Rethinking financing: better approaches for senior living access to capital
Evelyn Lee, senior VP of SunTrust’s Aging Services
The senior living and care industry is experiencing a renaissance. As baby boomers begin to retire, they are redefining the expectations of aging in America.
Many are retiring later, are more highly educated, have longer life expectancies, and expect more in retirement. As a result, senior living communities are upgrading facilities, expanding care offerings and developing new active living environments to keep pace with resident expectations.
These upgrades come at a substantial cost, and access to capital is of key strategic importance for all senior housing providers. Especially for those looking to grow, access to debt capital can be a hurdle, often requiring relationships with multiple financial institutions, adding an additional layer of time-consuming complexity.
Today, forward-thinking executives are rethinking how they finance projects.
Common financing practices
Each year, senior living CFOs and CEOs spend countless hours creating a pipeline of viable financing sources for upcoming projects or other capital needs. Some have upwards of three or more individual bank relationships, each with different covenant structures, maturity dates and appetites for additional lending.
Many executives often consider this a necessary evil because they assume individual project financing allows for maximum flexibility for early repayment in the event of a sale or refinance and/or may just be hesitant to pool properties together.
Unfortunately, this individual project financing creates a dilemma — operators are constantly trying to manage their book of debt, do not have guaranteed capital to support future growth plans and must navigate the banking landscape, evaluating new financing arrangements and then starting over again for the next project. Fortunately, there are broader financing strategies that can solve for these problems.
Syndicated financing saves time and money
More and more senior living organizations with large capital needs are considering syndicated bank facilities. A syndicated bank facility is a loan offered by a group of lenders that work together to provide the funds for an individual borrower. Using this financing structure, senior living executives can secure significantly larger loans that support their current and future needs, allowing them to continue growing, with the confidence that funding is available whenever it is needed.
Additionally, in a syndicated structure, one bank is designated as the lead arranger responsible for negotiating core terms and pricing, reducing the time spent working with each individual lender. Following the close of a transaction, the lead bank also provides ongoing services as the Administrative Agent. The Administrative Agent functions as the central point of contact for all members of the syndicate and the Company including monitoring the facility, establishing a data site for communicating with the lender participants, coordination of borrowings, repayments, and all back office administration among all lender participants.
While a syndicated facility does require upfront energy and expenditure, once established, it is a time and cost-efficient financing machine. If executed correctly, it forms a group of banks working together to help senior living organizations grow and quickly upsize as financing needs inevitably expand.
Portfolio lending simplifies lending for multiple communities
For senior living organizations seeking to fund multiple projects across several communities, a portfolio approach is an excellent option. With a portfolio loan, an individual bank or syndication funds all of a company's capital needs across multiple communities as one larger sum. This approach is particularly beneficial to help smooth out performance issues at a single location as the lending is based on the strength of the entire portfolio. Just as with the syndicated facility, the portfolio approach saves the time it takes to secure financing for each individual location and provides assurance that capital is available.
Do your homework
Because these financing options tend to be somewhat complex, ensuring the right team is in place to guarantee successful execution is critical. Before moving forward with any one financial partner:
• Ask about the industry expertise of their syndication desk
• Make sure the bank has the proper manpower to coordinate syndicated deals and other sophisticated loans
• Talk to references in the senior care space who have previously worked with the bank to help assess their industry expertise and the pros and cons of working with them
• Ask the bank how they can secure the most competitive terms available while maximizing access to future growth capital
• And lastly, look for a financial partner to deliver tailored solutions to your specific circumstances
There are many ways a senior living provider can access capital, but there is no “one size fits all” method in this industry. Carefully selecting a financial partner that understands the industry and can deliver customized financing options enables senior living providers to focus on what matters — providing the best service and care options for residents.
Evelyn Lee is senior vice president of SunTrust's Aging Services practice.