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Many non-profit continuing care retirement communities (CCRCs) have enjoyed getting 100% financing for their properties in the past, but that could change going forward, according to panelists speaking at SHN’s first annual Senior Housing Summit in July.
LeadingAge, a non-profit advocacy group of senior living providers, says 80% of CCRCs are non-profit, and while most have fared well through the downturn, the dozen or so that have ended up in bankruptcy during the recession have had a significant impact on the market.
In light of this, the future of financing CCRCs for non-profits will require more equity in order for developments to be successful, said David Reis, CEO of Senior Care Development, during the panel.
“Skin in the game is important,” Reis said. “So is the history of the non-profit and the communities it has. If you’re a nonprofit, you need to think very carefully before building a large-scale CCRC.”
Most of the failed projects have had little experience in operating CCRCs and financed the communities with large amounts of tax-exempt debt.
“Then when trouble came, they were the first to hit the exits,” said Reis.
In April, his company purchased the Clare at Water Tower in Chicago at bankruptcy auction for $53.5 million in cash, and is working to turn the project around.
The 750,000-square-foot building entered bankruptcy last year, leaving bondholders with only pennies on the dollar for its debt. The $272 million project was financed with $233 million of debt and ended up as 2011′s largest municipal bond default after the Clare’s sponsor first missed its payment in September that year.
But not all of the CCRCs being built today are experiencing financial distress. Located on the north side of Chicago, The Admiral at the Lake is finishing construction on a 31-story redeveloped community built on the site of the original Admiral, which first opened its doors in 1858.
The first residents moved into the new Admiral at the Lake in July, and 80% of the community’s independent living units are pre-sold, with expectations of reaching 50% occupancy by the beginning of October, said Glenn Brichacek, CEO of The Admiral at the Lake, during the panel.
For some institutions, years of brand recognition and a longstanding reputation can help, but increasingly CCRC projects will be asked to come to the table with something more tangible—their own equity stake.
“One thing that distinguishes us,” said Brichacek, “is when you look at larger CCRCs you see highly leveraged debt projects. When you include both the value of the land and the equity we put in, it was more than $20 million. That’s somewhat reassuring to investors as well as [non-profit partner] Kendal.”
Other non-profits such as Mather Ways have had successful CCRCs in the Chicago area, which seems to indicate there is enough market demand for high-end communities.
Cain Brothers Managing Director Mike Zarriello told SHN that many of the communities developed between 2007 and 2009 are experiencing some form of distress, he says.
“The primary reason for that is the fact that they were done by organizations who funded them with 100% debt,” he says. “That’s not a lot of leeway.”
As the economy heads toward recovery, investors don’t want to replicate that situation, he says.
While non-profit CCRCs have been able to fund development of projects through the tax exempt bond markets, profit-driven companies say getting financing continues to be a challenge.
“At one point, banks were very comfortable lending,” said Gary Smith, chief financial officer of Vi Senior Living. “[Those banks] are either not around anymore or have taken a break from lending, which makes sense given what’s happened.”
Smith does believe that financing will come back, but it will require a higher level of equity investment than it did in the past.
“The interesting thing is, start-ups that are getting done are with some form of equity contribution, [with] a guarantee from the related entity,” says Zarriello. “That’s the difference here—these deals aren’t being done with 100% debt. It gives the lenders a cushion. That’s the primary change that we see.”
Written by Elizabeth Ecker
Toledo, Ohio-based Health Care REIT, Inc. (NYSE:HCN) plans to come out swinging in the third quarter with about $925 million of healthcare-related acquisitions, with about $854 million of that designated for seniors housing properties.
The healthcare real estate heavyweight announced on Monday, Aug. 6 that it anticipates acquiring approximately $925 million of seniors housing and medical office properties in the third quarter of 2012, based on acquisitions it has completed so far in the quarter and potential acquisitions for which it has signed a letter of intent.
The potential acquisitions will include properties that collectively will generate approximately 97% of HCN’s revenues from private pay sources.
Approximately $583 million of those anticipated acquisitions will be seniors housing triple-net lease properties, with another approximately $271 million of seniors housing operating properties where HCN is the majority owner. The remaining approximately $71 million of acquisitions will be medical office properties.
About 81% of the anticipated acquisitions are expected to involve some of Health Care REIT’s existing portfolio partners, which the REIT notes is consistent with its investment strategy.
The aggregate acquisition amount includes approximately $134 million of debt that Health Care REIT expects to assume at an average interest rate of 5.6%.
