Senior Living News Wire

Lancaster Pollard Assisted Kan. CCRC with Bond Refinance

Lancaster Pollard recently assisted Brewster Place Retirement Community, a not-for-profit continuing care retirement community in Topeka, Kan., in refunding an existing bond issue.

The 30-acre CCRC has 229 independent living units, 28 assisted living units and a fully licensed 97-bed skilled nursing facility. Lancaster Pollard developed a credit profile for Brewster Place and solicited an investor that provided the lowest cost of capital with the greatest flexibility.

The organization refunded the existing bonds with a private placement of $10 million in tax-exempt bonds at a fixed interest rate of less than 3.5% for 12 years. Part of the proceeds will be used to finance nearly $2 million in general improvements. Additionally, the existing debt service reserve fund was released and not required for the new bonds. Bill Wilson, senior vice president and regional manager of the firm’s office in Lawrence, Kan., was the lead banker on the transaction.

Love Funding Secures $8.7 Million Loan for Calif. Skilled Nursing Facility

Love Funding recently announced the closing of an $8.7 million loan refinancing for Country Villa Rehabilitation Center, a skilled nursing facility in Los Angeles, Calif.

Senior director Leonard Lucas out of Love Funding’s Boston office, together with Citra Capital Management LLC, secured the loan through the Department of Housing and Urban Development’s Section 232/223(f) LEAN loan program. The loan refinanced existing debt with a low interest rate that is fixed for 26 years. The refinancing provided enough additional proceeds to fund repairs and property improvements. 

Country Villa has 180 beds and is part of the Country Villa Health Services network, a family-owned and operated company that began operations in 1969 and has grown to one of the largest skilled nursing providers in California. 

Cain Brothers Closes $25 Million Bond Issue for Cayuga Medical Center

Cain Brothers announced it has structured and closed $25.0 million of tax-exempt revenue bonds for Cayuga Medical Center, a 190-bed health care facility located in Ithaca, N.Y. The financing consisted of a 10-year fixed rate bank direct purchase used for the purpose of reimbursing various project costs.

On behalf of CMC, Cain Brothers conducted a competitive bid process to determine the bank partner from a group of regional and national banks. Cain Brothers negotiated best and final proposals from all participants. The tailored process allowed CMC to achieve a favorable interest rate, a longer term, favorable security terms, and a reasonable covenant package.

Greystone Originations $28 Million Financing Two Senior Apartment Complexes

Greystone recently announced that it has provided a total of $28 million in bridge loan financing to United Group of Companies Inc., for two market rate senior apartment communities located in New York and Georgia. The loans were originated by Donny Rosenberg, a Managing Director in Greystone’s multifamily lending group, in conjunction with Steve Germano, Managing Director of Greystone’s Portfolio Lending Group.

The loan proceeds were used to refinance existing debt, and Greystone will work with United Group of Companies to provide long-term financing prior to the maturity of the bridge loan.

Schulyler Commons in New York and The Lodge at BridgeMill in Georgia received $28 million of loan proceeds through Greystone’s bridge loan program. Both properties received attractive terms with a new maturity allowing the borrower to execute their business plan.

Berkadia Funds $60 Million Portfolio of SNFs in Arkansas for OHI

Berkadia Commercial Mortgage, LLC recently originated $59.8 million through the Department of Housing and Urban Development’s Section 232/223(a)(7) program to refinance a portfolio of 12 skilled nursing facilities in Arkansas. 

Jay Healy, assistant vice president of Berkadia, worked with borrower Omega Healthcare Investors, Inc. (NYSE:OHI) to secure the financing. 

OHI acquired the assets in December 2011 and assumed HUD debt through a transfer of physical assets from the previous owner. Berkadia closed all 12 loans simultaneously on March 26, 2013. As a result of the portfolio refinance, OHI is realizing approximately $1 million in annual debt service savings. 

The portfolio consists of individual loans ranging from $1.9 million to $9.4 million, spanning more than 1,400 beds.

Ziegler Closes $37.7 Million SNF Portfolio Refinance

Ziegler Financing Corporation, the FHA-insured mortgage lending arm of Ziegler, recently announced the successful closing of the $37,653,300 portfolio refinancing of six skilled nursing facilities, owned and operated by Extendicare Health Services, Inc. 

Extendicare is the U.S. subsidiary of Extendicare Inc. (TSX:EXE), which operates 150 senior care communities nationwide. ZFC assisted Extendicare with the refinancing of their existing facilities located in Michigan, Minnesota, and Wisconsin using FHA’s Section 232/223(f) refinancing program. 

ZFC closed more than $136 million (par amount) of FHA-insured loans in 2010, 2011, and 2012 on behalf of Extendicare. 

LTC Properties Prices Public Offering of 3.5 Million Shares of Common Stock

LTC Properties, Inc. (NYSE:LTC) announced last Friday it priced its underwritten public offering of 3.5 million shares of its common stock at $44.50 per share. LTC Properties has also granted the underwriters a 30-day option to purchase up to 525,000 additional shares of common stock to cover over-allotments, if any.

The Westlake Village, Calif.-based REIT expects net proceeds of about $149 million from the offering, or $171.3 million if the underwriters exercise the overallotment option in full. 

Wells Fargo Securities, KeyBanc Capital Markets, BMO Capital Markets and RBC Capital Markets are acting as joint book-running managers for the Offering. Sandler O’Neill + Partners, L.P., CSCA, J.J.B. Hilliard, W.L. Lyons, LLC, JMP Securities LLC and Sidoti & Company, LLC are acting as co-managers for the Offering.

LTC Properties intends to use the net proceeds from the offering to pay down amounts outstanding under its unsecured line of credit, to fund acquisitions and the current development pipeline, and for general corporate purposes.

The offering is expected to close on May 8, 2013, subject to customary closing conditions.

Cambridge Closes $44.2 Million in Loans 

Cambridge Realty Capital Companies recently announced closing on a $19.8 million FHA-insured HUD Lean loan to refinance Horizon Health and Subacute Center, a 180-bed skilled nursing home in Fresno, Calif.

The fully-amortized, 30-year term loan was arranged for the owner, a California limited partnership, using the HUD Section 232/223(f) funding program.

Hymie Barber, Cambridge’s National Originations Manager and the Managing Director of Catalyst/Cambridge Health Care Finance in Los Angeles, the company’s West Coast affiliate, coordinated the transaction, which was underwritten by Cambridge Realty Capital Ltd. of Illinois.

