HJ Sims

Lenbrook

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Sims underwrites $172,775,000 for Lenbrook expansion

Lenbrook is a non-profit continuing care retirement community opened in 1983 in Atlanta’s Buckhead community. Currently, the community consists of 225 independent living apartments, a 42-bed skilled nursing center and various common areas, offering high-quality service and amenities to its residents.

From 2000 to 2003, Sims worked closely with Lenbrook on the preliminary planning for a major expansion. In late 2005, the firm was selected in a competitive process to structure and underwrite long-term debt financing for the project.

The expansion, to be built on land adjacent to the existing community which was acquired in 2000, consists of a 24-story tower containing 134 luxury apartments and a new 60-bed skilled nursing and memory support center, as well as dining, recreational and other amenities. A landscaped plaza behind the buildings will include eight garden apartments, a wellness center and outdoor dining facilities. As part of the project, the existing 42-bed health center will be remodeled into 15 assisted living suites. Total project costs exceed $123 million. The financing also included repayment of $20.1 million of outstanding tax-exempt debt.

Funding for acquisition of the adjacent site was provided by a commercial bank. This obligation was refinanced by the Bank of Scotland and included in a seed capital line of credit that funded ongoing design and preconstruction costs so that actual construction could begin during the fall of 2006.

Initially, the plan of finance included all-variable rate, letter-of-credit backed financing, which, when initially conceived, provided the lowest all-in cost. Based on an analysis by Sims of the current interest rate environment and all possible financing structures, however, it was evident that fixed rate non-rated bonds could provide a lower cost of funds for part of the financing. Working with Sims and Lenbrook management, Bank of Scotland agreed to provide a letter-of-credit to support $72 million of variable rate demand bonds to be repaid from entrance fees. In addition, Sims structured a series of $7.9 million of adjustable rate bonds, allowing Lenbrook to reduce debt by nearly $80 million at fill-up of the new, independent living units. Sims also underwrote $92,875,000 of fixed rate bonds, with maturities of up to 35 years.

The financing faced a number of challenges, including the relatively high penetration rates for projects in Atlanta, the high cost of construction and competition from numerous other fourth-quarter financings. Working through its network of institutional investors and its retail investor base, however, Sims was able to place the long-term bonds at a yield of 5.27% for a period of 35 years. In addition, Sims negotiated a floating-to-fixed rate swap for the $72 million of variable rate bonds, resulting in a fixed payment by Lenbrook of 3.51% and an average coupon for the total financing of 4.99%.