Written by Alyssa Gerace
As unemployment figures remain high across the nation and some seniors struggle to attain financial security heading into retirement, the U.S. Department of Labor and AARP have both launched initiatives in recent days aimed at helping the older population to get jobs, and, by extension, retirement security.
AARP’s new service, called Work Reimagined, makes use of social networking to help experienced professionals find leads and personal connections “needed to succeed and compete in today’s job market,” says the nonprofit organization.
The free program gives users access to job listings posted by employers committed to recruiting workers of all ages and provides work resources and tools. It also allows users to connect with business contacts through social media site LinkedIn.
“The participating employers at Work Reimagined are committed to recruiting workers of all ages, and many of these companies have immediate hiring needs,” says AARP executive Adam Sohn, who managed the development of Work Reimagined.
AARP was included in the Labor Department announcement last week that it would be awarding nearly $260 million in grants to 15 nonprofit organizations across the country to provide job training and related services through programs seeking to increase the employment—and retirement security—of low-income seniors.
“The federal grants announced today will provide job training to enhance low-income seniors’ employment opportunities and contribute millions of community service hours to nonprofit and civic organizations throughout the country,” said Secretary of Labor Hilda L. Solis in a statement. “These organizations are crucial partners in serving seniors who face challenges in re-entering the workforce and attaining economic stability.”
The department is making 16 one-year grants to 15 national nonprofit organizations. The grants will support more than 35,000 positions, and state and territorial grantees that have already received funding through the Senior Community Service Employment program will continue to support more than 10,000 positions.
Through the program, individuals age 55 and older receive training through part-time, service-oriented positions in their communities while earning the highest of the federal, state, or local minimum wage. The program’s goals are to promote community service and to help participants achieve economic self-sufficiency by helping them achieve unsubsidized employment, where appropriate.
A recent report by the Government Accountability Office regarding unemployed older Americans and the effects of joblessness on retirement security says that older workers who become unemployed tend to stay unemployed longer than their younger counterparts, and sustain greater wage losses as well.
Experience Works, Inc., AARP Foundation Inc., and Senior Service America Inc. received the largest grants, totaling roughly $154 million.
Written by Alyssa Gerace
Watermark Retirement Communities, Inc. has assumed management of four senior living communities in Central Iowa, and has acquired two of them.
The Tucson, Ariz.-based senior living community operator will now manage:
Watermark has acquired Vriendschap Village in Pella and The Village at Legacy Pointe in Waukee from Pella, Iowa-based Ewing Land Development & Services, which still owns the other two communities.
The terms of the transaction were undisclosed.
“The communities are an ideal fit for Watermark for many reasons, particularly their history of customized care for residents,” said David Barnes, Watermark’s President/CEO. “Ewing Land Development & Services has created four great communities. We expect the management transition to be relatively smooth and we’re looking forward to the process. All current employees will be retained as part of the transition.”
Written by Alyssa Gerace
Ziegler Closes $8 Million Bond Issue for Nonprofit Senior Care Community Expansion
Specialty investment bank Ziegler recently closed an $8,035,000 non-rated, fixed-rate issue for Nazareth Living Center, a not-for-profit corporation based in Missouri.
The Nazareth community includes a 150-unit assisted living apartment building and a 140-bed skilled nursing center in St. Louis, Mo. It is co-sponsored by Benedictine Health System, a Minnesota not-for-profit corporation that also serves at the center’s manager, and the Sisters of St. Joseph of Carondelet, St. Louis Province (CSJ), a Missouri not-for-profit corporation.
Proceeds of the Series 2012 Bonds, along with other sources of funds, will be used to fund an expansion of Nazareth Living Center consisting of 50 entrance fee-based independent living apartments; acquire leased land and adjoining property; fund interest on the bonds for 27 months; fund a debt service reserve fund; and pay the costs of issuance.
Other funding sources consist of an equity contribution, the receipt of upfront entrance fees received from CSJ for the purpose of occupying 30 of the planned 50 independent living units, and a sponsor commitment to provide temporary debt in the form of a taxable subordinated loan to be paid from a portion of the entrance fees collected from units not purchased by CSJ.
“This financing for Nazareth represents an opportunity to expand the continuum of services on campus, to broaden the range of senior living options, and to further cement Nazareth’s reputation as a leading Catholic, faith-based senior living community in St. Louis,” said Will Carney, Managing Director in Ziegler’s Senior Living Practice.
HCP Closes $205 MIllion Mezzanine Loan Facility to Recapitalize Senior Care Portfolio
Real estate investment trust HCP (NYSE:HCP) closed a mezzanine loan facility to lend up to $205 million to Tandem Health Care, an affiliate of Formation Capital, as part of the recapitalization of a post-acute/skilled nursing portfolio. The REIT funded $100 million at closing (the first tranche) and expects to fund an additional $105 million (the second tranche) between March 2013 and August 2013.
