| Providence Point |
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sims finances $232.5 million for new ccrc campus description Providence Point (the “Project”) is a new upscale continuing care retirement community which is being developed in Scott Township, a suburb of Pittsburgh, Pennsylvania. The Project will consist of 222 independent living apartments, 35 patio homes, 63 skilled nursing beds, 63 assisted living beds, and 20 memory support beds. The Project will be owned and operated by Baptist Homes Society (“Baptist Homes”). Baptist Homes also operates an existing community in nearby Mt. Lebanon Township which consists of 100 independent living units which are predominantly HUD subsidized, 54 personal care residences, and 126 licensed skilled nursing beds. Despite the fact that the existing community had almost no long-term debt, Baptist Homes decided to pledge the existing community as additional collateral and to obligate it to help meet the debt service for the Project in order to strengthen its commitment to meet the housing and healthcare needs of the broader senior living community across income levels. In addition, the Project has a broad range of price points as it was one of the goals of the Board of Directors to provide a community for everyone in the marketplace regardless of their financial situation.
 Courtyard View Rendering challenge Due to site constraints and the need to provide underground parking, the Project could not be built and financed in stages. To mitigate the continued risk of construction cost escalation and to reduce the time required to pre-market such a large project, Baptist Homes wanted to close on the permanent financing upon obtaining 60% pre-sales in lieu of the typical 70% pre-sale milestone. In addition, as a result of the sub-prime mortgage crisis, the yield on non-rated, fixed rate bonds spiked shortly before the bond issue was scheduled to come to market for permanent financing. solution Given the marketing and construction costs challenges, Sims agreed to finance the Project at 60% presales. The Bank of Scotland also agreed to provide a letter of credit for the permanent financing and close at the 60% pre-sale level as well. Furthermore, the initial finance plan contemplated $91 million of short-term letter of credit enhanced variable rate bonds and approximately $145 million of non-rated fixed rate bonds. In response to rising long-term interest rates and relatively low short-term rates, Sims and Baptist Homes decided to restructure the finance plan to include all variable rate bonds. implementation Not only did Bank of Scotland agree to provide a letter of credit to enhance the long-term variable rate bonds in addition to the short-term bonds, but Bank of Scotland committed to a full underwriting of $232.5 million. Because Bank of Scotland did not require any syndication of its letter of credit prior to closing, the financing closed without any delay in the schedule as a result of the change in capital structure. In addition, Sims secured a six-year letter of credit from Bank of Scotland in order to provide the Project with more time to reach stabilization and be in a better financial position to renew the letter of credit or refinance the bonds. result Baptist Homes issued $232.5 million of tax-exempt letter of credit enhanced variable rate bonds structured as follows:
Sims responded quickly to the changing interest rate market and implemented a revised capital structure that provided the Baptist Homes with a low cost of capital that is particularly important during the initial fill-up stage of the Project. In addition, the permanent financing closed at 61% pre-sales which enabled Baptist Homes to execute a fixed construction contract without risk of future cost escalation that could have resulted during the additional time needed to reach the typical 70% pre-sale milestone for permanent financing. Baptist Homes also intends to enter into a fixed rate a swap to mitigate against any interest risk during the construction and fill-up stages of the Project. “During a time of significant market adjustment, Herbert J. Sims and the Bank of Scotland focused on the challenges presented and delivered solutions. Baptist Homes Society is thrilled the financial team achieved both the timing and capital structure goals we established. Their innovative approach allowed us to jump start construction and achieve significant short term capital savings for the project.”
Todd Swortzel |
