Sims’ Financing Repositions 125-Year-Old Organization for the Future…
“As a small independent community with no history of debt, we had little experience to bring to financing our expansion and no experience with bond financing. The team from HJ Sims…brought more than the expertise we needed. They brought an understanding of our work as a charitable organization with a mission of affordability and accessibility, tremendous creativity as we navigated a complicated relationship with our leaseholder, and a commitment to completing the financing in an increasingly active bond market. Now that we are moving to construction, I can’t imagine going through this process without Sims as our partner.”
– Pamela Leland, PhD, Executive Director, The Hickman
Founded in 1891 as a Quaker boarding home, The Hickman Friends Senior Community of West Chester d/b/a “The Hickman” (“Community”) is a licensed Personal Care Home located in downtown West Chester, Pennsylvania. As an independent, charitable, 501(c)(3) organization, its mission is guided by Quaker principles and a tradition of providing individualized care and assistance to seniors seeking a safe and affordable living environment. The Community provides assistance with Activities of Daily Living in a supportive, non-medical setting. Housing and supportive services are based on a rental model in which residents sign an annual contract. The Hickman is co-located on the “Quaker Block” in West Chester with the West Chester Friends Meeting and West Chester Friends School. The block consists of two parcels, the larger of which includes the Hickman Building which, pursuant to a Ground Lease Agreement (“Ground Lease”), is leased by The Hickman from the West Chester Friends Meeting. The smaller parcel is owned by The Hickman and contains the Sharpless-Hall Building. The Sharpless-Hall Building was the original boarding home and has 28 residential units. In 2015, The Hickman faced a variety of challenges to its future sustainability, including: 1) The need for additional secure dementia care services in a non-medical (i.e. non-skilled nursing) environment in the area; 2) The inadequacy of the existing Sharpless-Hall Building to serve the needs of current residents; and 3) The need to increase the overall size of the Community to ensure future organizational growth. Driven by the expansionary vision of its founders, Sallie Sharpless and Lydia Hall, the Hickman’s Board of Directors approved the construction of a new Sharpless-Hall Building (“Project”) that could meet the changing needs of current and future residents and ensure the organization’s presence in West Chester for generations to come. The new Sharpless-Hall would be a 3-story building with 71 rooms offering:
- A secure, first-floor dementia care program with its own outdoor garden
- Personal care and supportive residential living on the second and third floors
- A “neighborhood model” design, providing a more intimate living environment with more opportunities for social interaction and community gatherings
- Country kitchens and multiple dining rooms to afford residents more choices regarding their dining experience
- Newer technologies and a more efficient and cost-effective building design
- Improved fire safety elements
With plans for the Project in place, Sims partnered with The Hickman to identify the most cost-effective financing solution. The Hickman also embarked on a $3 million capital campaign to generate additional funding for the new building.
In the beginning of 2016, Sims pursued commercial bank financing. It was originally anticipated that The Hickman would fund the Project through the issuance of approximately $14 million of senior lien commercial bank debt, a $2.9 million tranche of subordinate debt underwritten by Sims and $3.3 million of capital campaign contributions and other funds received from The Hickman. Sims conducted a comprehensive bank solicitation process (“RFP”) targeting the most active lenders to senior living organizations in the Mid-Atlantic region. The proposed security structure of the financing, in part, included a leasehold mortgage on the Hickman Building representing an interest in The Hickman’s rights as Tenant under the Ground Lease. As Landlord, the West Chester Monthly Meeting imposed several restrictions to the leasehold mortgage that precluded several banks from responding to the RFP. Nonetheless, through effectively communicating the organization’s mission and financial strengths, The Hickman received a competitive financing proposal from a commercial bank, which anticipated approval of a final term sheet by its credit committee. In June 2016, the Sharpless-Hall Building was demolished on schedule as part of the Project. Soon after, The Hickman learned that due to the challenges presented by the unique Ground Lease restrictions, the commercial bank lender was not able to obtain final credit committee approval. In response, The Hickman, with Sims as sole manager, proceeded with the issuance of approximately $20 million of non-rated traditional fixed-rate bonds (“Series 2016 Bonds”). In pursuing this strategy, the financing team faced the challenge of effectively addressing investor concerns regarding Ground Lease restrictions.
Working with the Hickman’s Executive Management Team (“Management”) and leveraging the depth of Sims’ bond distribution network, a comprehensive marketing strategy was developed that targeted a broad group of institutional investors as well as the retail buyer community through Sims’ Private Client Group. Understanding the challenges presented by the Ground Lease restrictions, the core of Sims’ investor outreach strategy for the Hickman included a detailed investor presentation which enabled Management and Sims to communicate salient details regarding the organization, Ground Lease and anticipated bond financing. With respect to timing, it was important that construction of the new Sharpless-Hall building commence by the first week of November in order to minimize the incurrence of additional costs associated with Winter conditions and avoid a disruption to the adjacent West Chester Friends School. Furthermore, to maximize the Hickman’s future refinancing flexibility, the bonds were structured with a first call date in 7 years compared to the industry standard 10-year period.
The weeks leading up to the pricing of the Series 2016 Bonds were characterized by significant market volatility. After more than 50 consecutive weeks of bond fund inflows, the tax-exempt market was pressured by more than $16 billion of new issuance volume, which significantly constrained investor liquidity. As a result, the fixed income markets experienced a steady erosion in prices, with municipal bonds following Treasuries on a path to higher yields that resulted in the postponement of several bond pricings. Despite deteriorating market conditions and the obstacles presented by Ground Lease restrictions, the strength of Sims’ investor network and marketing campaign resulted in a successful sale of the Series 2016 Bonds, with $5.4 million of debt placed with retail investors and $13.6 million placed with institutions. The Hickman was able to achieve a closing by the first week of November while still securing funding for the Project at attractive levels.
For more information on how The Hickman was Financed Right® by HJ Sims, please contact: