Herbert J. Sims & Co., Inc. - North Branford, CT

Evergreen Woods

sims provides 70% of the equity required for the acquisition of evergreen woods, a 293-unit continuing care retirement community

Herbert J. Sims & Co., Inc. (“Sims”), through its affiliate HJ Sims Investments, LLC, provided equity and mezzanine debt to finance the acquisition of Evergreen Woods in North Branford, Connecticut (“Evergreen Woods” or the “Facility”). Evergreen Woods is a 293-unit entrance fee continuing care retirement community (“CCRC”) consisting of 243 independent living unit and 50 skilled nursing beds.

background

Sims was approached by The Shelter Group (“Shelter”) to fund a joint venture (the “Joint Venture”) for the acquisition of Evergreen Woods. Shelter is a leading owner/operator of senior living communities on the east coast. Prior to the Evergreen Woods transaction, Shelter managed 1,485 units of assisted living and independent/congregate living units, as well as 3,635 units of senior independent apartments.

challenges

The major challenges were (i) creating a plan of finance that provided co-investment funds on both subordinate debt and equity bases; (ii) structuring the mezzanine loan so that it is not considered longterm debt of the Facility by the State of Connecticut; (iii) allowing the prior owners of the Facility to maintain a small ownership position for tax purposes; (iv) co-existing with an existing resident mortgage, which limited the amount of debt that the Facility was permitted to issue.

solution

First, Sims worked with Shelter to determine the optimal size and structure of mezzanine debt that the Facility could adequately support. The subordinate loan

Evergreen Woods

structure was extremely complex, because of the lack of recourse available, the existing resident mortgage and the potential reserve requirements by the State of Connecticut. Based on the senior loan and subordinate loan structures, the appropriate equity requirement was determined. Ultimately, Sims and Shelter decided that the best structure included each partner providing one-half of the equity in the Joint Venture, which would own approximately 94% of the Facility. In total, Sims, through the mezzanine loan and equity investment, provided nearly 70% of the total equity.

implementation

Sims Evergreen, LLC, a single purpose entity, was capitalized through two contemporaneous private placements. The first private placement offered Class A Equity Units. The second private placement offered taxable, subordinate bonds. Both private placements were sold to Sims’ high net worth investors in less than one week. Sims Evergreen subsequently made a mezzanine loan to and an equity investment in the Joint Venture. The Sims financing was attractive to Shelter for several reasons: (i) the ability to provide both mezzanine debt and equity from one source; (ii) expertise in structuring complex financings while providing flexible terms on the mezzanine loan and the equity investment; and (iii) Sims’ willingness to allow the prior owner to remain in the project.

result

Sims was able to meet all the challenges with creative equity and subordinate debt to enable the acquisition to close on an aggressive timeline.