While any organization which tried to secure financing knows that the year 2009 was tumultuous, a number of organizations overcame these challenges and achieved success. We reflect on successes and lessons learned at Herbert J. Sims & Co. last year:

1. Creativity on Marketing Bears Results –With the downturn of the real estate market, it was incumbent upon communities, especially those with independent living, to be innovative with their pricing contracts to spur move-ins. Some successes witnessed in 2009 include:
   1. “Rent to Continuing Care Commitment” - allowing a small number of residents to rent their units for a limited time, and if the resident chooses, he or she could commit to the continuing care contract after the rental period. This permits the resident to try out the community prior to committing and provides monthly income to the Community.
   2. Deferred Entrance Fees - Communities allowed entrance fees to be paid over the first three, six or twelve months without any interest cost to the resident. This plan allows the resident time to sell his home while living in the community.
   3. Promissory Notes - The resident pays a small deposit and then is issued a note, which typically carries a modest interest rate or none at all. The notes are usually due the earlier of (i) sale of the residents home or (ii) 6 months to 12 months. Some programs even required the resident to lower the price of her house if it were not sold within a certain time frame (i.e., 3 months). During this period, the residents would pay the monthly service fee. If a resident is in the community for an extended period of time, he makes friends and becomes part of the fabric of the facility and thus becomes more willing to lower the price of his house.
   All of these incentives need to make sense financially, and when creating them, it is imperative for marketing executives to work with the finance executives to insure that the incentive is fiscally prudent.
2. Phasing Projects Ensures Project Viability – Developing projects which allow for phasing from the outset provides flexibility in terms of financing, development and marketing. Two of Sims’ 2009 CCRC bond issues financed projects that were a portion of a community’s complete master plan. This allows for financing to be complete and construction to start if the pre-sales were not in place for the full project. In addition, it enables the CCRC to manage its debt conservatively and not take on more debt than the organization’s comfort level. It also may make more sense to defer any non-revenue producing portion of a project to a later phase in order to sequence the risk and improve financial projections. If the economic driver portion of the project is built first, it is easier to add the financially weaker portion of the project once the first phase is stabilized.
3. Buying Back Bonds Opportunities Lead to Improved Balance Sheet - At different times throughout 2009, bond valuations retreated, such that bonds could be purchased at significant discounts. Sims enabled many borrowers to take advantage of the opportunity to purchase their bonds at a substantial discount, which not only eliminated the negative arbitrage, as the interest rate they paid on the bonds was greater than the earnings received from their cash investments, but also allowed them to repay less than they initially borrowed. Senior living management and boards should contact Sims to plan strategically for these opportunities so that they can act when the chance to purchase bonds arises.
4. Retail Investors Enhance Access to Capital - 2009 drove home the notion that the widest distribution of bonds lead to the lowest cost of capital. Having a substantial retail base investing in senior living financings, Sims was able to provide clients attractive borrowing costs in a timely fashion. Retail investors add value by demonstrating demand for the investment to the institutions and by ensuring to institutions that there will be a secondary market for the bonds, allowing for future liquidity.
5. Take advantage of government programs and initiatives to spur economic growth – As reported last week in Capital Market Update, FHA-insured financings made up a larger portion of the senior living financings completed last year. In addition, many financings were completed using bank qualified bonds, which became more available thanks to The American Recovery and Reinvestment Act of 2009. U.S. Department of Agriculture also provides loan guarantees for projects in designated rural areas, and Freddie Mac and Fannie Mae provide credit enhancement to bond issues. Sims is active in all of these government-enhanced financing options. Some of the financings accomplished in 2009 with these governmental programs or initiatives may not have been completed or would have had a much higher cost of capital without the governmental enhancements. Sims can tell you whether your financing qualifies under any of these programs to reduce your cost of capital. If a financing qualifies under any of these programs, it makes sense to have Sims fully evaluate them for your financing in 2010 and in planning for future projects.