Assisted Living Mezzanine Loans, Fractional Real Estate Syndications & Non-Recourse Financing

More and more frequently we see senior housing developers desperately searching for assisted living mezzanine loans because of poor planning and due diligence.  Rainmaker specializes in providing due diligence services for all types of senior housing properties (including assisted living and dementia care units at the assisted living licensure level).  Our experience has shown that developers should only seek mezzanine loans once all other opportunities have been completed vetted and found to not cover the gap.

We know what you're thinking; sounds good in as far as it goes, but what can be done to bridge these equity gaps?  Can the Rainmaker approach obviate the need for seeking assisted living mezzanine loans or bridge loans?

Rainmaker Marketing Corporation suggests that you look at a structured finance approach that includes the following elements:

1. Developer Capital Contributions.  These are to be used strictly for completing the due diligence exhibits necessary to support a private placement offering of securities or a fractional tenants-in-common real estate syndication.  One of the goals of the syndication route is to generate sufficient capital contributions to not only qualify the project for non-recourse mortgage financing, but to also be large enough to allow the developer to withdraw the developer's seed capital!

2. Statutory Investment Incentive Financing.  The structured finance solution limits these statutory incentives only to those incentives that are vested automatically when the project is placed in service.  Incentives that require an application and award process are not considered because they are subject to regulatory vagaries that are too hard to project.  The placed-in-service requirement means these incentives don't come into play until after the project is built, therefore; they are used for credit enhancement on the construction loan or to buy-down the interest rate of the construction loan.

3. Condominium Investment Plan.  A portion of the project space plan is transformed into deeded condominium rights - not to be sold as housing for the public.  Oh contraire!  These condominium units are not occupied by the buyer and they are organized to provide more construction phase capital.  State consumer protection laws prohibit the developer from applying condominium sales proceeds to the construction financing until the last 45 to 60 days, but the last 45 to 60 days can make a big difference in the construction loan's loan-to-cost ratio.  This offers direct replacement of the assisted living mezzanine loan scenario - including all asset classes of senior housing.

4. Fractional Tenants-In-Common (TIC) Plan Real Estate Syndication.  The remaining portion of the property that is not part of the condominium plan is sub-divided into a tenants-in-common ownership structured.  Unlike other capital financing, this source of at-risk equity contributions may be applied to the capital stack as soon as the pre-construction phase.  This makes TIC plan syndications the number one financing tool that every senior housing developer should keep in mind.

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