Benchmark IV

sims joint ventures with benchmark to recapitalize a $735 million portfolio

Herbert J. Sims & Co., Inc. (“Sims”), through its affiliate HJ Sims Investments, LLC, provided joint venture equity to an affiliate of Benchmark Assisted Living, LLC (“Benchmark”) to recapitalize a portfolio of fifteen senior living communities located throughout New England. The communities are being added to an existing portfolio of nineteen (19) senior living communities (together the thirty-four (34) communities are herein referred to as the “Portfolio”). In total, the Portfolio consists of 3,223 beds, including 606 independent living units, 1,573 assisted living units and 1,044 Alzheimer’s care units and has a total asset value in excess of $735 million. Benchmark Assisted Living, the largest owner-operator of service-enhanced senior housing in New England, operates forty-three (43) senior living communities.

background

Over the past three years, Sims has provided equity financing to enable Benchmark to recapitalize its entire portfolio of forty-three (43) senior living communities located throughout New England. As Benchmark’s partner, Sims was approached in 2006 to provide equity for a new joint venture (the “Joint Venture”) that would partner with a publicly-traded real estate investment company to recapitalize nineteen (19) of Benchmark’s forty-three (43) communities. As Benchmark continued to roll out its strategy of recapitalizing communities with the Joint Venture, a portfolio of fifteen (15) communities managed by Benchmark was acquired by the Joint Venture in September, 2007.

Coachman Square at Woodbridge - Woodbridge, CT

challenge

The major challenges of this transaction were addressed in the initial acquisition made by the Joint Venture in December, 2006. The challenges were: (i) a very firm deadline to close the transaction by December 31, 2006; however, the details of the transaction required to raise the necessary capital were not finalized until mid-December; (ii) the portfolio was held by a Sims-Benchmark joint venture entity, and a tax-free exchange was proposed to postpone the payment of taxes; (iii) Benchmark needed a longterm partner that could provide additional capital for future acquisitions and developments; and (iv) Sims was increasing its ownership in the Joint Venture to 60%, which required additional capital from the Sims entity.

Sims’ ability to consummate the September, 2007 acquisition reinforced its ability to provide capital for future acquisitions by the Joint Venture and increased its ownership position in the Portfolio through new capital.

solution

As part of a larger acquisition with Benchmark in 2005, which included the acquisition of all thirtyfour (34) communities which have been recapitalized by the Joint Venture, Sims, through its high-networth client base, capitalized a Sims-controlled investment company that provided equity to Benchmark. In order to meet the challenges above, Sims chose to offer its existing investors the opportunity to increase their investment in the existing Sims entity, which would have a larger ownership interest in the new Joint Venture. Nearly all the investors increased their investment, and Sims was able to complete the capital raise in weeks. The equity raised by Sims, together with funds invested by Benchmark’s key principals and Board Members, is being used to meet Benchmark’s funding commitments with its institutional equity partner.

implementation

Sims Benchmark I, LLC, a single-purpose entity which was initially capitalized through private placement in May, 2005, issued additional bonds in 2006 and 2007 to meet the capital calls of the Joint Venture. Sims Benchmark I used two sources of capital to make its investment: (i) since it was an owner of the communities being acquired, it contributed its ownership in the existing joint venture to the new Joint Venture; and (ii) made an additional capital contribution, with the proceeds of the bonds, to meet its 60% equity requirement in the joint venture.

This structure was attractive to Benchmark for several reasons: (i) the ability to meet its deadline; (ii) since the investment is made directly by a Sims-controlled entity, it allowed Benchmark to access Sims’ extensive high-net-worth client base without having to deal with numerous third-party investors; (iii) Benchmark wanted a long-term partner who would be able to provide additional capital as needed; the funding arrangement is open-ended so that additional capital can be raised for future acquisitions and developments; (iii) Sims’ willingness and ability to complete the asset exchange and defer taxes; and (iv) the execution of the transaction was very efficient since Sims was able to complete all due diligence and underwriting and close within a very aggressive timeline.

result

Sims was able to meet all the challenges, while still meeting an aggressive timeline. The Joint Venture is the base onto which Benchmark expects to build a $2 billion portfolio of senior living communities.

Direct equity investments with excellent owner/operators such as Benchmark are the latest example of Sims using its extensive client base to provide equity to senior housing providers. Sims excels in filling the niches that allow an owner or developer to complete a transaction by providing creative financing such as preferred equity, mezzanine debt or bridge financing.