The second tranche will be used to repay debt senior to HCP’s loan, which is subordinate to $400 million in senior mortgage debt and $137 million in senior mezzanine debt. The loan has a fixed interest rate of 12% and 14% per year for the first and second tranches, respectively. Including fees received at closing, the loan has a blended yield to maturity of approximately 13%. The facility will have a total term of up to 63 months from the initial closing.
The tandem portfolio is comprised of 68 post-acute/skilled nursing facilities with a 93% occupancy rate, a quality mix of 52%, a net operating income margin of 17%, and in-place rent coverage of 1.3x. The properties are primarily located in Florida, Ohio, Pennsylvania, and Virginia and are in either certificate of need (CON) states or states that have placed restrictions on new post-acute/skilled nursing construction.
The portfolio is master leased to LaVie Care Centers, an operator of 208 post-acute/skilled nursing facilities in the United States.
Ventas Prices $275 Million of Senior Notes Offering
Real estate investment trust Ventas Inc. (NYSE:VTR) announced Tuesday the pricing of a public offering of $275 million aggregate principal amount of 3.25% Senior Notes due 2022 at 99.027% of principal amount.
The notes are being issued by the company’s operating partnership, Ventas Realty, Limited Partnership, and a wholly-owned subsidiary, Ventas Capital Corp., and will be guaranteed, on a senior unsecured basis, by the company.
The sale of the notes is expected to close on Aug. 3.
Ventas plans on using the net proceeds from the offering to prepay in full its $200 million unsecured term loan due 2013, which has an all-in annual fixed interest rate of 4%, to repay indebtedness outstanding under its unsecured revolving credit facility and for working capital and other general corporate purposes, including to fund future acquisitions and investments, if any.
Lancaster Pollard Closes $161 Million of Loans in June/July
Lancaster Pollard closed 22 senior living deals in June and July with a total PAR amount of $161 million as the firm continues its record-breaking year. Nineteen of those deals used the FHA-insured Section 232/223(f) funding program; two used the Section 241 program; and one used tax-exempt, bank-qualified bonds. The transactions included skilled nursing and assisted living facilities in New York, Florida, Georgia, Ohio, Oregon, Illinois, Indiana, Minnesota, Virginia and Pennsylvania.
Love Funding Secures $43.6 Million in Refis in July for Senior Care Properties
Love Funding secured a total of $43.6 million in funding in the past month to help senior care property owners refinance their existing debt and reduce their monthly debt service, says the financing firm.
Love Funding obtained financing for six senior care transactions through HUD’s Section 232 LEAN loan program, which the firm says is “processing loan applications at the fastest pace in its brief four-year history” now that the HUD queue has been eliminated for most LEAN loan applications.
“Given the great strides HUD has made with the LEAN program, and the historically low interest rates we’re enjoying right now, there really is no better time for senior care property owners to lower their debt service,” said Jon Camps, managing director of production at Love Funding.
Cambridge Closes $3.1 Million Loan to Refinance Ill. Senior Care Community
Cambridge Realty Capital Companies recently closed on a $3.1 million loan to refinance Carlinville Rehabilitation and Health Care Center, an 86-bed skilled nursing facility in Carlinville, Ill.
The fully-amortized, 30-year term loan was arranged using HUD’s Section 232/223(f) funding program and was underwritten by Cambridge Realty Capital Ltd. of Illinois, the Cambridge arm that specializes in underwriting FHA-insured HUD loans.
Guilford Housing Authority Gets $2 Million in Funding for Affordable Senior Housing Units
The Guildford Housing Authority is getting $2 million in funding for nine affordable senior housing units in the Boston Terrace development, reports the New Haven Register. The funding is through the state’s Competitive Housing Assistance for Multifamily Properties (CHAMP).
CHAMP granted a total of $25 million for this round of funding, which will help finance 10 affordable housing developments in six Connecticut cities.
Guilford’s project has an approximately $2.08 million price tag, according to CHAMP documents, says the article. The development is ready to break ground; the nine units will each be 625-square-feet and have LEED certification.
“The creation of these new homes in the Boston Terrace development is a shovel-ready project that will improve not only the lives of our senior citizens, but also create jobs and help strengthen our economy,” said state Rep Pat Widlitz, D-Guilford. “The state’s support for Boston Terrace is vital and I applaud the governor for bringing this critical funding to fruition.”