Using 1031 Exchange Investors, Equity, Mezzanine Debt and Senior Loans, Sims Finances Two Start-Up Communities in Colorado – Cottage Condominiums, Apartment Rentals and Assisted Living Facilities

Herbert J. Sims & Co., Inc., through an affiliate, provided $22 million of equity and mezzanine debt to finance two start-up senior living communities in Fort Collins, Colorado (the “Oakridge Campus”) and Colorado Springs, Colorado (the “Union Campus”) (together the “Project”). Each Campus will consist of for-sale independent living cottages and a stand-alone rental independent living and assisted living facility. The Oakridge Campus will consist of 83 for-sale stand-alone independent living cottages, 95 independent living apartments, 26 assisted living apartments and 26 Alzheimer’s care apartments. The Union Campus will consist of 65 for-sale stand-alone independent living cottages, 95 independent living apartments, 48 assisted living units and 26 Alzheimer’s care apartments.

challenge

Union Campus Main Building - Colorado Springs, CO

The challenges were: (1) providing a single source of financing, including equity for the stand-alone independent living and assisted living facilities and mezzanine debt for the cottages; (2) creating a flexible debt structure, which would accrue interest until the cottage construction is completed and the units are sold; and (3) financing the Project without substantial pre-sales.

solution

Sims worked with the developer to create a capital structure for each portion of the Project that would meet its unique requirements, including minimizing the equity requirement of the developer and working with 1031 exchange investors to provide a portion of the financial backing for the developer. In addition, Sims identified a group of senior lenders that would provide individual financing for each portion of the Project in the form of two construction loans for the stand-alone facilities and two construction revolvers for the cottages. Sims also understood the need to build some cottages to facilitate marketing and agreed to fund the first condominium phase on both campuses without pre-sales.

implementation

Sims raised its capital through a private placement to its high net worth client base. The Sims financing was attractive to the developer for several reasons: (1) Sims’ expertise in structuring complex financings for senior living development projects; (2) Sims’ ability to provide a majority of the equity for the stand-alone facilities so that MacKenzie had sufficient equity to develop the cottage portion of each campus; (3) MacKenzie’s ability to raise capital from a single source – Sims – who represents its investors.

result

The equity provided by Sims, together with equity provided by MacKenzie, will satisfy the loan-tovalue requirements of the construction loans on the stand-alone independent living and assisted living facilities. The mezzanine debt from Sims provided the flexibility necessary to develop the for-sale independent living cottages by accruing interest until the cottage sale proceeds become available. Sims’ creativity and flexibility were as important as the capital it delivered.