Newly formed Locust Point Capital closed out its first debt fund with $312 million invested, or $62 million more than what was originally targeted. Three of the four founders came from Contemporary Healthcare Capital, a well-known group that provides all sorts of debt options to the seniors housing and care sector. But unlike CHC, Locust Point has raised its funds from institutions, primarily pension funds, insurance companies and endowments, among others, with a smattering of high-net worth investors.
The new fund, Locust Point Private Credit Fund, L.P., will be investing across the spectrum, including skilled nursing, assisted living, memory care, independent living (as long as it provides assisted living and/or memory care services) and rental CCRCs. The main point is that any property they lend to has to provide healthcare services. They can provide mezzanine debt, senior mortgage debt and preferred equity for providers to build, buy, expand or renovate. Up to 30% to 40% may be invested in development projects. Basically, they can structure the debt to meet the needs of both the borrower and its senior lender. Flexibility is just one of the things they are bringing to the table.
While the fund does not have any upper limits on what they can provide in any transaction, initially their target size is between $5 million and $10 million. They have already invested $93.8 million of the $312 million fund, and so far, the largest investment has been just over $10 million and the smallest about $1.5 million. Of the funds invested, about 30% has been in skilled nursing facilities and 70% in seniors housing, about the split they plan on for the rest of the fund, with maybe a little more for SNFs. They expect about 70% of the investments to go to existing relationships they have, with 30% to new relationships, but as the word gets out we suspect the new relationships will be growing.
The fund term is six years plus two one-year extensions. Investment will usually be up to five years, with new construction the longest to account for the construction, fill-up and stabilized periods. They expect some investments will be shorter, as the subordinated debt will fill a short-term gap in the capital stack, either for a value-add transaction or as part of a bridge financing.
What they found when they went to market with the new fund was that these institutional investors liked the opportunity to invest on the debt side, but that most of them had yet in invest in seniors housing. A minority previously had invested on the equity side in seniors housing, but our guess is that these investors like or need the fixed income stream as well as a better position in the capital stack than a pure equity investment. We expect the remainder of this first fund to be fully invested sometime next year, and then the second fund will roll out.
If you are going to the NIC Fall Conference in Chicago, one the principals of Locust Point, Chris Claps, will be on the valuation panel moderated by Steve Monroe. Please come by and have a listen.