Senior Living Notes (July 2006)

Nordberg to head new joint venture

FORMER MEDICAL OFFICE PROPERTIES CEO SETS SITES ON SENIOR HOUSING

 

By Murray W. Wolf

 

Former Medical Office Properties Inc. chief executive Edward P. Nordberg Jr. will head a new joint venture aimed at acquiring, financing and investing in senior housing and healthcare-related properties.

NorthStar Realty Finance Corp. (NYSE: NRF) recently announced that it has entered into a definitive agreement with Chain Bridge Capital LLC to form a joint venture called Wakefield Capital LLC. As part of the deal, Wakefield will acquire substantially all of Chain Bridge’s assets.

Chain Bridge Capital LLC is a private real estate and finance company that is focused primarily on the acquisition, development and financing of healthcare-related real estate assets, with an emphasis on senior housing properties. Those include independent and assisted living, skilled nursing and continuing care retirement communities (CCRCs).

The initial portfolio to be acquired from Chain Bridge is valued at about $64 million and will consist of 13 net leased properties, primarily assisted living facilities, and several loans receivable, most of which are secured by first mortgages on senior housing assets.

Chain Bridge, based in Chevy Chase, Md., was founded by Mr. Nordberg, who is also the company’s chairman and CEO. He is also the former CEO of Medical Office Properties, which sold its 22-building medical office building (MOB) portfolio to CNL Retirement Properties Inc. for $256 million in 2004. (Please see “One deal, two strategies” in the June 2004 edition of Healthcare Real Estate Insights^™.)

Mr. Nordberg was also a co-founder and the former CFO of HealthCare Financial Partners Inc., which was a publicly-traded company under the ticker “HCF” until it was sold in 1999 to Heller Financial. Mr. Nordberg will continue to oversee the asset management of the properties acquired by Wakefield Capital LLC.

NorthStar is an internally managed REIT that originates and invests in commercial real estate debt, real estate securities and net lease properties.

In a news release, NorthStar stated: “The new venture will take advantage of the attractive yields and favorable demographics in the senior housing sector of the net lease market.”

Wakefield expects to invest significant capital, funded by NorthStar, in building a nationwide portfolio of assisted living, skilled nursing and other senior living and healthcare-related assets which will be managed and net leased to experienced, independent operators of such facilities. Wakefield will be majority owned and controlled by NorthStar and will be managed by a company owned by the principals of Chain Bridge, which has entered into an exclusivity arrangement with Wakefield.

“We hope to put significant equity to work in this sector of the commercial net lease market which is underserved and significantly less competitive as a result of the specialized expertise and experience necessary to successfully invest in this asset class,” David Hamamoto, NorthStar president and CEO, stated in the news release.

Kindred sues to avoid

disclosure in $111 million

conflict with Ventas

LOUISVILLE, Ky. – Kindred Healthcare (NYSE: KND) has filed suit in the New York State Supreme Court against healthcare real estate investment trust (REIT) Ventas Inc. (NYSE: VTR) to avoid turning over fair market appraisal documents.

After a final ruling was been issued regarding Medicare reimbursement rates for long-term acute-care hospitals (LTACs), Ventas, a healthcare REIT, announced that it plans to pursue an annual rent increase of $111 million from Kindred.

On May 2, the federal Centers for Medicare & Medicaid Services (CMS) issued a final rule regarding 2007 Medicare payments for LTACs. On May 8, Kindred issued a news release stating that it expected the new rule to cut its revenues from Medicare reimbursements by about $46 million per year.

“We view reductions in payment as a shortsighted method to address perceived issues with LTAC hospitals,” Paul J. Diaz, Kindred president and CEO, said in the news release.

On May 9, Ventas announced that it had served notice to Kindred to initiate the reset right process included in four CCRC master lease agreements that the two firms had struck on April 20, 2001, when Kindred restructured its finances under a bankruptcy court-approved Chapter 11 reorganization plan.

Ventas says that the lease language gives it a one-time option to increase the aggregate annual rent on the 225 facilities it leases to Kindred to “fair market rental” levels, using a predetermined process described in the master leases.

