CHICAGO — Ziegler Capital Markets Group tomorrow is set to begin pricing the Clare at Water Tower’s $230 million unrated issue that will finance a unique, upscale continuing care retirement community in downtown Chicago’s Gold Coast neighborhood.
The deal’s structure is modeled much like others sold for continuing care communities using both short-term and longer-range maturities with fixed- and floating-rate pieces. The shorter term piece of the deal, to be retired with entrance fees, totals $155 million and includes $137 million of variable-rate demand bonds backed by a letter of credit from eight participating banks led by LaSalle National Bank and Sovereign Bank, according to Daniel Hermann, Ziegler’s group head of the continuing care sector.
The Illinois Finance Authority is serving as the conduit issuer.
The remaining short-term pieces of the deal include $10 million of adjustable, extendible-rate bonds with a maturity of five to seven years that includes flexible call provisions — a security Ziegler markets under the name EXTRAs. Another $7.5 million of fixed-rate bonds mature in 2012.
The remaining $75 million represents the long-term portion of the financing and will include a mix of serial maturities and term bonds with a final payout in 2038. All the various series will price tomorrow with the exception of the variable-rate demand piece that will be marketed just prior to the closing date on the remainder of the deal, according to Michael McDaniel, group head of institutional sales and trading at Ziegler.
The bonds are secured by a pledge of project revenues and a leasehold mortgage. Loyola University of Chicago, owner of the site, will lease the space for 99 years to the Clare, a stand-alone credit sponsored by the Franciscan Communities Inc. The university will occupy the first two floors.
The 53-story facility will be located just a block off Chicago’s “Magnificent Mile” on Michigan Avenue. About 65% of the facility’s most costly independent living units have been pre-sold with entrance fees beginning at nearly $500,000 for independent units. Initial entrance fees range from $491,000 to $1 million for independent units with monthly fees ranging from $2,395 to $5,500.
Assisted-living units start at $53,000 with monthly fees of $4,995.
Between 90% and 95% of the entrance fees are refunded when residents leave. Residents who initially enter the nursing units don’t have to pay an entrance fee. The Clare includes 271 independent living apartments, 54 assisted-living suites, and 32 private and semi-private nursing rooms.
The project is unique on several fronts. Few of the nation’s 2,000 continuing care communities are developed in high-rises located in a city’s downtown. The Franciscans have a highly-regarded reputation as a charitable organization that has dedicated itself to the care of the aged in hospitals and nursing homes, but the use of a tax exemption to finance a facility for affluent seniors, though legal under the tax code, raised the eyebrows of some when it was presented to the IFA board last year.
Representatives of the 111-year-old Franciscan order and Ziegler bankers defend the project as one that meets a demand among aging residents of the area who otherwise might have to leave their neighborhood for continuing care and said the prices are based on the primary real estate market.
Though the deal is unrated, the finance team asked Fitch Ratings to review the project and release a description report. “The primary strengths … include its unique location, no competition in a market that caters to the highly affluent senior population in Chicago, solid projected debt service coverage and cash buildup at stabilized occupancy” analysts wrote.
Their main concerns include a relatively low presale level, the project’s high weighted average entrance fee, and the traditional risks associated with start-up projects, such as construction and fill-up delays.
