Pre-Development Loan for Campus Expansion and Repositioning Bridges Funding Needs Until Construction/Permanent Financing
Village Shalom is an existing life plan community which consists of 64 independent villas, 54 assisted living apartments, 52 skilled nursing units and 36 memory care suites. Village Shalom is located in Overland Park, Kansas, an affluent suburb of Kansas City, and the second largest city in Kansas. While Village Shalom’s current campus opened in 2000, Village Shalom can trace its roots of serving the Kansas City Jewish community to 1902. As of March 31, 2017, Village Shalom’s current average occupancy across all levels of care is 94%, including 98% in independent living.
Given the demand for independent living units on Village Shalom’s campus, as well as its desire to replace its current memory care units with a new state-of the art memory care building, Village Shalom has embarked on an expansion and repositioning project. The 76-unit independent living expansion will include underground parking and a new “Main Street” with added common areas and amenities. The new memory care building will consist of two 16-bed assisted living households and one 16-bed skilled nursing-based household. The proposed project will also include the relocation and enhancement of its rehab center and therapy gym. A future phase may include a stand-alone building with additional independent living apartments and underground parking. Village Shalom has embarked on a major fundraising campaign in support of the new project, as well. Construction is expected to commence in the first quarter of 2018.
The total cost of the proposed project is anticipated to be between $65 and $70 million including financing costs and reserves. Prior to the construction and permanent financing of the proposed project, Village Shalom expects to incur pre-development costs of approximately $6,285,000. These pre-development costs will primarily fund the marketing activities related to pre-sale of the new independent living apartments as well as design-development and other development-related activities. To fund these costs, Village Shalom needed a pre-development loan of $6,250,000, with the balance funded from an equity contribution of approximately $35,000. Since Village Shalom has outstanding tax-exempt bonds (“Series 2013 Bonds”), the pre-development loan must meet the additional indebtedness incurrence provisions under its existing Master Trust Indenture (“MTI”). The Series 2013 Bonds are held by four commercial banks.
On April 11, 2017, Sims closed the $6,250,000 pre-development loan which was structured as tax-exempt bonds issued through the Kansas Development Finance Authority (the “Series 2017 Bonds”). The Series 2017 Bonds were purchased directly by one of the four commercial banks which holds Village Shalom’s outstanding Series 2013 Bonds. While it is anticipated that the Series 2017 Bonds will be repaid from initial entrance fees from the new independent living units and/or capital campaign receipts by the end of 2020, the Series 2017 Bonds have a five-year maturity of April 11, 2022 to provide additional cushion. In the unlikely event that the proposed project does not move forward by the Spring of 2018, the MTI was amended to allow for the term on the Series 2017 Bonds to extend to April 15, 2028. This extended amortization period will enable Village Shalom to repay the pre-development loan from existing operations without compromising its ability to service its debt on the Series 2013 Bonds and otherwise meet its financial covenants. While Village Shalom met the tests under the existing MTI to issue the Series 2017 Bonds, the four existing banks had to consent to amend the definition of balloon indebtedness, which would have limited the amount of the pre-development loan if it could not be repaid as anticipated by the 2022 maturity, since the maximum principal amount due in the “balloon” year could not exceed 15% of revenue.
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