Cambridge also recently announced it has closed on a $14.4 million FHA-insured HUD Lean loan to refinance Skokie Meadows, a 224-bed skilled and intermediate-care nursing home in Skokie, Ill.

The fully-amortized, 29-year term loan was arranged for the owner using the HUD Section 232/223(a)(7) funding program. Cambridge Realty Capital Ltd. of Illinois underwrote the loan.

The company announced on Thursday the closing of a $7.3 million FHA-insured loan to refinance Burbank Rehabilitation and Healthcare Center, a 188-bed skilled care nursing home in Burbank, Calif.

The 27-year term loan was arranged using the HUD Section 232/223(a)(7) program and was also arranged by Hymie Barber and underwritten by Cambridge Realty Capital Ltd. of Illinois. 

Also on Thursday, Cambridge announced the closing of a $2.7 million loan to refinance Oakley Courts, a 46-bed assisted living facility in Freeport, Ill.

The 35-year term loan was arranged for the owner using the HUD Section 232/223(a)(7) funding program and was underwritten by Cambridge Realty Capital Ltd. of Illinois. 

Oak Grove Capital Closes $259 MIllion Credit Facility for Brookdale

Oak Grove Capital this week the closing of a $259 million Fannie Mae DUS credit facility for Brookdale Senior Living Inc. (NYSE:BKD). The 10-year, variable-rate facility was used to refinance existing mortgage debt.

“Fannie Mae was very creative in designing a credit facility to accommodate differing maturity dates for Brookdale’s debt and the repayment of tax-exempt bonds on a date certain,” said Bill Kauffman, managing director of Oak Grove Capital’s Seniors Housing and Healthcare Finance Group.

Brookdale Senior Living used the new debt to refinance existing loans for 23 different properties, totaling 1,781 units. The collateral pool consists of assisted living, independent living and memory care units located in 10 states, including Florida, New York, Kansas, Pennsylvania and Texas.

Capital One Closes $19.5 Million Loan for Revera Health Systems

Capital One Bank announced on Monday it had provided a three-year, $19.5 million secured term loan to Revera Health Systems, Inc., a long-term care and rehabilitation provider with multiple skilled nursing centers across the U.S.

Proceeds of the loan were used to refinance existing senior debt on eight of the health system’s skilled nursing facilities in Maryland, New Hampshire, New Jersey, and Vermont. Revera Health Systems also expanded its relationship with Capital One Bank to include despots and treasury management services. 

KKR to Provide $150 Million of Equity to Sentio Healthcare Properties

Real estate investment trust Sentio Healthcare Properties, Inc. announced the signing of a definitive agreement with an affiliate of global investment firm Kohlberg Kravis Roberts & Co. L.P. (KKR) for a commitment to provide $150 million of convertible preferred equity to Sentio in the next two to three years.

KKR will invest with Sentio’s current shareholders in the RIET, including the existing portfolio. Proceeds of the commitment will be used to fund new acquisitions.

Loan Origination Requests up 22% in 2012 for Cambridge

Cambridge Realty Capital Companies reports loan origination requests processed by the company climbed 22% during 2012 in what was a record-setting year for senior care and healthcare transactions. 

The company processed 280 loan requests totaling $4.7 billion last year, compared with 230 loans totaling $3.2 billion in 2011. Activity slowed in December, but fourth quarter totals were still substantially higher than the previous year, rising from 51 requests to 75 in 2012.

Lenders close a relatively small percentage of loan origination requests received, says Cambridge chairman Jeff Davis, but Cambridge tracks this information as an indication of market directions.

“We’re observing soaring interest in the HUD 232 Lean program that funds licensed nursing homes and assisted living communities. With low interest rates and greater product accessibility it’s becoming increasingly obvious to borrowers that now is a good time to rethink their financial needs,” he said.

Grandbridge Seniors Housing Group Facilitates Bridge Financing

Grandbridge’s Seniors Housing team facilitated the bridge financing for Artemis Focus Investments, LLC for the recapitalization and minor renovations of Encore Senior Village in New Lenox, Ill.

The Charlotte, N.C.-based firm obtained non recourse bridge financing through its proprietary lending platform, BB&T Real Estate Funding, LLC. 

NorthStar Healthcare Announces Escrow Break

NorthStar Healthcare Income, Inc. announced on Feb. 12 it had satisfied the minimum offering amount in connection with its public offering as a result of its sale of $2 million in shares of its common stock for $9.00 per share to NorthStar Realty Finance Corp. (NYSE:NRF), its sponsor.

NorthStar Healthcare intends to use the proceeds of the offering to originate, acquire and asset manage a diversified portfolio of debt and equity investments in the healthcare real estate sector, with a focus on the mid-acuity senior housing sector such as assisted living, memory care, skilled nursing, and independent living communities that mainly cater to a private-pay census.

Friendship Village Chesterfield Issued $23,470,000 Tax-Exempt Fixed Rate Bonds

Cain Brothers served as sole underwriter in the issuance of Series 2012 bonds for Friendship Village Chesterfield (FVC), which owns and operates a life care continuing care retirement facility in Chesterfield, Mo. The bonds were issued as unenhanced fixed rate bonds and were rated BBB- by Fitch based upon FVC’s underlying credit.

A portion of the bond proceeds were used to fund an expansion project that consisted of 30 new independent living units. At the time of the bond sale, 53% of the new units had been pre-sold. Additionally, bond proceeds were used to fund future capital expenditures and reimburse FVC for refurbishment of its health center last year. The average yield of the bonds was 5.065% for a 30-year maturity.

As part of the engagement, Cain Brothers worked closely with FVC’s board, management company (Life Care Services), and the Project Developer (Life Care Services Development Company) to assist in re-evaluating and modifying its strategic plan, creating a strategic capital plan, refining the development plan, and creating a long-term financing strategy to accomplish future growth initiatives.

Lancaster Pollard Closes $63.4 Million Refinance for Trilogy Health Services

Lancaster Pollard recently closed on a $63.4 million portfolio refinance for Trilogy Health Services, LLC, which operates multiple senior care communities throughout Kentucky, Illinois, Indiana, Ohio, and Michigan. 

The transaction refinanced eight of Trilogy’s facilities, comprising a total of 568 skilled nursing beds and 340 assisted living units. 

Lancaster Pollard first obtained bridge financing for Trilogy to purchase the real estate associated with the eight leased properties as part of the refinancing structure. The firm then recommended using the FHA Section 232/223(f) program to refinance the bridge debt to take advantage of the federal program’s low fixed rates and achieve significant cash flow savings compared to their former lease payments. 

