This article is sponsored by Twain Financial. In this Voices interview, Senior Housing News sits down with Nick Maglasang, Vice President of Business Development at Twain, to learn about Twain’s unique ground lease offering. He shares why senior housing developers are excited about Twain’s ground lease program, and why Twain’s structure is unique.
Senior Housing News: Nick, what experiences do you most draw from in your role today?
Nick Maglasang: Twain Financial is approaching nine years old as a company, and I’ve had the benefit of working at Twain for all nine years. As a result, I’ve had the opportunity to work with several of our business lines, including historic tax credits, new market tax credits and PACE — property assessed clean energy — lending.
Recently, my focus has been on our ground lease financing platform. I’ve therefore been able to identify how our various products can fit within a project’s capital stack and provide more efficient financing. Our eyes have been opened to the opportunities in the ground lease space, particularly given our ability to fund new construction, acquisitions, and recapitalizations — including distressed assets — in every market throughout the country.
How is Twain’s ground lease unique compared to more traditional ground lease offerings in the market?
Maglasang: Twain’s ground lease is an alternative to conventional construction financing and is unique because we provide a buyback option for the land as early as Year 4. At a high level, we are purchasing the ground beneath the development project and then leasing back the land via a 99-year ground lease. Our product really functions more like a bridge ground lease compared to a conventional 99-year ground lease with limited or no repurchase options. The fact that we’re providing that flexible repurchase option gives our sponsor partners additional comfort knowing that they have the option to unwind the ground lease structure and buy back the land from Twain.
Historically, ground leases have not been used to fund new construction projects and have only been popular on the coasts, where land values are high. Twain’s ground lease program is unique due to our flexible repurchase option and ability to fund new construction projects in all 50 states.
How is the purchase price determined, and what proceeds can a developer or property owner expect?
Maglasang: We are sizing our investment or the purchase price for the underlying land based on 35% of stabilized value. On construction projects, our ground lease proceeds typically represent around 40% to 55% of the capital stack. On the projects we’ve funded, we’ve partnered with leasehold lenders to complement our ground lease structure and fill out the balance of the capital stack along with owner equity.
Has Twain financed any ground leases in the senior housing sector, and are there any limitations on senior housing projects that Twain will finance?
Maglasang: To date, we have funded five senior living projects throughout the country. Most of our projects have been new construction and have been a mixture of independent living, assisted living and memory care. Twain is also able to finance age-restricted senior housing and skilled nursing. It’s also worth mentioning that we can finance multifamily, student housing, hospitality, industrial, office, retail, self-storage and special use projects. We have found a nice niche in the senior living space and think this product is attractive because senior living assets are often limited in terms of total leverage.
Are developers and property owners hesitant to give up ownership of the land underneath their project?
Maglasang: Initially, yes. We have found that a lot of developers have viewed ground leases as restrictive because you’re “stuck” in a 99-year lease. However, our flexible repurchase option as early as Year 4 has been instrumental in getting developers over the mental hurdle of selling us the land. They know they can buy the land back in a few years, and at a fixed, predetermined price. Our ground lease provides all the short-term benefits of ground lease financing without the long-term commitment. As a result, developers are utilizing our ground lease as efficient, interest-only bridge financing to stabilization.
Does Twain finance only construction projects in the senior housing space?
Maglasang: Most of what we’ve done has been new construction, although we have had success refinancing existing assets as well. In fact, we’re working on a few deals whereby our ground lease product is being utilized to refinance the existing construction lender to get the project to stabilization so that they can then pursue long-term permanent takeout financing.
We also are not restricted by geography or asset class. We’re doing this all over the country, in all 50 states. We’re in major markets, secondary markets, tertiary markets. We’re really geographically agnostic. Ideally, our minimum investment amount is at least five million. Understanding that we’re sizing our investment as 35% of stabilized value, we’re really looking at a minimum stabilized valuation somewhere around $15 million or so. We’re doing small deals, larger deals, and we’re doing them all over the country.
Finish this sentence: The senior housing industry in 2022 will be the year of…?
Maglasang: I think the senior housing industry in 2022 will be the year of recovery and growth, spurred by creative financing solutions such as Twains’ ground lease capital platform.
Editor’s note: This interview has been edited for length and clarity.
Founded in 2013, the St. Louis-based Twain Financial Partners is a full-service specialty finance firm with $4 billion in assets under management providing a full range of capital needs to real estate and renewable energy developments throughout the United States. To learn more about how to take advantage of Twain’s ground lease, visit twainfinancial.com.
The Voices Series is a sponsored content program featuring leading executives discussing trends, topics and more shaping their industry in a question-and-answer format. For more information on Voices, please contact [email protected].