One week after a $750 million unitranche loan program was announced between KeyBank Real Estate Capital and Welltower, the targeted fund for owners of independent living, assisted living and skilled nursing facilities is open for business and ready to compete with debt funds for clients.
“This is a program that will allow us to do deals from a leverage perspective that may be a little bit richer than we might typically want to put directly on our own balance sheet,” Jim McLaughlin, co-head of the Institutional Capital Group at KeyBank, told Skilled Nursing News and sister publication Senior Housing News in an interview.
Though not a typical lending source in long-term care, the unitranche loan program will allow KeyBank and Welltower, the only two contributors to the fund, to be more aggressive in seeking deals, McLaughlin explained. Unitranche loans blend senior and junior debt pricing and terms into a single first lien debt facility rather than having two classes of debt and working with multiple lenders.
“This is a way to be a more effective competitor against debt funds,” McLaughlin said. “This also allows us a way to put capital to work in a manner that suits our risk appetite as a national bank, working in partnership with Welltower.”
He expected the typical deal to range from $25 to $75 million for the program.
“That’s not to say that we wouldn’t do something a little bit more or a little bit less but when we think about the size of the fund and the desire to have some diversity in it, I think [$25-75 million] would be the sweet spot,” McLaughlin said.
Welltower and KeyBank had initially looked to establish the program in late 2019, but after the COVID-19 pandemic hit both were forced to focus more on managing their own portfolio.
McLaughlin said they got into early 2021 and saw it as a way to help out the long-term care sector at a time it desperately needed infused capital.
“Seniors housing and skilled nursing have lost 10 percentage points of occupancy and nobody knows exactly how long it will take, it could be a year or two years to restabilize, and this is a way to allow us to support the industry by providing capital to it perhaps at a little bit richer leverage basis as these properties in the industry stabilize,” he said.
The partnership between Welltower and KeyBank presented an ideal fit as both wanted to stay active in both sectors.
“We’re active in both the seniors space and the skilled space and we wanted to partner with a firm that also did both and was product agnostic,” McLaughlin added. “It’s hard to say if we’ll [end up doing] 50/50 seniors housing/skilled nursing deals, 25/75, or what the split will be. Deals tend to come when they come and if we get a whole series of seniors deals, maybe it tilts a little bit more that way.”
After announcing the program the week of the National Investment Center for Seniors Housing & Care (NIC) fall conference in Houston earlier this month, McLaughlin said he’s received a number of inquiries from skilled nursing operators that he’s working through right now.
“We are actively looking at deals and expect that we will probably get a couple of deals closed here by year end so I anticipate it will ramp up pretty quickly,” he said.
Companies featured in this article:
KeyBank Real Estate Capital, National Investment Center for Seniors Housing & Care, Welltower