The firm was able to originate eight non-recourse FHA Section 232/223(f) mortgages with matching term/amortizations of 35 years. The transaction also bolstered Trilogy’s long-term maintenance needs by establishing a well-funded replacement reserve escrow account. 

Sabra Expands New Dawn Relationship With $12.8 MIllion Loan Origination

Sabra Health Care REIT, Inc. (NASDAQ:SBRA) announced on Monday it had entered a $12.8 million mortgage loan agreement with an affiliate of New Dawn Holding COmpany, secured by a first trust dead on a 48-unit memory care facility in Sun City west, Ariz. 

The loan has a 5-year term and bears interest at a fixed rate of 9.0% a year. The loan cannot be prepaid during the first three years of the loan term.

Beginning April 2014, Sabra has an option to purchase the facility that secures the Sun City West mortgage loan for a price equal to the greater of (a) the annualized EBITDAR for the trailing three months prior to option exercise, divided by an EBITDAR coverage ratio of 1.3 and further divided by an implied lease rate of 8.25% (subject to adjustment up to 9.00%), and (b) $16 million.

If Sabra does exercise the purchase option, the REIT would expect to enter a long-term lease with New Dawn affiliates with an initial cash yield consistent with the lease rate used to determine the option exercise price.

The memory care facility was built in 2012 and is operated by affiliates of New Dawn. Sabra funded the loan with available cash. 

Beech Street Capital Closes $6.1 Million in Loans for Two Senior Care Facilities

Beech Street Capital, LLC recently announced the closing of $6.1 million in loans used to refinance a portfolio of two assisted living communities, one in Wheeling, Ill. and the other in Northville, Mich.

The portfolio has a total of 88 units and exclusively care for residents with memory impairments. 

Joshua Rosen, executive vice president of Beech Street, origination the transaction out of the firm’s Chicago office. 

“We were able to achieve significant debt service savings for the borrower on both properties, which will allow them an opportunity to deploy excess capital into other opportunities that may arise,” said Rosen.

Beech Street was also able to extend the term of the Harbor House loan.  

HFF Gets National Seniors Housing Designation from Freddie Mac

HFF announced Tuesday that it had been approved for a National Seniors Housing Designation effective February 1st from Freddie Mac.  HFF is now authorized to sell and service conventional loans secured by multifamily seniors housing properties nationwide.

Cain Brothers Advises Riverside for $75 Million Bond Placement

Cain Brothers served as financial advisor to Riverside Health System in connection with a private placement of $75 million revenue bonds, which closed on Dec. 20, 2012. 

Newport News, Va.-headquartered Riverside is an integrated health system that includes acute care hospitals, senior housing communities, and nearly 500 employed physicians and advance practice providers.

The borrowing proceeds were used to fund capital improvements at Riverside’s flagship hospital, Riverside Regional Medical Center.

Cain Brothers negotiated a 10-year fixed rate direct bank placement with PNC Bank and was able to secure an attractive cost of capital without any adjustments to Riverside’s existing security package, the investment banking firm announced. 

Ensign Doubles Revolving Credit Facility to $150 Million

The Ensign Group, Inc. (NASDAQ:ENSG) announced on Wednesday that the company and its operating subsidiaries had increased its revolving credit facility from a six-bank lending consortium arranged by SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC by $75 million to an aggregate of $150 million, $20 million of which was drawn as of Feb. 1, 2013. 

The proceeds of the credit facility will be used to fund acquisitions, renovate and upgrade existing and future facilities, cover working capital needs, and for other corporate purposes.  Ensign’s current net-debt-to-EBIDTAR ratio is 2.34x. 

Ziegler Closes $71.25 Million Financing for ABHOW & The Terraces at Los Altos

Ziegler recently announced the closing of the $71.25 million fixed-rate, Series 2013 Bond issue for American Baptist Homes of the West’s (ABHOW) Obligated Group.

Proceeds will fund a major redevelopment of The Terraces at Los Altos, ABHOW’s first community, which opened in 1949 on about 6.3 acres in Los Altos, Calif. The Series 2013 Bond proceeds will be used to pay retain costs of the redevelopment, expansion, and operation of the community (other ABHOW funds were used for project costs up to the date of issuance of the Series 2013 Bonds), fund debt service reserve funds for each series, pay a portion of the interest on the Series 2013 Bonds during construction of the approximately 36-month project, and pay certain costs relating to the issuance of the Series 2013 Bonds.

Cain Brothers Arranges $11.2 Million Loan for Ore. Senior Care Facility

Cain Brothers Funding arranged an $11,212,000 taxable loan insured under the FHA Section 232-223(a)7 LEAN program for Dallas Health Care Center, a 161-unit skilled nursing, assisted living, and memory care facility located in Dallas, Oregon. The proceeds of the new loan were used to refinance an existing FHA-insured loan.

The new FHA-insured loan has an interest rate of 2.50% for 32 years. This new loan will generate annual debt service savings in excess of $340,000.

Beech Street Capital Closes $9.6 Million Refinance for Ill. SNF

Beech Street Capital, LLC recently closed a $9.6 million loan using the HUD Section 232/223(a)(7) program to refinance Lake Park Center, a 210-bed skilled nursing facility in Waukegan, Ill. 

The transaction was originated by Joshua Rosen, executive vice president of Beech Street Capital working out of the company’s Chicago office.

Beech Street was able to negotiate a deal to cut in half the borrower’s original interest rate of more than 5%, and was also able to make the case with HUD that the borrower’s professional liability coverage was sufficient given its excellent claims history, even though it doesn’t comply with current guidelines. 

Ziegler Closes $78.6 Million Epworth Villa Financing

Ziegler recently closed a $78,635,000 fixed-rate, Series 2012 Bond issue for Epworth Villa, a continuing care community located in Oklahoma City, Okla. on an approximately 40-acre campus. Epworth Villa is related to the Oklahoma Annual Conference of The United Methodist Church and currently has 227 independent living units, 87 skilled nursing beds, 26 traditional memory support beds, and 24 memory support assisted living beds.

The Series 2012 Bonds are being issued to refund a portion of prior debt; finance the expansion and repositioning project; fund various debt service reserve funds; fund a portion of interest on the new money-related bonds; and pay certain costs of issuance. The Series 2012 Bonds are all unrated fixed-rate bonds, and include two series of TEMPSSM to be redeemed with entrance fees, and longer-term fixed-rate bonds.

