Merging Innovative Design and Practical Finance
The American Institute of Architects (AIA) holds a juried competition each year that bestows awards on senior living design projects that meet or exceed industry norms in significant ways. The projects are highlighted in AIA’s Design for Aging Review. The competition and publication give architects and providers an opportunity to demonstrate innovative solutions that improve residents’ quality of life. The Review is designed as a reference for other providers, developers and architects who may have similar project goals.
Defining and Executing a Project
Among the 2016 recipients of this prestigious award is Tockwotton on the Waterfront, a beautiful community on the banks of the Providence Harbor in Providence, Rhode Island. The home has existed in some form since 1856, though the current, award-winning facility was built in 2013. The home provides assisted living, memory care, short-term rehabilitation, respite stays and long-term care services. And though the new building is being recognized for its design and innovation, it was initially a financial need that drove the project.
“We were losing money every year,” said Kevin McKay, President and CEO of Tockwotton. “The portfolio was subsidizing quite a bit each year.” Although this was the primary driver of the new development, other considerations included not having enough community or common space in the existing facility, as well as lacking room for expansion both in the interior (additional rooms or services) and exterior (parking spaces, walking areas).
“We also wanted to switch to a household model, as opposed to a greenhouse model,” said McKay. “I like the household model because you have your own household but are still connected to other people in the community. You know, people work all their lives and we were asking them to share a room with someone. So that’s a huge improvement.” AIA, which collects cumulative data on recognized projects, reported that 50% of 2015 recipients had the household model as an explicit goal of their project.
Another common theme represented in both AIA’s data and Tockwotton’s project is a desire to have a connection to both nature and the surrounding community. Sixty-five percent of AIA’s 2015 recipients cited a connection to nature in their project parameters, and 29% had a focus on connecting to the greater community. In Tockwotton’s case, this included incorporating existing natural elements on the site, including the waterfront and hillside into which the facility is built.
“The architect did a phenomenal job,” said McKay. “We wanted to have memory care on the second floor, but still give it access to the outside. So we took advantage of the hillside and the folks in memory care have access to the outdoors on their level 24/7. Then on the third floor, the nursing home steps back another step into the hillside and we have another outdoor patio for them. And off to the front of the building there’s a series of balconies that overlook the waterfront.”
The outcome of this focus has been very positive for residents. “So here it is a nice day like today,” he said, “and we have a woman who just had open-heart surgery. But she was able to get outside from the third floor.”
Numerous development partners actively encourage and support engaging the surrounding community in new projects. Tockwotton’s experience with this practice is a perfect example of how a new development’s footprint can extend beyond the facility itself.
“We were the first project south of route 195 to be developed in the East Providence Waterfront District Commission. The officials of the commission still talk about it, because they’ll get questions from impressed onlookers who view the facility for the first time.”
Partially spurred by Tockwotton’s development, the Waterfront District has since undergone cleanup efforts and has seen the addition of medical offices, townhomes, residential housing facilities and even a concert venue.
“LiveNation is doing a concert series just across the street from us now, and they just made a proposal for a concert pavilion structure to go up” said McKay. “Their first concert is in a month; they’re bringing in The Beach Boys.” Cross-promotional development opportunities–as well as added value to residents–are just some of the benefits Tockwotton has seen and will continue to enjoy.
Ensuring Financial Stability
Once the facility was constructed and stabilized, Tockwotton then considered various options with their lending partner to refinance their existing tax-exempt bonds. These bonds carried an interest rate over 8%, so there was a pressing need to refinance in a way that would set Tockwotton up for long-term financial stability. Their financial partner proposed refinancing the bonds through the U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) that offered a non-recourse 35-year term/amortization, fixed-rate loan without traditional financial covenants. By adhering to HUD’s unique underwriting standards for nonprofit borrowers, there was sufficient value to underwrite a $46.9 million loan to refinance all of the existing debt without an equity contribution from Tockwotton. According to McKay, “it was a great experience with great results.”
Tockwotton chose the FHA option over a conventional refinancing as the bank syndicate could not offer a large enough loan to refinance all of the existing bonds without a substantial equity requirement. Tockwotton worked quickly with their lending partner to submit the FHA application in seven and a half weeks and secured the firm commitment after a smooth underwriting with HUD. The speed of execution allowed Tockwotton to rate lock the loan one day before the general election in 2016. This was advantageous, as it avoided the market volatility that returned post-election. Tockwotton secured an interest rate just above 3%, generating debt service savings in excess of $1.1 million per year.
“Financial sustainability is no longer an issue for us,” said McKay. “I’ve been here for 17 years, and this is the first time we’ve been able to put money back in the portfolio. And someday this building will be old, and we’ll be able to update it more easily.”
A lending partner will often multi-track financing options with clients (e.g. bonds, private placement, HUD/FHA, agency, etc.) before advising on the best choice. It’s important to understand all of these options to determine which will meet your specific needs. In this situation, HUD/FHA was clearly the most economical solution for Tockwotton, and the outcome exceeded all expectations. But having an experienced financial partner to navigate these options can help to ensure all elements of your project are being considered and that the optimal solution is ultimately selected.
Taking the Next Step
Tockwotton’s development merged their care and service needs with the financial realities they faced, resulting in both improved care for their residents and a financially stable future. The project parameters of new developments will vary wildly. But, as evidenced by AIA’s recognition of Tockwotton’s community and others like it, several common elements present in numerous successful and innovative projects can provide a roadmap for planning and execution.