Senior Housing Bridge Loans, Mezzanine Financing & Syndicated Pre-Construction Phase Equity Funding

Recent changes in the capital markets have left developers short as they search for senior housing bridge loans (including both mezzanine loans and convertible loans) to cover the yawing equity gaps as a result of FHA/HUD requirements for HUD-insured senior housing construction loans.  The reliance upon bridge loans and mezzanine loans by senior housing developers has brought the new construction market segment to a grinding halt in all too many cases.

Rainmaker Marketing Corporation specializes in providing the due diligence documentation required to sustain a project's capital funding requirements, goals and expectations.  Rainmaker creates customized solutions for senior housing project development financings based upon a structured finance approach that includes:

• entitlements financing programs - creating annuities out of statutory entitlements that do not require an award and/or allocation; and

• investment real estate plans - creating fractional tenants-in-common syndications and condominium investment plan syndications.

The key to capital financing for the senior housing developer is to utilize the structured financing to dramatically increase the equity capitalization without necessarily diluting the resulting opportunity of the developer because:

• the incremental equity gain created as a result of the development, construction and stabilization of a given senior housing project goes to the investor risk pool that provided the capital, so the developer is losing nothing in structuring a finite opportunity for these investors based solely upon this phase of the project's lifespan; and

• the resulting development and operations program can be split into two (2) separate opportunities in a manner that is similar to the classic sale-leaseback financing arrangement where the developer owns the operating business and the investors own the real estate business.  This approach allows the developer to maintain the integrity of his/her overall equity opportunity because an earn-out provisions is part of the transaction that is vests ownership based upon actual distributable income payouts.  This means a waterfall distribution structure would give the developer an outstandingly fair opportunity to end up owning 90% of the resulting business and real estate.  The developer's opportunity includes:

  • income from the development management fee line item, which the developer may assign, in whole or in part, the developer's rights to a third-party development manager; and

  • income from the property management fee line item, which the developer may assign, in whole or in part, the entire contract to a third-party property management firm; and

  • a 10.00% share of the incremental equity gain funded out of the project when the long-term syndicate purchases the property; and

  • the long-term investment income holding opportunity associated with the ongoing operations of the property.

The conflict of interest that would heretofore exist (by virtue of the developer playing the investment income opportunity solely as a development opportunity) is eliminated and replaced with an opportunity that is on par with the investment income opportunity of the post-construction syndicate investors.

This is all predicated upon the fractional tenants-in-common real estate syndication approach because of some benefits that, in their totality, are significantly more important than any other capital financing mechanism or funding resource that would otherwise be available to the developer on a non-recourse basis.  This fundamentally changes the way we raise capital financing and what we expense that capital financing on (financing and carrying costs of equity capital).

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