HJ Sims Provides $6.2 Million HUD PlusTM Loan at 92.5% LTC
A newly formed venture (the “Borrower”) was under contract to acquire a highly occupied skilled nursing community in the Southwest. The Borrower’s ownership team combined the strength of an experienced local executive management team with a nationally recognized skilled nursing owner and operator. The Community was the group’s first in the area with plans to expand over time to develop a regional presence.
To fund the acquisition, the Borrower sought a high-leverage bridge-to-HUD financing solution. The Borrower intended to refinance with long-term HUD-insured financing after implementing a number of initiatives as the property to improve value. Given the Borrower’s long-term capital plan to seek permanent financing from HUD, and with additional plans for growth in the future, HJ Sims proposed a high-leverage subordinate HUD PlusTM loan. The unique HUD PlusTM loan is intended to bridge to a permanent refinancing, but is structured to survive a HUD refinancing if needed.
HJ Sims funded a $6.2 million HUD Plus loan, along with first mortgage financing provided by a senior lender, which represented 92.5% of total transaction costs of the acquisition. The HUD PlusTM loan was structured with a fixed interest rate, a 10-year term, three-year interest only period, and favorable repayment provisions allowing for a future HUD refinancing.
The customized financing structure is structured to provide the Borrower with financial flexibility upon a refinancing while limiting the Borrower’s equity investment in acquisition. In the event that proceeds from a HUD refinancing are insufficient to repay the subordinate loan in full, the HUD PlusTM loan can remain outstanding behind HUD insured debt, providing the Borrower with flexibility upon a refinancing. The long-term, fixed rate nature of the HUD PlusTM mezzanine loan, along with the ability to survive a HUD refinancing, allows the Borrower to avoid potential transaction costs associated with raising new subordinate debt or additional equity in the future. Additionally, the HUD PlusTM loan provided additional leverage to fund the acquisition limiting the need for additional equity, which allowed the Borrower to, i) preserve strategic capital for additional growth opportunities in the region, and ii) avoid diluting its ownership in the property by raising additional equity from outside investors.
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