GE Capital Serves as Administrative Agent for $65 Million Senior Credit Facility

GE Capital, Healthcare Financial Services announced today that it is serving as administrative agent on a $65 million senior secured credit facility for National Hospice Holdings, LLC doing business as Life Choice Hospice. The financing supports Life Choice’s acquisition of SolAmor Hospice Corporation from Genesis HealthCare, LLC. GE Capital Markets served as sole lead arranger and bookrunner on the facility.

Life Choice Hospice is a privately owned and operated hospice organization headquartered in Dresher, Pa. The company offers comprehensive services including case management, pain management, palliative care, personal care, counseling, spiritual care and emotional support. With the acquisition of SolAmor Hospice, the organization will provide hospice services from 29 offices across 12 states.

Cain Brothers Arranges $120 Million Refi and Debt Restructure for CCRC

Cain Brothers recently assisted Mirabella Seattle in restructuring and refinancing its 2006 bonds. The investment banking firm served as lead underwriter on Mirabella’s $89.24 million Series 2012 Bonds and also assisted with respect to the restructuring of $30.75 million of subordinated bonds with banks that provided letter of credit support for the 2006 bonds. The 2012 bonds are unrated.

Ziegler Closes $127.5 Million ESC Financing

Ziegler recently announced the closing of the $127,480,000 fixed-rate, Series 2012 Bond issue for Episcopal Senior Communities (ESC), a California not-for-profit public benefit corporation providing housing, related facilities, and services for elderly.

The Series 2012 Bonds are being issued to (i) refund prior Series 2000 VRDBs; finance the expansion and renovation of Spring Lake Village; fund various debt service reserve funds; fund a portion of interest on the new money-related bonds; and pay certain costs of issuance.

The Series 2012 Bonds are all rated fixed-rate bonds, and include three series of TEMPS to be redeemed with entrance fees, and two series of longer-term fixed-rate bonds.

Ziegler Closes $24 Million Financing for New Mexico Retirement Community

Ziegler recently closed a $24,030,000 fixed-rate, tax-exempt, Series 2012 Bond issue for El Castillo Retirement Residences in Santa Fe, New Mexico.

El Castillo Retirement Residences, Inc., a nonprofit organization organized in 1969, owns and manages El Castillo Retirement Residences, the first continuing care retirement community in New Mexico that remains the only Santa Fe retirement residence offering life care to its residents under a “continuing care” concept. 

Proceeds of the Series 2012 Bonds, together with other sources of funds, will be used to refund, on a current basis, the outstanding Series 1998 Bonds in the amount of $12,230,000 and to fund approximately $11,700,000 in improvements to the health center, says Ziegler. The improvements will include expanding and renovating the health center by adding new assisted living, memory care, and skilled nursing units and beds. In addition, El Castillo Retirement Residences, Inc. plans to renovate and convert some existing semi-private nursing beds into private rooms.

Greystone Communities has been engaged to provide development consulting services and to assist with implementing the development plans.

Ventas Sells $925 Million of Senior Notes

Ventas Inc. (NYSE:VTR) subsidiaries Ventas Realty, Limited Partnership and Ventas Capital Corporation recently announced the issuance and sale of $700 million aggregate principal amount of its 2.00% senior notes due 2018 and $225 million principal amount of their 3.25% senior notes due 2022. View the 8-K. 

Cambridge Closes $10.8 Million Loan for Fla. Senior Care Community

Cambridge Realty Capital Companies recently closed a $10.8 million loan to refinance Hawthorne Inn of Ocala, a 156-bed skilled nursing and assisted living facility in Ocala, Fla.

The fully-amortized, 30-year term loan was refinanced for the borrower using HUD’s Section 232/223(f) funding program and underwritten by Cambridge Realty Capital Ltd. of Illinois. 

Lancaster Pollard Obtains $14.3 Million Loan for Neb. Senior Care Facility

Lancaster Pollard recently obtained a $14.3 million loan to refinance Hillcrest Health & Rehabilitation, a Bellevue, Neb. senior care facility built in the 1960s and owned by Hillcrest Health Systems.

Hillcrest used the FHA-insured HUD Section 232/223(f) program to complete the financing, which allows for a refinance with moderate repairs and improvements of up to 15% of appraised value. The loan has a 35-year term that allows Hillcrest to meet its goals of improving the facility. The owner was able to finance a $3.2 million renovation and expansion, and will also benefit from debt service savings of more than $275,000 per year. 

The renovation and expansion project includes a new outpatient rehabilitation area, additional private rooms, and other improvements. 

Cain Brothers Arranges $9 Million Loan for Calif. ALF

Cain Brothers Funding recently arranged an $8,976,000 taxable loan insured under the FHA Section 232/223(f) LEAN program for Eskaton Village Placerville, a 64-unit assisted living facility in Northern California. 

The proceeds of the loan were used to retire existing bonds. The loan has an interest rate of 2.45% for 35 years. 

Cambridge Provides $12.9 Million Loan to Refinance Ill. Senior Care Center

Cambridge Realty Capital Companies has closed a $12.9 million FHA-approved HUD loan to refinance Renaissance Care Center, a 190-bed skilled nursing and pediatrics facility in Canton, Ill. 

The fully-amortized, 37.6-year term loan was used to refinance the borrower using the HUD Section 232/223(a)(7) funding program and was underwritten by Cambridge Realty Capital Ltd. of Illinois. 

Ziegler Closes $64 Million Financing for Nonprofit Senior Services Corporation

Ziegler recently closed a $64,160,000 fixed-rate, Series 2012 Bond issue for Episcopal Communities & Services for Seniors, a California not-for-profit corporation serving seniors in the greater Los Angeles area.

The Pasadena-headquartered corporation owns two continuing care retirement communities (which comprise the Obligated Group), The Canterbury in Rancho Palos Verdes, and The Covington, in Aliso Viejo. 

The Series 2012 Bonds are being issued to refund prior Series 2002 Bonds insured by Cal-Mortgage; fund a debt service reserve; and pay certain costs of issuance. This most recent financing is driven by a desire to create a corporate and capital structure that will facilitate future growth while minimizing current capital costs, as well as to generate annual cash flow savings. 

Rather than risk going over-budget and endangering the future success of a planned senior living community, some companies are turning to “constructability” counselors to help ensure their plans for a project can be carried out as envisioned—and as budgeted.

Senior living development projects are costing more to begin with and have increased 35%, on average, for assisted living and independent living development, according to Cain Brothers data. A large portion of the extra budget goes to “soft costs” such as interior finishes or marketing, while developer costs can also add up.

