Sometimes to get a deal done you have to get creative and be flexible. It appears that was the case for a recent sale of a 55-unit assisted living and memory care community located in Utah. Of the total, 42 units are assisted living and 13 are memory care. Even though capital sources have opened up, to get maximum leverage, if that is what you want or need, your lending groups can get flexible.
Live Oak Bank and HJ Sims teamed up to provide the financing solution for the buyer of this community, a regional owner/operator with 15+ years of experience that currently manages more than 1,600 units in more than 25 communities across five states in the Mountain West region.
In order to minimize the equity required, the buyer for this 55-unit community wanted to maximize its leverage. Live Oak and Sims put together a short-term first mortgage structured as an A/B uni-tranche loan, so there was one debt obligation, one monthly loan payment and one set of loan documents.
The way it works is that the larger portion of the loan was funded by Live Oak Bank and carries one interest rate (the A portion). The smaller portion, and at a higher rate, was funded by Sims and is subordinated to the Live Oak piece (the B portion). Sims gets its funds for these types of investments from its pool of high-net worth individuals. But both loans are part of the first mortgage structure.
The loan is interest only for the first two years of the three-year term, and there is a 25-year amortization. They also structured the loan so that the first payment was pushed out one month. This, combined with the interest-only feature, provided the buyer with some financial flexibility to quickly complete some improvements to the physical plant.
On top of this, part of the loan proceeds funded a Capex reserve as well as a debt service reserve. The bottom line is that the borrower got the leverage they needed, the flexibility on payment as well as funds for improvements for what is an older property. Adam Sherman of Live Oak Bank and Brady Johnson and Curtis King of HJ Sims completed the financing for the buyer. Senior Living Investment Brokerage handled the sale for the seller.
