With interest rates rising and inflation not slowing down, the seniors housing construction market is definitely becoming a riskier venture. However, Scott Kavel of Creativcap successfully arranged two construction financings for a couple of clients where the lenders decided to hold the entire exposure on their balance sheets, despite participation interest. These must be high-quality projects in strong markets with “best-in-class” operating partners to justify that confidence level.
First, Mr. Kavel arranged a $70 million construction/permanent loan for a to-be-built 157-unit independent/assisted living community in California. Building the community in an opportunity zone, the buyer plans to own the project for at least 10 years. They received a $61 million construction loan and 15-year taxable bond financing that includes a $9 million earnout. There is a 60-month interest-only period followed by a 30-year amortization. Plus, the borrower has the ability to prepay. A national operator was brought in to manage the community for the owner, a joint venture between the developer, a private equity firm and the operator itself.
Next, Creativcap closed an $86 million loan for a 219-unit independent living project located in North Carolina. The initial $56 million funding was used to refinance an existing loan and pay closing costs, while the additional $30 million will be used to cover all the costs to add 50 more IL units and a 20,000-square foot wellness center. The wellness center is also expected to have hundreds of non-resident members purchase memberships to access the club. The project was over 90% occupied at the time of closing and the five-year loan included an interest-only period of 48 months. The manager only operates in the state of North Carolina offering independent living with the aforementioned wellness centers, so they have found their niche and excel in it.
