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Senior
housing bridge financing (including independent
living facility bridge loans) is becoming increasingly
difficult to obtain because commercial real estate lenders and
institutional investors continue to worry about "slop
over" from the housing market. They should be
concerned. As housing inventories swell and prices start
to fall, the available capital for personal care (including
residency in a senior housing project) is likely to
decrease. This makes new facility lease-ups even more
fraught with market risk. The solution to this is to
increase the developer's financial investment leverage by
increasing the equity capital in the transaction. No
consideration should be given to bridge loans unless the
property is already open and operating at its maximum
sustainable operating capacity (or occupancy in the case of
independent living facilities). We
know, we know... You don't want to get diluted. We
agree. We can cushion the equity dilution by dividing the
transaction into two (2) parts; the real estate holding company
business opportunity and the ongoing facility operations
business. The investors get the real estate interests and
the developer gets the operating business along with an earn-out
strategy that would make most developers glow in the dark with
envy. Senior
housing bridge loans (and mezzanine loans, for that matter) are
currently being offered on a full-recourse basis, so if the deal
goes south on the developer, the developer will be personally
responsible for repayment; a very poor bargain to be sure. When
the markets tighten credit, the answer is always the same,
increase your equity capitalization. The Rainmaker
structured finance consulting approach uses a 5-point approach
to financing independent living facilities, assisted living
facilities and other forms of senior housing - including
entry-fee communities and CCRCs. Our outcome and goals are
based upon syndication support for the project. The more
support the investing-public gives the transaction, the less
risky the transaction becomes for both the syndicate investors
and the developer, with the ultimate goal being to eliminate the
investors' risk exposure to a total loss of investment due to a
foreclosure or bankruptcy. In
order of importance, the goals are:
-
Syndicate
enough real property interests to generate equity capital
sufficient to close escrow on a construction loan (no regard
given for the recourse issue here); then
-
If
the first level is achieved and the investing-public
continues to purchase the real property interests, there
will come a point in the sales process where there is
sufficient sales proceeds to induce a commercial lender (or
what amounts to the same thing) into funding a non-recourse
construction loan; then
Continued
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