Skilled Nursing Facility:
We were recently engaged by a customer who was purchasing two adjacent skilled nursing facilities in North Salem, Northern Westchester County, NY that contained 240 beds, some for highly acute patients and some for semi acute patients.
The process of buying a skilled nursing facility in New York is very complex and time consuming, as all purchases of these facilities must be approved by New York State. The approval even includes the financing, good old New York! Yes, that means if they do not like your financing, they can deny approval of a sale.
Most buyers of these facilities utilize financing known as HUD 232. The HUD 232 loans are loans just for owners or buyers of skilled nursing homes. These loans are very attractive to lenders as HUD insures the lender against any loss of principal under these loans (yes, HUD and that means us tax payers). These loans are very time consuming (6 to 12 months for approval, or longer) and involve at least 3 points in costs up front. The interest rate is low and the loan to value can be as high as 85%, but the borrower must also pay an up front insurance premium of 1% of the loan and must also pay a 1/2 point insurance fee each and every year of the loan, a true hidden cost. HUD lenders also require very large reserves for future capital costs, can be as high as $7,000.00 per bed per year. In our recent deal, the reserves were $300.00 per bed per year.
If buyers do not utilize HUD financing, then they generally use regional banks which provide financing on a full personal recourse basis, or a mostly recourse basis. The interest rates are generally not attractive and the fixed rate portion of the loan is relatively short.
Our customer came to us and conceded that he wanted the impossible. He wanted high leverage ( 85%), great pricing, low cost, 10 year term or longer for the loan, no recourse or minimal recourse and speed in closing. We told him that we could get a loan committed and closed in 60 days. He was very suspicious and we spent a lot of time persuading him that we could get it done. One of the partners in the deal also had some personal issues that caused at least one other lenders to turn the deal down (and they were not offering any of what we offered above). The loan had also been turned down by at least three lenders, two of whom took deposits.
We closed the $22,500,000.00 loan (85% of the price) on this facility, 10 year term (he had the option to fix the rate for any time between 1 and 10 years or to float the loan). The pricing was 175 over 30 Day LIBOR and the borrower again had the right to swap this pricing into the fixed term of his choice ( call me if you want to understand how you "swap" a floating loan into a fixed rate loan). The lender's fee and our fee was just slightly in excess of 1 point and the personal recourse was very limited. We have just been engaged on an exclusive basis to obtain a second loan for this customer in the approximate amount of $20,000,000.00 for another skilled nursing facility in a suburb of New York City.
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| Commercial Loan
We also closed a $23,500,000.00 loan, secured by three industrial buildings which had no lease term longer than three years and had one building with an occupancy level of under 40%. We obtained this high leverage non-recourse financing with a very low debt service coverage ratio, high loan to value ratios and short lease terms in each of the properties. The lender had no reserve requirements for lease turnover and held back no funds for capital requirements despite the dated condition of the properties.
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| Multi-Family
We closed two multifamily loans, one of which was a $7,700,000.00 loan in connection with the purchase of a 200 unit B property, just south of Hartford, CT, that was significantly under performing the market. We obtained a loan for 90% of the purchase price with a right to convert to either a conduit or Fannie Mae loan without paying an exit fee to satisfy the interim loan. This loan was obtained on behalf of a public company.
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These loans are representative of the work we have recently performed on behalf of our clients. You can always be certain that we will have a great understanding of your project and the capital structure for each matter, as was certainly the case in each of these loans and equity placements. We will take the time necessary to understand all of your needs.
We rarely have “plain vanilla” deals. Each loan we described in this letter had problems which required creative solutions on our part and we assure you that we will put the same effort into your loan.
Please call us if you require any additional information. Thank you again for considering our company. We look forward to working with you.
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