Ventas has proposed that the fair market rental for the 186 skilled nursing facilities and 39 LTACs it leases to Kindred would increase to an annualized cash base rental of about $317 million, beginning July 19. The current annual cash base rental is $205.9 million. The reset notices also propose that the annual rent escalations under the master leases be reset to 3 percent, rather than the current 3.5 percent, starting May 1, 2007.

Ventas Chairman, President and CEO Debra A. Cafaro stated in a news release: “Ventas has commenced the reset right process contained in the master leases now that the reimbursement environment for our facilities is clear.” The firms had until June 8 to reach an agreement of fair market value. If they did not reach such an agreement, the two will go to arbitration.

“This process provides a period for Kindred and Ventas to mutually agree on fair market rental for Ventas’ facilities and then for a determination of Fair Market Rental by a qualified healthcare appraiser in the absence of an agreement between the companies,” Ms. Cafaro stated.

“We are open to both methods of resolution,” she said. “We remain willing, as we always have, to engage in creative and constructive discussions with Kindred to arrive at a mutually agreeable and fair outcome.”

In a May 9 news release, Mr. Diaz of Ventas said: “Over the next 30 days, we will work with Ventas in good faith in an attempt to reach a compromise related to the rent reset and are hopeful to have a frank exchange to understand the basis for Ventas’ position.”

“We have previously indicated that we had a significant difference of opinion with Ventas regarding the value of the potential rent reset when Ventas was suggesting that the reset was at least $35 million,” he continued. “The facts and analyses that have been made available to us since that time, including the approximately 12.9 percent or $125 million to $130 million reduction in reimbursement to our long-term acute care hospitals associated with changes in Medicare rules in the last twelve months, have moved our positions farther apart.”

Ventas had lowered Kindred’s rents when Kindred (then known as Vencor) filed for bankruptcy in September 1999. Renamed Kindred in March 2001, the firm emerged from bankruptcy in April 2001.

Ms. Cafaro said that Ventas shareholders made financial sacrifices in 2001 to help Kindred emerge from Chapter 11.

“Now it is time for our shareholders to receive the fair and equitable benefits of that agreement,” she said. “Since 2001, our facilities have increased significantly in value and the healthcare and real estate markets have enjoyed tremendous strength. As a result, we believe that other LTAC and nursing home operators in today’s market would pay substantially more annual cash base rent than Kindred currently pays.”

In 2005, Kindred paid $199.1 million in rent payments to Ventas, which accounts for about 52 percent of Ventas’ annual revenue. Ventas’ suggested rate hike would increase Kindred’s rent payments to $205.9 million.

CalSTRS enters into

$83.3 million JV with

senior housing firm

NEWPORT BEACH, Calif. – The California State Teachers’ Retirement System (CalSTRS), the nation’s second largest public pension fund, and Vintage Senior Advisors LLC, an affiliate of Vintage Senior Housing LLC, a developer of assisted living communities throughout California, have entered into an $83.3 million joint venture (JV).

The JV partners plan to finance the acquisition, development and management of senior housing properties in California and elsewhere in the western United States. Sources say that the joint venture marks the first time that CalSTRS has formed a partnership to focus solely on senior housing.

The new entity, dubbed VinCal LLC, is to receive $75 million in equity from CalSTRS and $8.33 million from Vintage. Vintage is to be responsible for managing the venture on a day-to-day basis, including investments and operations.

The JV has already reportedly closed on its first acquisition: the 147-unit Avalon at Cerritos (Calif.) assisted living community. Terms were not disclosed.

 

 

