Colorado Real Estate Journal -
Denver-based Spectrum Retirement Communities recently inked a $124 million financing agreement to refinance existing out-of-state properties and buy out an equity partner in the properties. Bank of the West acted as administrative agent and lead arranger for the syndicated loan. The other participating lenders were Compass Bank, Colorado Business Bank and Raymond James Bank. “This was a big deal for us,” said Jim Parker, senior vice president of development and capital markets for Spectrum, which develops, owns and operates independent living, assisted living and memory care communities across about a dozen states. Together, its communities have more than 3,400 units. However, the $124 million deal was not the biggest for Spectrum. “Not quite,” Parker said. “Earlier, we had refinanced five buildings with Freddie Mac in a $132 million deal.” The most recent transaction, however, had more moving parts than most deals, he said. “By far it was the most complicated deal we have ever done,” he said. “It was complicated because it was a syndication deal. Bank of the West was the lead bank, but it procured three other banks to the transaction because of its size.” However, while that made it more complicated, it could be advantageous to Spectrum as far as building relationships with other banks. “One of the banks was CoBiz,” he said. “We had never done anything with them in the past and now this could provide a great opportunity to build a relationship with them, as we get to know each other. Compass, out of Dallas, was another lender and we have done quite a bit with them in the past,” he continued. “Raymond James Bank, out of Florida, is also part of the syndication. We don’t know much about them yet, but perhaps this will pave the way for us to do business with them in the future.” Spectrum also has an excellent relationship with Bank of the West. “We are very pleased to help Spectrum Retirement Communities continue to grow and serve seniors,” Astrid Kramarz of Bank of the West Real Estate Industries Division’s Healthcare Unit said in a release. “Spectrum Retirement is a long-term client, and we are proud to be a key contributor to their financial strategy.” A “big chunk” of the bank loan will be used to refinance some of the existing debt for communities in Kansas, Missouri, Illinois and Arizona. Confidentiality agreements prohibit Parker from releasing specific details of the transactions. “If you look at it, on a blended basis, the rates are in the 3s (percentage range). Four of the six communities are still in what we call the lease-up stage. That is one of the difficulties with lenders is that there is a certain amount of risk when you are not leased up yet.” However, Spectrum can be rewarded with additional savings if it meets certain benchmarks when leasing up its communities in Overland Park, Kan.; Cary, Ill.; Peoria, Ariz.; Shawnee, Kan.; and Affton, Mo. Together, they have a total of 722 units, including 265 independent living units, 115 memory care units and 342 assisted-living units. “It is a 42-month loan, so we will be seeking permanent financing down the road,” he said. “Life insurance companies are getting back into that space and Fannie and Freddie also have very attractive programs,” he said. Banks, he said, will make short-term loans like the $124 million transaction, while insurance companies prefer to invest in completed and stabilized projects. A portion of the proceeds also went to buy out a Kimco Realty affiliate’s equity in the buildings. Kimco is a New York-based real estate investment trust with about a $9 billion market cap. “John Sevo (co-founder and a managing director of Spectrum) knew a guy, Dave Henry, when he was a chief investment officer at GE Capital Real Estate,” Parker said. “In the ‘90s, John became one of GE’s biggest partners on doing workouts across the country.” Later, Henry was named CEO, president and vice chairman of Kimco. “Kimco had this preferred equity program and Spectrum was the only senior housing in it. It was just time for Kimco to exit. So now John Sevo and Jeff Kraus (the other co-founder), through Spectrum, are the owners of the equity that had been part of the Kimco affiliate.” Meanwhile, separate from the $124 million deal, Spectrum has started construction on a luxury 90-unit community at 6383 E. Girard Place in Denver called HighPointe Assisted Living and Memory Care. And as early as this month, it could start construction on the 85-unit Peakview, a 71,000-square-foot assisted living and memory care community in Centennial. In Colorado, and nationwide, senior assisted-living communities comprise a strong and growing niche that, based on demographics, has not yet hit its apex, Parker said. “There has been very little construction in the last few years due to recessionary pressures and we feel fortunate to have great investors and great lender partners who make it possible for us to develop quality communities,” Parker said. “It’s a great business,” Parker continued. “It was the only asset class that did not turn down during the Great Recession,” he said. “Our rents may have not gone up, but at least they remained flat.” However, the great wave of clients has not yet come to pass. “The average age of the leading edge of the baby boomers is in the late 60s and our average age in one of our communities is 82 to 84,” Parker said. “The big growth in baby boomers is another 10 years away. The baby boomers are the first generation with more money than their parents. They are very demanding, but they haven’t yet told us what they want. They probably don't know. Most people in their late 60s and early 70s aren’t thinking of what they want as far as their living situation in 10 years. I think 10 years from now, everyone is going to want to be in this business.”