New Perspective Senior Living, a fast-growing senior living company with 40 communities across eight states, secured more than $200 million in bridge debt, preferred equity and common equity with its partners, BMO Commercial Real Estate, Fengate and Boldt, to facilitate the acquisition and financing of six seniors housing communities with over 800 combined units. The joint venture has established a programmatic relationship to pursue $500 million in future acquisitions and developments.
One of the seniors housing communities is situated in West Fargo, North Dakota. Four others are in Wisconsin, encompassing the areas of Sun Prairie, Brown Deer, Franklin and Waukesha. The sixth community is in Weldon Spring, Missouri. Each of these assets boasts a full continuum of care, comprising approximately 150 units of independent living, assisted living and memory care. The average age of the portfolio is around five years, with the Weldon Spring community set to open this year, and the Franklin and Waukesha communities opened during the pandemic. At the time of sale, the average occupancy rate hovered at approximately 83%. The strategic intention is to “retain ownership of these assets over the long term,” according to New Perspective’s Co-CEO, Ryan Novaczyk.
The loan encompasses a three-year term with two one-year extension options. Hedges were put in place to reduce and lock in interest rates to take that off the table as a risk factor. Preferred equity seems to be gaining some prominence of late. “Given the lower debt leverage available in the marketplace today a need for preferred equity has developed to bridge the gap between bank debt and common equity,” said Novaczyk.
While the preferred equity can convert into common the exit plan is to pursue a recapitalization four or five years down the line. That recapitalization will likely involve REIT capital or core fund equity.
Despite a successful closing, New Perspective has discerned that the transactional landscape has become notably more difficult across “all facets since the onset of the pandemic,” with purchase agreement negotiations proving to be particularly challenging. Novaczyk expects these difficulties will persist into the foreseeable future. While initially prepared for a prolonged transaction timeline, New Perspective found the process extended beyond initial projections. Presently, the sector grapples with a “limited presence of highly active lenders and equity players.” Nevertheless, New Perspective successfully secured financing through BMO and has an established, long-standing partnership with Boldt, with which it has completed 20 developments and acquisitions as Purpose First Partners. Additionally, New Perspective fostered a new relationship with Fengate over the past nine to 12 months.
As part of the strategic growth plan, three significant “emotional shifts” within the industry were identified that are fueling an accelerated amount of M&A opportunity. Firstly, senior living sector veterans are increasingly inclined towards pursuing “liquidity events” rather than continuing to engage in the current landscape. While the price offered does matter, the importance of the buyer’s culture in such transactions cannot be understated. New Perspective has achieved considerable success, notably doubling its portfolio during the pandemic, expanding from 20 to 40 buildings. This growth was partially fueled by owners/operators looking to retire. New Perspective was “not always the top bidder,” underscoring the importance of the buyer’s culture beyond financial considerations.
Secondly, in the 2010s, the landscape had witnessed the emergence of developers drawn to the sector by the anticipation of the baby boomer demographic wave. However, the pandemic revealed the “intense healthcare” nature of the sector, leading many developers to become motivated sellers.
Lastly, despite the presence of ambitious newcomers aspiring to grow, numerous challenges persist, lack of scale making some challenges even tougher. These include difficulties in obtaining cost effective insurance, navigating high inflation rates, engaging in tough negotiations with vendors, establishing national accounts, addressing staffing shortages and managing changes in technology and regulatory risk factors. Consequently, smaller operators might need to consider merging with larger operators to achieve the scale needed to be successful.
“The plan is to leverage these emotional shifts to execute the growth plan and assemble a capital stack that can be nimble and move quickly to take advantage of both on and off market opportunities,” said Novaczyk. To that end a programmatic equity and debt relationship has been established with Fengate and BMO for the next $500 million, with the intention to “deploy capital over the next 12 to 24 months.”
New Perspective will strategically pursue opportunities in the central corridor of the United States, as well as the southeast region. The ideal assets targeted are those constructed within the last 15 years, comprising between 100 and 150 units of independent living, assisted living and memory care. While New Perspective remains open to acquiring IL/AL or AL/MC combinations, “standalone MC assets are not being pursued, as the focus is on full continuum offerings.” Assets with approximately 7% going-in net operating income cash yield on the purchase price are sought, with the objective of acquiring properties that will stabilize at a higher capitalization rate.