The cost of construction, on a square-footage basis, increased 57% in the last decade, according to Michael Zarriello, managing director at Cain Brothers’ San Francisco Office. 

“Costs increased because amenities increased,” he explained. Some units, for example, went from having quartz countertops to granite, he says, while kitchens may be equipped with all-stainless steel appliances.

Another factor contributing to rising costs stems from “a lot of different people putting their hands in the [development] pie,” Zarriello says. Although soft costs of higher-quality amenities can be built into project budgets, it’s hard to account for the various changes made to plans along the way, and more senior living companies are looking for ways to make sure projects are completed on budget.

There’s often a divergence between the original vision—and budget—for a senior living community, and reality, says Darrell Smith, a registered engineer and vice president of senior living for Texas-based construction services firm Jamail & Smith Construction. His company’s services include offering counsel regarding the “constructability” of a project’s plans in terms of budget, timeline, and overall feasibility.

“We take ownership and accountability for hitting target delivery dates and targeted budgets,” Smith says, describing the service as a “twist on the design-build concept.” 

The size of facilities being built and the quality of their amenities have driven costs up, Zarriello said, along with developer costs. But by assessing a project’s constructability, Smith’s team is able to make more accurate estimates for side development costs and whether the planned size of the building makes sense—the two biggest elements of where projects go over budget, he says.

Constructability counselors will work with project architects to essentially guide the project and makes sure it fits within the designated budget. 

“You’ve got to have an understanding of senior housing logistics, construction material, and other foundational pieces,” he says. ”Almost every project [we see] is too big for its budget. We keep things under control.” 

The construction services firm was awarded three projects in the past year and half that had all been designed by architects who “did what the owner wanted, but were over budget” by the time designs had been completed.

One project Jamail & Smith was awarded was 10% above budget as it was designed. “It delays the start, and funding limits are out of whack,” Smith says. “They have to go back and redesign.” Armed with the budget and knowledge of the vision for the project, constructability counselors can make tweaks to designs that enable the project to remain within monetary restraints. 

For another project, Jamail & Smith’s design-build team was able to reduce the footprint by 5,000 square feet without losing any functionality. 

Using services like those offered by Jamail & Smith’s constructability counsel still isn’t the “norm,” says Smith, but it’s receiving growing recognition—and it’s “definitely” the way to go.

“We’re learning that the cheapest approach, almost always, is not always the best approach,” he says, “especially for specialized, complex projects in senior housing.”

Written by Alyssa Gerace

Ziegler Closes $73.4 Million Financing for Hawaii CCRC

Speciality investment bank Ziegler recently announced the closing of a $73.4 million fixed-rate Series 2012 Bond issue for Kahala Nui, a 6.6 acre continuing care retirement community located in Honolulu, Hawaii.

Kahala Nui is a “type A” CCRC with 270 independent living units; 63 assisted living suites with 22 designated for memory support; and 60 private and semi-private skilled nursing suites. The community opened in 2005 after being financed by Ziegler in 2003.

The issuance is comprised entirely of “BBB-” fixed-rate bonds that are being issued to advance refund to the Series 2003 A fixed-rate bonds; fund a debt service reserve; and pay certain costs of issuance. The community took advantage of the low interest rate environment to reduce debt service by approximately $1.4 million a year.

“Kahala Nui has exceeded expectations from the start: it filled extremely quickly, has maintained high occupancy with a strong waitlist, and has established a reputation for excellence in its marketplace,” said Mary Munoz, managing director in Ziegler’s senior living practice. “Fitch’s investment grade rating affirms the solid financial stature of the corporation, which will be further enhanced with $1.4 million of annual debt service savings from the refinancing. With its strong management team, beautiful physical plant, and proactive Board, Kahala Nui is truly positioned for long-term success. It typifies the best our industry has to offer.”

Beech Street Capital Closes a $5.6 Million Loan for Ill. Senior Care Center

Beech Street Capital, LLC recently announced that it has provided a $5.6 million loan through the Department of Housing and Urban Development’s Section 232/223(a)(7) program to refinance Peterson Park Healthcare Center.

Peterson Park is a 188-bed skilled nursing facility in Chicago, Ill. The transaction was originated by Joshua Rosen, an executive vice president of Beech Street Capital working out of the firm’s Chicago office.

The financing structure Beech Street proposed allows the borrower to take advantage of “tremendous” debt-service savings with an attractive interest rate. The loan has a 17.5-year term and allows the borrower to keep the same term and amortization period as the existing mortgage.

“The loan had a complicated organizational structure, but the Beech Street team still closed the loan seamlessly,” Rosen said. “Now is the time to take advantage of record low interest rates. We have hit the floor.” 

Cambridge Closes $5.3 Million Loan for Fla. Assisted Living Community

Cambridge Realty Capital Companies recently closed on a $5.3 million HUD Lean mortgage loan for Hawthorne Inn of Lakeland, a 60-bed assisted living property located in Lakeland, Fla.

The fully-amortized, 34-year term loan refinanced the property and was underwritten by Cambridge Realty Capital Ltd. of Illinois, the Cambridge business specializing in FHA-insured HUD loans. The mortgage was through HUD’s Section 232/223(f) program and had an undisclosed interest rate. 

Love Funding Refinances $23.7 Million Portfolio of Mass. Skilled Nursing Loans

Love Funding recently announced the refinancing of four loans totaling $23.7 million for a portfolio of skilled nursing facilities in Massachusetts.

The four properties are Willimansett Center East and Willimansett Center West in Chicopee; Chapin Center in Springfield; and Governor’s Center in Westfield. The Northeast Health Group Inc., a not-for-profit organization, acquired the skilled nursing facilities in 1995. They are operated by Airamid Health Management, based in West Palm Beach, Fla.

Love Funding Director Joshua Hausfeld, out of the firm’s Washington, D.C. office, secured the loans through the Department of Housing and Urban Development’s Section 232/223(f) loan program. Hausfeld used the program to move each of the cross-collaterialized properties from taxable bond and secondary debt to low, fixed-rate, non-recourse notes with 30-year terms. All four transactions will be processed under a newly negotiated master lease that enables the borrower to cross-collateralize the properties under  HUD’s rules.

The Northeast Health Group has been able to tackle a number of operational challenges that may have jeopardized its ability to receive HUD approval, according to Hausfeld. In the past two years, the borrower increased occupancy at its facilities, replaced temporary agency staff with full-time nurses, and hired experienced administrators and key personnel to ensure the facilities were running at their peak potential. 

