We learned of a number of recent financings provided by Stride Bank for senior care facilities across the country. First, the bank refinanced multiple assets in New Mexico and West Texas. The relationship with this particular borrower began in June 2023 (through Clint Miller of Ziegler) when it was looking to execute a bridge-to-HUD strategy and its prior, larger regional bank was unwilling to entertain. The portfolio features a mix of HUD-qualified and non-HUD-qualified assets, and the borrower needed an institution that allowed a multi-step process to release the HUD-qualified assets slowly.
The senior credit facility will fully retire once the HUD-qualified assets are refinanced, leaving a pool of unencumbered non-HUD-qualified facilities. There was understandable risk in “losing” HUD-eligible assets at a slower pace, potentially jeopardizing the portfolio’s conformity to performance metrics. However, the HUD assets were also able to carry a more significant proportion of senior debt compared to the generated NOI, and Stride Bank was comfortable with the borrower’s long-standing position in their markets to ensure past performance was achievable.
The initial bridge loan is sized at just under $20.0 million, and by the end of Q1:25, the facility will be refinanced through HUD, generating a favorable risk-adjusted return to the bank with its hold time of $7.8 million under 12 months, with the remaining debt carrying an approximately 21-month hold time.
However, in the meantime, the borrower identified four assets they were familiar with as acquisition targets, but the requested debt against the acquisition targets would over-lever the targets and put a strain on cash flow. So, Stride Bank moved forward by taking the to-be-unencumbered, non-HUD-qualified assets and creating a new portfolio of assets to carry a $6.1 million advancing term loan, with a five-year term, an interest-only period, a fixed interest rate and guarantees with burndown provisions.
The structure will allow the owners to acquire cash-flowing assets accretive to their bottom line while creating a “stress-free” structure. As part of the June 2023 loan, the borrower moved the entirety of their treasury and depository relationship over to the bank, as well, underscoring the bank’s understanding of the borrower’s short and long-term needs (and benefiting the bank, too).
Stride Bank also provided an $8.0 million back-end refinance of a recently acquired, distressed asset in California. Initial funding was $8.0 million with a $2.0 million advance feature built into the loan structured on operational metrics that, with current trends, the borrower could realize the earnout loan amount as soon as December 31, 2024.
Between the acquisition and loan closing, the new management company was making progress at the property, allowing for more borrower-friendly financing terms to help maximize return metrics while derisking a “turnaround” asset. The loan came with a three-year term, plus extension options, an interest-only period, a fixed rate, and carveout guarantees.
Stride was not done, closing an $11.0 million refinance of another recently acquired, distressed asset, this time in the Northeast. The three-year loan, which featured a $4.0 million earnout, an interest-only period, a floating rate and limited guarantees with burndown provisions, replaced higher-priced debt that was used to purchase the asset. There was positive operating momentum at the property, but in an environment plagued by several hindrances, Stride brought in a partner institution without jeopardizing execution risk. Stride has grown comfortable working with opportunistic, well-capitalized groups that are acquiring assets for well under replacement costs that allow for modest senior leverage and cash flow metrics that reduce the stress on the assets.
Finally, Stride also started a new relationship with a group that refinanced an asset in Pennsylvania. The group was identified by Stride several cycles ago, but both parties wished to establish a lending relationship with an identified “easy” refinance to kick things off. The selected asset was one of the portfolio’s most tenured facilities that quickly rebounded operationally after the pandemic. The five-year loan featured an interest-only period, a fixed rate and carveout guarantees.
