HJ Sims Successfully Completes a Financing for a Start-up Entrance Fee Community That Will Provide the Full Continuum of Care in Neighborhoods Surrounding Memphis, Tennessee
“The Farms has been a labor of love. RCA assembled a team that worked tirelessly toward a successful closing. The Sims team brought expertise, creativity, commitment and flawless execution with Duncan-Williams, and Greystone. The team took a personal interest, and was sensitive and responsive to the complexities of the project and the desires of our Board Members. They successfully facilitated the financing and delivered a favorable rate structure, while with the Sims and Duncan-Williams team executed placement of the bonds masterfully.”
– Michelle Trammell-Vincent, Senior Vice President, RCA
Luke, Inc. is the not for profit borrower established for the purpose of building The Farms at Bailey Station (the “Farms” or “Community”). Retirement Companies of America (“RCA”) is a Memphis-based operator of senior living communities whose mission, for over 35 years, has been to serve seniors and their families through a continuum of care that includes high-quality health care. RCA’s first community is located in Memphis, Kirby Pines Estates (“Kirby”), which was voted Best Retirement Community in Memphis for 13 consecutive years by The Commercial Appeal, the major Memphis newspaper. With the addition of The Farms, RCA is able to offer more seniors access to its award-winning services in a new location in rapidly growing Collierville.
Collierville was named as “America’s Best Main Street” by Parade magazine in 2014 and is benefiting from the city of Memphis’ eastward growth. The Community will include 176 independent living apartments, 63 independent living garden homes, 52 assisted living suites, 32 memory support suites, and a health care center consisting of 60 nursing beds spread over 35.6 acres. In addition to the 383 total units, the community will include a clubhouse with five dining venues; pub and sports bar; fitness center; arts and crafts studio; woodworking shop; performing arts center; movie theater; chapel; health clinic, and guest apartments. The Community will be an entrance fee life plan community. The original marketing of the Community began in 2005, shut down for several years during the recession, and then picked back up in 2012. HJ Sims and Duncan-Williams, Inc. were engaged in 2017 to serve as underwriter.
As a start-up entrance fee community, with a history of starts and stops in development, the structuring of The Farms at Bailey Station’s financing required creativity. The goals of the financing were to: 1) Implement a structure to minimize debt service, 2) Ensure that the project had adequate contingencies and reserves, 3) Optimize the financing with the appropriate mix of bond and bank debt while managing and balancing the specific requirements of both banks and bondholders.
In the course of the financing, construction costs went up significantly from initial projections. In order to solve the gap, HJ Sims incorporated the use of a Coverage Support Agreement (“CSA”) as a pledge from Kirby and RCA to provide additional liquidity and contingency support in the amount of $6 million. This CSA money in addition the Liquidity Support Agreement (“LSA”) of $7 million provided a total of $13 million of contingency funds in addition to the debt service reserve funds and the contractor contingencies. Also, RCA was willing to take a subordinate note of $1.5 million in order to satisfy concerns of bondholders.
The financing included $199.65 million of tax-exempt, non-rated, long-term, fixed rate bonds (“Series 2019A Bonds”) and $19.6 million in tax-exempt Entrance Fee Principal Redemption Bonds™ (Series 2019B Bonds). Simultaneously with the issuance of the Series 2019 Bonds, the Community entered into two separate $10 million Loan Agreements with IberiaBank and Simmons Bank. The Community also obtained a $5 million revolving credit facility for the garden homes. To lower annual debt service, HJ Sims structured a 40-year financing, the only 2019 senior living financing with this amortization length. Involving banks saved the project $6+ million in interest.
The financing was successfully sold on November 21, 2019 and closed on November 27, 2019. HJ Sims coordinated the financing team to achieve a very quick close in order to ensure that construction prices were held. HJ Sims was able to generate significant demand for the bonds. The final structure included six distinct term bonds with yields ranging from 5.00% in the 10-year term to 6.00% in the 40-year term. The financing was sold with a 104% call in 6 years declining to 100% in 10 years to provide flexibility. Also, the long-term debt did not amortize any principal until 2024 to allow time for the project to stabilize. The final structure resulted in a combined All-In True Interest Cost (“TIC”), i.e. total borrowing cost, of 5.91% for 40-year financing. HJ Sims was able to leverage its unique distribution channels and obtain orders from 20 distinct institutional buyers. When compared to other pricings around the same time, HJ Sims was able to achieve the same yields on a 40-year maturity as a 35-year maturity in other financings. Also, the incorporation of Duncan-Williams as co-manager and HJ Sims’ distribution through its Private Client Group resulted in approximately $17 million in accredited individual orders.
With HJ Sims’ leadership in collaboration with the full Farms working group, The Farms at Bailey Station successfully completed the financing and realized its goals of funding the construction of its start-up entrance fee life plan community and maintaining sufficient contingencies for the Project.
“We were honored to work with The Farms to provide its complete financing. The LPC will be the most up-to-date in its market and will be a beautifully landscaped campus of garden homes, apartments, assisted living, memory care and skilled nursing,” William Sims, CEO and Managing Principal, Sims.