“They knew what they had to do and they executed their game plan impeccably,” Hausfeld said. “Not only did the improvements they made pave the way for a successful transaction, they set up all four facilities for long-term operational and financial success.”

Cain Brothers Underwrites $27 Million Bond Issuance for Friendship Village

Cain Brothers served as sole undewriter in the issuance of $26,960,000 of tax-exempt fixed rate Series 2012 bonds for Friendship Village Sunset Hills (FVSH). The bonds were rated ‘A’ by Fitch based on FVSH’s underlying credit.

The senior living community used a portion of the bond proceeds to fund the first phase of a multi-year, multi-phase campus redevelopment plan that included the construction of 10 new villas, improvements to campus infrastructure and common areas, and the funding of predevelopment costs for the next expansion phase.

Additionally, the bond proceeds were used to refinance existing fixed and variable rate debt to take advantage of historically low fixed-interest rates and position FVSH for improved capital access and financing flexibility for future capital needs. 

The bonds were structured with serial and term bond maturities and sold to retail and institutional investors. The yield on the 30-year maturity of the bond issue was 4.55%. 

Cain Brothers worked with FVSH’s board, its management company (Life Care Services), and project developer (Life Care Services Development Company) for 18 months to help re-evaluate and modify its strategic plan, create a strategic capital plan, refine the development plan, and create a long-term financing strategy to accomplish future growth initiatives. The bonds increased FVSH’s total debt by nearly 50%, but the finance plan resulted in lower overall maximum annual debt service, the retention of the community’s ‘A’ bond rating, and the creation of a new capital access documentation structure that affords future financing flexibility. 

Oak Grove Capital Closes $14.55 Million of Senior Housing Loans

Oak Grove Capital recently originated Fannie Mae loans for three senior housing properties totally approximately $14.55 million:

• A $3.55 million loan for Columbia Cottage-Hanover in Hanover, Pa., closed on Aug. 31
• A $4.70 million loan for Columbia Cottage-Hershey in Hershey, Pa., closed on Aug. 31
• A $6.23 million loan for Chandler Place in St. Anthony, Minn., closed on Aug. 31

Despite ongoing economic uncertainty, financing for senior housing looking ahead to 2013 is becoming more available—but on certain conditions, finance experts agree.

“We’re definitely seeing things loosening up out there,” said Thomas Hanrahan, managing director of healthcare real estate at Capital One Bank, during a Senior Housing Summit event held last Thursday in Chicago.

“It’s the sponsor team that’s key,” he said, adding that there are a “lot of deals” his bank wants to get done with the “right” sponsor. “There have to be the right people behind it, with a track record and depth of management team.”

Prior relationships are important, as well.

“We have a lot of repeat business with existing customers,” said Phillip Kayden, an investment officer at Ventas Inc., a real estate investment trust headquartered in Chicago. “We want to understand who the operator is, how they’re capitalized, and what their track record is.”

Obtaining financing for new construction is still a “challenging time,” according to Hanrahan. “There’s enough inventory out there, and products that can be restructured or recapitalized; it’s such a wealth of opportunity that we haven’t had to go do new construction projects.”

Capital One has been noticing more borrowers coming to the table with their own equity in the deals. “Some are bringing deals they’ve closed with their own money, and they’re coming to us to refinance,” said Hanrahan.

Contributing equity seems to be a trend going forward when it comes to financing continuing care retirement community (CCRC) construction, especially those with nonprofit sponsors, says Michael Zarriello, managing director at Cain Brothers’ San Francisco, Calif. office.

Cain Brothers has been noticing inflows of capital into municipal bond funds in the last 25 weeks, says Zarriello, which means that there’s money around to be invested. The firm says it is seeing “big inflows” into funds for investments in renovation, expansion, refinancing, and even some start-ups.

“[The investors] are driven to [tax-exempt bonds] because rates are very low in other areas that are quasi-safe,” says Zarriello, citing U.S. Treasury bonds’ approximately 1.55% yield. “[They] want to look somewhere else to get a better yield.”

Good projects can get done, he says, including new construction—but the financing for those projects is looking different from how it’s been in the past, with borrowers being asked to contribute equity and have “skin in the game.”

At the end of the day—and looking into next year—a lot has changed in terms of financing, the panelists agreed, but there are some lessons to be learned.

First, communication between borrowers and lenders is crucial, said Zarriello and Hanrahan.

“We don’t want any surprises. Let us know what’s happening; keep us in the loop,” Hanrahan said.

Another big lesson that investors can learn, said Kayden, has to do with asset performance.

“NOI doesn’t always go up,” he said, adding that in 2005 and 2006, underwriting leases for newly-acquired properties didn’t have much room for “slippage.”

“In our leases, rent goes up year to year,” he noted. “If you’re not growing NOI, you have a hard time keeping up with that escalator.”

Written by Alyssa Gerace

Love Funding Secures $8.56 Million Construction Loan for Fla. ALF

Love Funding recently closed an $8.56 million loan for the construction and permanent financing of Viera Manor Assisted Living Facility, a new senior living center in Viera, Fla., meant to provide housing for U.S. veterans.

Laura Saull-Smith, a senior director at Love Funding out of its Washington office, secured the loan using HUD’s Section 232 loan insurance program.

Berkadia Arranges $26 Million Financing for Texas Senior Housing Portfolio

Berkadia Commercial Mortgage LLC recently arranged $26.1 million in financing for Capital Senior Living’s four-property portfolio of senior housing communities, located across Texas.

Lisa Lautner, a senior vice president with Berkadia, worked with Fannie Mae to obtain 10-year, fixed-rate financing for Capital Senior Living’s property acquisition. 

The portfolio consists of communities offering independent, assisted, and Alzheimer’s services; they are located in Arlington, College Station, Conroe, and Stephenville, Texas. All four properties were renovated between 2010 and 2011, and have an average occupancy rate of 92%.

Berkadia completed the loan 60 days after the origination, meeting the borrower’s timeframe. 

“We are pleased to once again assist Capital Senior Living with its financing needs as it continues to acquire quality assets and expand its regional presence,” said Lautner. “They are a premier operator in our industry and we are proud to be one of their financial partners.”

Cain Brothers Completes $14.2 Million Bond Refinance for Elder Care Alliance

Long-time Cain Brothers’ client, Elder Care Alliance of Camarillo. Ca., recently closed a $14.2 million loan to refinance its outstanding Series 2000 variable rate demand bonds. Cain Brothers structured the new loan as a conventional taxable loan insured through FHA’s Section 232/223(f) program, used to refinance debt of licensed levels of senior care facilities, including assisted living, memory care, and skilled nursing. 

