Tennessee-based National Health Investors (NYSE: NHI) is executing on plans to sharpen its focus on continuing care retirement communities (CCRCs), eyeing heightened demand and improving market fundamentals to drive investments.
In February, NHI finalized a previously announced $154.5 million loan commitment to both recapitalize and finance the expansion of an entry-fee CCRC in the greater Seattle area.
Timber Ridge at Talus, a CCRC managed by Life Care Companies subsidiary Life Care Services (LCS), will utilize the loan to refinance the community’s existing debt while also using the remaining proceeds to add up to 180 apartments and beds at its campus in Issaquah, Washington — an investment driven largely by rocketing demand in the area.
Opened in September 2008, Timber Ridge is currently 95% occupied and has enjoyed several successes in its nearly seven-year existence.
“Since we originally conceived Timber Ridge and its opening in 2008, [the community] enjoyed a great deal of market acceptance, high occupancy and wait list,” said LCS Chairman and CEO Ed Kenny in an interview with SHN. “The market demand drove our interest in expanding the community, which will be our final expansion.”
Construction of the expansion is expected to begin upon loan closing and will add 145 independent living apartments, 26 assisted living and memory care apartments and nine transitional care beds, in addition to a swimming pool, dining room, fitness center and other amenities. Before even having broken ground on construction, the new expansion is already 80% pre-sold.
Once construction is completed after an 18-month timeline, according to Kenny’s estimation, Timber Ridge will provide housing across a collective total of 400 apartments and beds at the campus—a bit larger than the typical “sweet spot” the company targets.
“We typically do our CCRCs in two phases, and we like to have upon the completion of the second phase between 280 to 330 independent living units,” Kenny said. “Depending on our market, that’s kind of our sweet spot.”
With more skilled components, Kenny said LCS typically aims for approximately 65 to 70 units in a combination of skilled nursing, memory care and assisted living.
“Timber Ridge is the higher end of our model, but the 330 [independent living] units still fits our prototype,” he said.
The $154.5 million loan commitment is divided into two notes under one master credit agreement. Note A is a $60 million senior loan that has a 10-year maturity and 6.75% interest rate that escalates 10 basis points per year after the third year of the loan. Note B, which will be used for the expansion, is a $94.5 million construction loan with a five-year maturity and an 8% interest rate.
The borrower is a joint venture between Westminster Capital and Life Care Holdings, LLC. The loan is also a first of its kind for NHI, which has historically focused on investing in primarily private pay independent, assisted living and skilled nursing, though not CCRC, assets.
But as the Murfreesboro, Tennessee-based REIT shifts away from pursuing skilled nursing assets, it has also been actively seeking deals involving CCRCs. The loan structure of the Timber Ridge investment includes a purchase option, which also worked well for Westminster and LCS, said NHI President and CEO Justin Hutchens.
“In a nutshell, our ultimate goal is to own high quality properties for the long-term,” Hutchens said in an email to SHN. “We utilized the loan structure with Life Care Services because that was a fit, but the purchase option allows for potential ownership.”
When the second construction phase opens at Timber Ridge, entry fees at the mostly pre-sold community will pay the loan balance down to the remaining $60 million senior note on the campus, Hutchens said.
Timber Ridge at Talus served as the spark for NHI’s investor interest in entry-fee CCRCs. A little more than a month after Timber Ridge, the REIT acquired eight communities from Charlotte, North Carolina operator Senior Living Communities, LLC for $476 million.
Of the total eight properties spanning 1,671 units, seven communities were entry-fee CCRCs, which NHI currently leases to Senior Living Communities. They are located in Florida, Georgia and the Carolinas—markets viewed favorably by NHI for their greater housing fundamentals in relation to the CCRC asset class.
“The demand for this type of community is closely tied to housing market fundamentals which have enjoyed a solid recovery and especially in the Seattle area and the coastal Florida, Georgia and North Carolina markets we entered,” Hutchens said.
Written by Jason Oliva