What innovative financing methods will help fund the developments and acquisitions of the future?
Building new structures
By Jon Fletcher
Presbyterian Homes & Services, Senior Housing Partners
We are working closely with key financing partners to create new capital structures that satisfy lender risk concerns while also addressing rising development costs along with cap rate and yield compression. This will only get more challenging in the next three to five years as more investors shift focus to this sector.
Structures include longer ramp-up periods for covenant compliance, narrowing the negative arbitrage gap during construction periods, and creatively structuring credit support agreements. While small individually, combined they add up to meaningful savings in development and acquisition costs.
New players on field
By Ari Dobkin
Meridian Capital Group
We are seeing new capital come into the space every few months, opening up a host of options for our clients. More optionality leads to better deals and structures.
We are seeing more banks allowing mezzanine and B pieces in secondary positions, which allows us to add a level of structuring. This can be more work on the front end, but results in better rates, lighter recourse, longer interest-only periods and other favorable benefits.
In addition, there are many seven- and 10-year fixed-rate options as alternatives to agency debt. We have seen many clients take advantage of these options in the market recently and we believe this trend will continue.
Lenders get creative
By Jeff Binder
Senior Living Investment Brokerage
The basic financial products haven’t changed much in recent years, but sources have broadened and advisors are finding innovative ways to assemble financial components to get deals closed. For example, many conventional senior lenders have teamed up with debt funds to create “unitranche” programs, which combine senior and subordinated debt in one note and offer higher leverage. These can be useful products for acquisitions that have a high “value add” component.
On the equity side, some investors are funding value-add acquisition and development deals under a lease structure with an option to purchase at a fixed price. The investor gets a fixed return and the purchaser or developer gets the building back plus any up-side.
Good partners are key
By Kevin Tyler
VP, Business Development, Head of West Coast Office
We work creatively with developers to provide a mix of financing solutions for new communities. In addition to stabilized take-outs, we participate in development as a mezzanine and/or construction financing partner.
In partnership with senior lenders, we are able to source and fund the majority of the capital for developers and operators with proven track records and controlled sites. In certain cases, the recapitalization of stabilized assets is pre-determined, providing certainty of execution with risk-mitigation throughout construction and lease-up. We offer a variety of flexible capital alternatives across the development capital stack.