Sara Havlena
This deal ran into some hurdles because the asset is located in a very small market and the subject property is senior housing in the age of COVID-19. The owner/operator needed to be extremely vigilant to make sure COVID did not impact their properties. This HUD 232 loan originated by PGIM.
“From our very first conversation with the sponsor, we focused on a HUD insured loan,” said David Repka, principal at Bison Financial.
The town has a population of 11,000 and the county has a population of 16,000 people.
“Since HUD cannot reject a loan purely because of the small market, we had a high level of confidence that we would be able to get it closed as long as the operator could keep running the property in an efficient manner and most importantly keep COVID away from the at-risk tenant population,” Repka added.
Property Type: Senior Housing in rural West Texas
Loan: $4.641M Refinance Loan
Lender: PGIM Real Estate
Leverage: 65% LTV
Rate: 2.85% Fixed
The property was attractive to the lender because senior housing is a fragmented market with 70% of all properties owned by entrepreneurs, not REITs and big institutions.
“We believed that this one transaction would lead to many more in a fragmented market,” Repka said.
Bison Financial’s typical client is an entrepreneur with a portfolio valued between $50 million and $500 million that needs constant access to capital across their portfolio. Its close working relationship with a lender that is active in senior housing quoted very attractive pricing, enabling Bison Financial to sign up a loan application and begin due diligence.
The loan covered all closing costs and provided about $50,000 for future repairs. One of the quirks of a loan secured by an assisted living/memory care asset is that HUD does not allow cash out. If the property was owned free and clear, the loan amount would have been $0.
“Our loan was constrained not by debt coverage or loan-to-value ratios, it was constrained by the amount of outstanding qualified debt against the property,” Repka said.
The non-recourse loan retired a number of construction loans across a number of different phases with a variety of bank and non-bank lenders. The loan has a 35-year term and 35-year amortization. The program DSC minimum was 1.45x; based on the loan proceeds limited by the amount of debt to be retired the property was actually a 2.18x DSC. Bison Financial worked closely with the borrower and their counsel to minimize remaining equity in the deal.