For the record

Sherburne Commons Inc. of Nantucket, Mass., is developing the first senior living community in Nantucket. The development will contain 40 one- and two-bedroom apartments in a 50,000 square foot building and 20 detached cottages. The development is being constructed by Kay Construction and will be situated on 20 acres… Baltimore-based Shelter Group has selected McShane Construction Corp. of Rosemount, Ill., to construct the Park View at Coventry Station senior housing project in Atlanta. The four-story project will include 100 two-bedroom units and will be completed in June 2007… Nationwide Health Properties Inc. (NYSE: NHP) of Newport Beach, Calif. has acquired Hearthstone Assisted Living Inc. Hearthstone owns 32 facilities in 10 states… GMAC Commercial Mortgage Corp. (GMACCM) recently provided $83 million in floating-rate construction financing for a Denver senior housing property. Wind Crest Retirement Community is to be built in three phases with total project costs expected to be $530 million. Based upon market demand, the CCRC could potentially contain three neighborhoods on one campus location. The project is an entrance-fee based CCRC. GMACCM Vice President Catherine Hilbush, of the firm’s Maryland healthcare origination office, worked with GMACCM’s construction lending unit in arranging the transaction. Erickson Retirement Communities LLC received the funding. Wind Crest Inc., a not-for-profit corporation, is the operator and sponsor… Red Capital Group recently arranged a $36.32 million financing package for a senior housing development in San Diego. City Heights Square Apartments is slated to include 71 studio and 79 one-bedroom units in a five-story building. The financing includes Red Capital Markets’ syndication of $20.72 million of LIHTC (low-income housing tax credit) equity, a $13.5 million construction loan and a $2.1 million Fannie Mae DUS forward commitment from Red Mortgage Capital. Chelsea Investment Corp. is the developer. Construction is scheduled for completion by September 2007… Red Capital also provided $31.6 million in debt and equity for Senior Management Concepts to acquire and renovate four assisted living/independent living properties in the Salt Lake City area. They include the 88-unit The Coventry at Cottonwood Heights, the 52-unit Wentworth at Cottonwood Heights, the 43-unit Wentworth at East Mill Creek and the 53-unit Wentworth at Willow Creek. Red Mortgage Capital provided $25 million in Fannie Mae DUS financing, and Red Capital Advisors structured and arranged $6.6 million in preferred equity… Advocat Inc. (Nasdaq: AVCA) of Brentwood, Tenn., closed last month on the sale of 11 assisted living facilities in North Carolina for about $11 million. The seller was not disclosed. The net proceeds will be used to reduce debt… Greystone Servicing Corp. of Bethesda, Md., and Warrenton, Va., provided a $9.97 million loan to Waltonwood LDHA LP for the refinancing of Waltonwood at University in Rochester Hills, Mich., a two-story, 120-unit independent living facility. The borrower was able to fix the rate under the Fannie Mae DUS program… KeyBank Real Estate Capital provided a $9.5 million construction and permanent loan for the 196-unit Midcrown Senior Pavilion Apartments senior housing rental community in San Antonio, Texas… Regional Land of Carlsbad, Calif., has purchased the Parkside Gardens assisted living facility in Hemet, Calif., from Parkside Gardens LP of Palm Springs, Calif., for $5.6 million. The property consists of two care buildings totaling 102 units, plus an administrative building on a total of 1.4 acres. Michael Kassinger and Cameron Hall of Sperry Van Ness in Palm Desert, Calif., represented the seller, and Michael Bozir of Emax Realty International represented the buyer. The deal also included an acre of land for the possible future development of a 100-bed facility… Cambridge Realty Capital Cos. recently provided an $8.8 million FHA-insured HUD loan to fund the purchase of Parkway Manor, a skilled care nursing and assisted living property in Marion, Ill. The fully amortized 35-year loan was underwritten by Cambridge Realty Capital Ltd. of Illinois for the property’s owner, an Illinois limited liability company. Parkway Manor has 119 skilled and 21 assisted living beds. To fund the purchase, Cambridge utilized the HUD Section 232 pursuant to Section 223(f) program. The interest rate for the loan was not disclosed… Cambridge also provided a $1.99 million FHA-insured HUD loan to refinance Chelmsford Apartments, a 50-unit board & care senior housing facility in Toledo, Ohio. The fully-amortized, 40-year term loan was underwritten by Cambridge Realty Capital, for the property’s owner, an Ohio corporation. The loan was arranged utilizing HUD’s Section 223(a)(7) program for properties with an existing HUD mortgage. The interest rate was not disclosed… Cambridge has also underwritten a $2.08 million conventional first-mortgage loan to refinance Twin Oaks, a 60-bed assisted living facility in Charleston, S.C. The 5-year commercial loan was arranged for the property’s owner, Twin Oaks Villa LLC of Charleston, by Cambridge correspondent Chris Scott of Medalist Capital. The loan, amortized over 25 years, has a 7.5 percent interest rate… Cambridge reported that its 129 first quarter loan origination requests more than doubled the total number of requests reviewed by the company during the same three-month period last year. After three months, the dollar volume of origination requests reviewed topped $796.6 million, compared with $611.5 million for the same period in 2005. q