As the US population continues to age, more development is targeted towards their housing and medical needs. Over the last decade, assisted living development has focused on larger housing markets, while smaller markets have been overlooked. This developer focuses on creating assisted living developments in smaller communities in central Illinois that lack adequate facilities for their aging population. Typically, residents of small communities and the surrounding farming area do not wish to move to a larger city when they retire or need assistance in managing their daily activities. The demand in smaller towns is significant.
The principals have over 15 years of experience in assisted living facility operations and management, and utilized this experience when selecting a site for the first facility they would own. The principals target smaller markets that are underserved, have above-average per-capital income ratios, have adequate medical care in close proximity, and have a supportive local government. Based on these criteria, the developer selected a small town in central Illinois for their first facility. The 78 apartment facility was opened in May, 2009, and has been a tremendous success. Their projections anticipated break-even financial operations by June 2010, and full occupancy by December, 2010. The facility has been warmly embraced and has amazingly out-performed the projections. Break-even cash-flow was reached in December, 2009, and full occupancy is anticipated by April, 2010 - 8 months ahead of schedule!
As a result, the developers are moving up the timeline for expansion plans for the facility, and anticipate breaking ground on a 28 unit independent living addition. Funding for the expansion is provided through a 75% commercial loan taken out by the principals, and 25% cash equity provided by private investors. Investors will receive an equity position paying a preferred rate of return of 7%, and an overall targeted ROI of 16%.
A total of $1,350,000 will be raised for the expansion. The investment will be for a minimum three year period, where the developer may provide an exit strategy. The investor may invest any amount, $50,000 minimum.
Investment Overview
Investment Asset
Adult Living Community, Central Illinois
Phase II, Independent Living
Asset Description
The developer is building a three-phase adult living community in central Illinois. Phase I, Assisted Living, was started in 2008 and opened for residents in 2009. In March 2010, the 78 resident facility was at approximately 75% capacity.
Construction on Phase II, Independent Living is expected to commence in summer 2010. Phase II will be a 28 unit attached addition to the Assisted Living facility. It will have separate ownership and an independent set of financial books. It will share common services with Phase I, including dining, maintenance, nursing and management. These services will be paid for through a charge-back mechanism.
Phase II Costs, Financing
Total construction costs for Phase II are being finalized. Currently, they are estimated at approximately $5,100,000. Approximately $1,350,000 of this cost will be provided through private investment capital. The remainder will be provided through conventional commercial bank financing.
Investment Period
Capital provided by investors is expected to have a three to four year investment horizon. Funds provided by investors will be initially placed in an escrow account until the developer closes on the commercial loan. During the escrow period, investors will be provided a guaranteed annual rate of return of 7% from the date they provide their investment capital until the date of the commercial loan closing. Upon commercial loan closing, investors will be paid as follows:
- Year 1: 7% guaranteed annual return
- Year 2: 10% guaranteed annual return
Commencing in year 3, investors will receive their stipulated ownership share of profits and losses in the investment. Beginning in year 3, and for a period of 18 months thereafter, the developer will pursue permanent long-term financing for Phase II. When such financing is acquired, the investor’s share of Phase II will be purchased using a capitalization rate of 7.25% which would provide the investor a project 16% IRR.
For more information, please complete the information request form.
Please note that all prices, building costs, interest rates, appreciation
rates and terms are subject to change without notice. NREI Club is not responsible
for losses, damages, or changes in the market conditions. Investors are
urged to perform their own due diligence investigations before entering
into any real estate transaction, or other contractual relationship, and
prior to making a purchase decision.
