$4,000,000 80% Construction Financing for Senior Care Facility

Transaction Description: George Smith Partners successfully arranged the $4,000,000 construction financing for a senior home care facility in Northern California. The complex will function as an assisted living facility and is comprised of four contiguous houses accommodating six patients each. California Law states that any care facilities accommodating six patients or less do not require a license to operate. By building four contiguous smaller facilities, the sponsors will realize a greater upside, while still abiding by California regulations. Fixed for two years at 6.5%, the 80% of cost interest only loan will convert to a 5-year mini-perm with a fixed rate of 5.5% and a 30-year amortization. There is no prepayment penalty.

Challenges: To obtain the required leverage to complete the project, it was critical to demonstrate the stabilized value of the property as a commercial care facility rather than as four single family residences. The Sponsors decided to build smaller contiguous care facilities because the California law does not require a license for operations. While this regulation substantially accelerated and simplified the predevelopment process, it also made financing the project significantly more difficult. Conventional lenders could not become comfortable with this subset class of an operationally dependent and niche asset. Because of the complex asset type, the Sponsors requested a mini-perm structure where they had a guaranteed takeout of the construction loan.

Solution: GSP identified a capital source to underwrite the project’s stabilized value as a commercial care facility rather than as four single family residences. In order to provide additional comfort to the Borrower, GSP structured the term to have an automatic mini-perm feature upon stabilization. The tremendous upside in the project, with no prepayment penalty ensured the Sponsors the ability to capture the upside and maintain flexibility.