Erickson Living has acquired all of the senior debt of the Devonshire at PGA National, an insolvent continuing care retirement community located in Palm Beach Gardens, Fla. currently owned by SHP Senior Living Services.
The owner of the Devonshire and the associated Chatsworth healthcare properties defaulted last year on a $158.4 million mortgage loan and approximately $17 million of mezzanine debt originally used to acquire the CCRC. In the past 12-18 months Erickson has acquired 100% of the property’s $176 million of senior debt at an undisclosed discount and now functions as the community’s primary lender.
“Erickson has acquired the senior credit facility of [the Devonshire],” Adam Kane, the company’s senior vice president of corporate affairs, told SHN of the all-cash deal. “The property is currently in foreclosure. Erickson is pursuing its remedies as a lender, including having discussions with the current owner. Ultimately, Erickson aims to protect the residents and restore the Devonshire to its status as one of the premier CCRCs in the country.”
Wyatt Ritchie, a managing director at Cain Brothers, the investment banking firm that is advising Erickson on the deal, characterized the high-end CCRC as a property that has been under financial distress “for some time.”
“The intention is to put the property on right financial footing,” he says. The Devonshire has not made payments on its outstanding debt owned by Erickson in more than a year, according to Ritchie.
If Erickson were to seek ownership of the property, there are three strategies it could pursue: foreclose on the property’s outstanding $158.4 million mortgage loan which matured last April; foreclose on the approximately $17 million mezzanine debt; or reach an arrangement with the current owner.
There has been a hold-up in proceedings, says Ritchie, partly because so many different lenders had been involved with the property’s debt, all of whom had their own rights and objectives. Another part, according to him, is an owner who has been “very contentious,” resulting in a lot of inaction.
SHP Senior Living Services currently owns and operates the Devonshire and Chatsworth facilities. Cain Brothers and Erickson are in conversations with Craig Anderson, the founder and CEO of SHP Senior Living Services, to see if an arrangement can be worked out to stabilize the community. As of press time, SHP had not responded to Senior Housing News’ requests for comment.
Anderson is unwilling to relinquish control of the Devonshire, says Ritchie, who adds that the foreclosure proceedings—which must be done through the Florida courts—will take time.
“[The timeline of stabilization] really depends on Craig,” he says. He could, for example, file for bankruptcy as a delay tactic. However, it would only delay the inevitable, says Ritchie.
The luxury campus features the Devonshire building, with 328 housing units, a clubhouse activity center, a fitness center, and a dining hall, in addition to the Chatsworth PGA assets which include a 124-unit assisted living, skilled nursing, and memory care center.
Occupancy had dropped to around 77% by last June, according to state filings, and more slippage may have occurred since then, Ritchie says, although the building continues to operate.
“We still think it’s a terrific asset, which is why Erickson has invested in it,” he says. “Like some other entrance fee communities, it’s financially a little upside down. The goal is to rightsize that and invest in the building.”
Written by Alyssa Gerace