Elder Care Alliance of Camarillo operates 60 assisted living apartments and 18 memory care units that were built using tax-exempt, variable rate bonds, supported by a bank letter of credit with further support for a third-party guarantor. Even with this guarantor, says Cain Brothers, the operator had to periodically revisit the bank letter of credit’s renewal, and the situation became “even more severe” in the past two years thanks to the global debt crisis.

The refinancing loan allows Elder Care Alliance of Camarillo’s debt structure to lock in at a fixed, all-time low rate of 3.00% for 35 years.

Cambridge Realty Capital Arranges $11.3 Million of Financing for Chicago SNF

Cambridge Realty Capital Companies recently closed on a $11.3 million HUD Lean loan to refinance Columbus Park Nursing and Rehabilitation Center, a 216-bed skilled nursing home located in Chicago, Ill.

The fully-amortized, 30-year term loan was arranged for the property’s owner, an Illinois limited liability company, said Cambridge Chairman Jeffrey Davis. The loan was underwritten by Cambridge Realty Capital Ltd. of Illinois; its interest rate was not disclosed. 

KeyBank Provides $15.7 Million to Refinance REIT Acquisition Portfolio

KeyBank Real Estate Capital recently closed on a $15.7 million, 10-year fixed-rate Freddie Mac loan to Care Investment Trust, a healthcare real estate investment trust based in New York, to repay an interim bridge loan used to acquired three Virginia assisted living communities.

The transaction allowed Care Investment Trust to refinance the loan and lock in an attractive interest rate for a 10-year term for the following communities, all of which are operated by Greenfield Senior Living through a triple-net lease:

• Greenfield of Berryville, a 48-unit assisted living community located in Berryville, Va.
• Greenfield of Fredericksburg, a 26-unit assisted living community located in Fredericksburg, Va.
• Greenfield of Stafford, a 44-unit assisted living community located in Stafford, Va.

Beech Street Capital Closes $4.3 Million Refinance for Ill. SNF

Beech Street Capital, LLC recently provided a $4.3 million loan to refinance an Illinois skilled nursing facility using HUD’s Section 232/223(f) program.

Joshua Rosen, executive vice president of Beech Street Capital, worked on the transaction out of the firm’s Chicago office.

“This deal highlighted the tremendous strength of our underwriting team – our submission package held up wonderfully to HUD’s review during processing, and it was only a matter of days before our loan received approval,” said Rosen.  “The new debt service payments will have an immediate positive effect on the facility’s bottom line, something that is especially important here in Illinois, where the state is currently several months behind in its payments.” 

Evanston Nursing & Rehabilitation Center is a 57-bed facility located in Evanston, Ill.

In the 1970s and 80s, when they first emerged in large numbers, the Continuing Care Retirement Community (CCRC) product was the most progressive vehicle for caring for older adults as they aged. Residents entered CCRCs able-bodied and independent knowing they could move through the CCRC’s various levels of care—assisted living, memory care, and skilled nursing—as they aged and their needs changed. CCRC staff would work with residents and their families to help residents handle the psychological and physical challenges that each level of care move brought. When care management was progressive, many residents actually moved back into independent living units after long stays in the skilled nursing and assisted living wings as flair-up of chronic conditions stabilized and improved.

Also helping to propel CCRC sales was the fact that CCRC’s skilled nursing facilities (SNF) were the most luxurious and best staffed facilities in their service areas. Assured priority access to the CCRC SNF, versus the anxiety of being placed in a community SNF, drove many CCRC unit sales over the last 30 to 40 years. While free-standing, assisted living (ALF) emerged in the 1990s as a more residential and user friendly alternative to the “depressing and dreaded” free-standing SNF; and the fact that assisted living only offered a one- or two-level care continuum still left mom vulnerable to the potential of entering a community SNF should her care needs exceed that of assisted living’s residential setting.

In response, assisted living providers and free-standing congregate housing providers always competed against CCRCs with a sales argument that the risk of prolonged SNF care was minimal and that paying for residential and assisted living care on a monthly rental basis was a better deal than the entrance fee payments required of traditional CCRC providers. When housing values were forever trending upward the cost of entrance fee admission, while formidable, was tolerable for many seniors, because they simply traded their appreciated home value for the price of CCRC entrance fee admission.

As home values have dropped over the last 4 to 5 years, the sale’s pitch for many CCRCs has returned from a life-style and campus amenities pitch back to the 70s’ and 80s’ era promise of a priority admission to an attractive SNF bed. Evidence of how housing market economics has pushed CCRC admission patterns back to their historic needs-driven SNF is gleaned by the increasing age of CCRC admissions over the last 5 years – which has risen from 78 to 80 years old for many CCRCs to 83 to 85.

Understanding the marketing draw of a full continuum of care and understanding the marketing challenges a depressed housing market has cast on the entire senior living industry. Kindred, Brookdale, Sunrise and other senior housing and assisted living providers are using the advent of Medicare reform to create competing, and often more comprehensive continuums of care than many CCRCs can offer.

Medicare reform seeks to better link hospitals and doctors to the supervision of their patients’ post-acute care. In response, Kindred and Sunrise are developing care continuums that are linked to these physician and hospital payers and referral sources through IT connections and on-site medical clinics, drawing patients from both ends of the continuum.

By adding more medically oriented assisted living and skilled nursing beds and on-site clinics to their housing campuses, these large proprietary firms are providing residents a rental aging in-place alternative to the CCRC. The marketing pitch being that you can forego a CCRC entrance fee payment but still gain access to a full shelter care continuum with priority access to a SNF bed, all under the close supervision of your medical care provider and all without paying an entrance fee. The only drawback being you might need to move from a congregate housing campus to a nearby centralized ALF/SNF and medical clinic facility, which is connected via hourly van shuttle.

By courting newly emerging ACOs and hospital discharge planners to refer acute care discharges to their new SNFs, ALFs, and linked home health agencies, these rental housing providers can now offer medical and insurance referral sources a full post-acute care continuum for their patients that is coordinated and has ongoing communication with these payer/provider entities.

Brookdale’s marketing pitch to the medical and insurance communities is that they are willing to invest in the IT infrastructure necessary to track hospital discharges through not only their first Medicare reimbursed post-acute service but also their second and third post-acute care destinations.

