 entrance fee independent living units, as well as 24 assisted living units and common areas. HJ Sims was engaged in the fall of 2020 following a competitive solicitation to explore financing options for this project, named The Farmstead, and refinancing options for Resthaven’s existing debt.
In 2021, Resthaven entered into a long-term lease of a 19-unit IL building, The River Place, a block away from their existing rental IL building. While the project would allow the organization to further broaden their senior housing options, the coinciding timing of its opening with the Farmstead financing closing created some uncertainty in regard to its financial impact on the overall organization.
As construction prices continued to rise throughout the design and development process, it became clear that the most efficient source of capital for the project would be bank debt which could be issued on a draw-down basis without a debt service reserve fund. Resthaven had a strong relationship with its existing lender, but the local bank did not have the capacity to finance the entire project. HJ Sims worked with Resthaven to best position itself for additional bank partners by including the existing operations as part of the borrower rather than financing The Farmstead on a standalone basis. While the existing operations consisted of significant skilled nursing and assisted living units, the organization fared very well during COVID with little decrease in census and staffing. Accordingly, the existing operations allowed for a stronger credit which could partially offset the start-up risks associated with The Farmstead project.
After a competitive solicitation process, HJ Sims worked with Resthaven to select its incumbent bank to provide short-term entrance fee financing, and a new banking partner who would provide additional capital for the refinancing and long-term project debt.
Because of state legislative restrictions on the ability of certain issuing authorities to refinance outstanding debt issued by other authorities, HJ Sims worked with Resthaven to successfully gain approval through two different issuers. In addition, HJ Sims worked with Resthaven and bond counsel to determine the most appropriate issuer for the project debt as its campuses are located in one city, but two counties and the city was unable to serve as issuer.
When the final Guaranteed Maximum Price for the construction contract came in, the increases in the hard costs and necessary interest reserve pushed the par amount over the approved tax-exempt bond issuance level for the project. With the Federal Reserve increasing interest rates at an accelerated pace, delaying the closing to allow for an increase to the approval limit was too great a risk for the project. In order to reduce the amount of tax-exempt bonds being issued, HJ Sims suggested that the organization use a taxable line of credit to fund any necessary owner’s contingency. Such change also improved the long-term debt service coverage ratio.
In order to minimize Resthaven’s exposure to rising short term interest rates, HJ Sims structured an accreting swap that would be in place during the construction draw period. Following that, a forward starting swap which was integrated with the bonds would take effect through the remainder of the bank commitment period. Overall, the blended cost of capital over the 10-year bank commitment period was 3.99%.
On July 21, 2022, HJ Sims closed the Series 2022 financing for Resthaven, which included four new tranches of debt:
- $5.525M of Series 2022 Bonds issued through the Michigan Strategic Fund which refinanced Resthaven’s Series 2013 and Series 2017 bonds. This refinancing enabled Resthaven to extend the amortization of the debt and achieve overall level debt service on all its long-term debt.
- Up to $51.0M of Series 2022A Bonds issued through the Ottawa County EDC which will fund construction costs associated with the Farmstead project. With a 30-year underlying amortization on this new debt that commences after a 4-year interest only period, Resthaven was able to minimize its annual debt service burden.
- Up to $27.32M of Series 2022B Bonds issued through the Ottawa County EDC which will also fund construction costs associated with the Farmstead project. By repaying these bonds with first generation entrance fees received, Resthaven will be able to quickly deliver and minimize its overall debt service.
- Up to $3.0M of proceeds from a taxable line of credit to be used for owner’s contingency. To the extent that there are project costs savings, Resthaven has the ability to draw any remaining tax-exempt proceeds and reimburse itself thereby limiting the amount of equity needed.
In addition to the new tranches of debt outlined above, HJ Sims worked with Resthaven’s existing bank partner to complete two note modifications. Overall, the Series 2022 financing, positions Resthaven to broaden its mission for serving seniors of Western Michigan while maintaining long-term financial and operational success.
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