Linking these post-acute destinations is important to hospitals, because they need to worry about Medicare readmission penalties and contemplate a future where they will be at-risk for senior care through the split of a single acute DRG payment that is scheduled to be combined with Medicare covered post-acute services such as SNF, home health, and out-patient skilled therapies. These emerging IT systems allow physicians and discharge planners to communicate with post-acute providers in real time so as to ensure they are receiving the appropriate level of post-acute transitional follow-up and not returning to the hospital due to provider neglect.

Brookdale has started construction on over a dozen “Sweet Life” campuses in just the last 12 months. Each Sweet Life Campus includes a short-stay oriented SNF of 60 to 80 beds and a medically supported assisted living facility of 80 to 100 units, with assisted living residents having easy access to skilled home health and outpatient skilled therapy services. All Sweet Life facilities are co-located near Brookdale housing campuses and close to regional hospitals.

Brookdale’s combining of congregated housing with skilled service levels creates tremendous economies of service delivery that Medical providers are eager to achieve under fixed Medicare bundled payments The physicians are happy, the hospital discharge planners are happy, and the patients and their families are happy, because care is coordinated, access to a new SNF room is assured, and all of it is paid for through monthly residential rental fees combined with Medicare reimbursement, all of which is a much easier psychological investment for many seniors than having to supplement declining home sale proceeds with their savings to afford an entrance fee payment.

The challenge for entrance fee CCRCs is to get into the post-acute care game. Most CCRCs have the best reputations in their communities for hands-on, personal care services. What many lack is a meaningful link to the skilled post-acute marketplace. As ACOs form and Medicare post-acute reforms take place, hospital providers are going to reduce the number of SNFs to which they refer to only those that accept a significant volume of their acute referrals and that have invested in the IT infrastructure needed for all parties to communicate regarding patient conditions and treatment plans.

If a CCRC SNF doesn’t maintain an active short-stay Medicare practice of at least 25 to 30 ongoing short-stay beds, it runs the risk of becoming irrelevant to the health care system, with even existing CCRC residents potentially having to go off-campus in order to make use of their Medicare Part A post-acute SNF benefits. So, your CCRC will not only not have a place in the post-acute marketplace and the enhanced profits it can provide but it will no longer be able to sell new residents on the promise of that private nursing home bed.

One final note, CCRCs struggling to regain strong profitability after 4-5 years of stagnant entrance fee appreciation would be wise to understand the bottom line benefits of adding 25 to 30 Medicare patients to their SNF revenue mix. Most CCRCs treat their SNF as a cost center, a necessary component to attract independent living admissions, but the reality is that adding a Medicare component can turbo-charge a CCRC’s bottom line.

Most CCRCs realize the up-side opportunities but don’t have the treatment oriented expertise to make the transition from convalescent to skilled care provision. We strongly urge CCRCs to either bring such expertise in-house or partner-up with other regional CCRC competitors to seek third-party SNF management contracts to help acquire the technology to make that conversion.

This article was written by Bill Pomeranz and originally appeared in Cain Brothers’ Industry Insights newsletter #767, 4/23/12. It was reprinted with permission from Cain Brothers. 

Taxable Federal Housing Administration (FHA) insurance financing is the “best financing vehicle” for borrowers with “BBB” or unrated credit profiles from a cost standpoint, says the Cain Brother’s Strategies in Capital Finance report for Fall 2011 in reference to the agency’s Section 242 program, mortgage insurance for hospitals.

Since the Department of Housing and Urban Development’s (HUD) Office of Healthcare Programs (OHP) took control of the program in 2007, it has made several improvements that led to increased utilization. From 1990 to 2000, issuance volume equalled $2.067 billion, with 34 deals. In the next ten years, through 2010, volume nearly quadrupled to $7.903 billion, and 83 deals.

“The FHA 242 program was no longer seen as an ‘insurer of last resort,’ but rather a compelling vehicle with which to access very affordable capital,” says Cain Brothers, especially since capital sources have restricted after the sub-prime mortgage crisis.

Interest in the program has increased in the past few years largely due to the program’s “favorable long-term, fixed rate, fully amortizing non-recourse structure,” Cain Brothers says, adding that borrowers are able to take renewal, interest rate, and counterparty risk off the table through FHA mortgage insurance, and that interest rate levels are currently “very favorable, particularly in the taxable funding markets.”

“Use of FHA mortgage insurance has never been more advantageous than in the current credit environment,” says the report, adding that it’s especially true for the spread between both “BBB” and unrated tax-exempt securities versus FHA-insured obligations. “The lack of alternative bond insurance providers combined with low risk tolerances on the part of tax-exempt bond investors leaves FHA-insured loans with a significant funding advantage.”

Taxable FHA-insured loans that are securitized through Ginnie Mae have another “significant” structuring advantage over uninsured taxable and tax-exempt bond structures: funding works similarly to bank construction loans, where interest during the loan is only incurred on the accumulated, monthly-drawn loan principal, “which serves to eliminate costly negative arbitrage on loan proceeds over the construction period,” Cain Brothers points out.

The report runs through cost comparisons of new construction projects for FHA 242 taxable or tax-exempt, “A” rated tax-exempt, “BBB” rated tax-exempt, and unrated tax-exempt loans, and also runs through a number of eligibility requirements that borrowers must meet in order to qualify for FHA mortgage insurance, including the ownership of the project; eligible project type (inpatient-oriented or owned by inpatient-based hospital that has an existing FHA-insured mortgage); operating margin and debt service coverage; and recent underwriting developments and trends.

“As demand for FHA insurance has increased, the credit profile of the hospitals applying to the Program has improved, because even financially healthy hospitals have fewer or less attractive financing options today,” says Cain Brothers in regards to underwriting trends. “However, meeting baseline eligibility requirements no longer assures success in obtaining insurance.  Recent experience tells us that OHP is concerned with the uncertainties stemming from health care reform, and, as a result, the Office of Hospital Facilities is applying more rigorous underwriting standard.”

The report concludes that the “compelling” Section 242 program works best for stand-alone facilities and small health care systems thanks to its ability to obtain a fully amortizing, long-term fixed rate financing at very low interest rates, which outweighs many of the program’s processing challenges and less flexible operating covenants.

“Cain Brothers believes the FHA Section 242 mortgage insurance program remains the best-in-class financing vehicle for hospitals in the US right now—lowest interest rates, highest leverage, most reasonable covenant structure, and speedy application processing times,” Nick Nicholson, Managing Director at Cain Brothers, told SHN. “For hospitals with stable operating performance or new projects with a positive outlook, the benefits of the FHA 242 program can’t be beat.”

Read the full Strategies in Capital Finance report here.

Written by Alyssa Gerace