Lake Shore HealthCare Centre

CHICAGO—After negotiations lasting months, HUD has just published its new Intercreditor Agreement, which will govern the relationship between senior living providers, accounts receivable lenders and FHA lenders, and Beech Street Capital has just provided the first HUD loan under these new rules.

“Until this new version of the agreement got approved, it was very unlikely a deal would get done,” Josh Rosen, a Chicago-based senior vice president of Beech Street, tells He just originated a $23.1 million HUD 232/223(f) loan to refinance Lake Shore HealthCare and Rehabilitation Centre, a 281-bed skilled nursing facility in Chicago.

But like many skilled nursing facilities, Lakeshore accepts Medicaid waivers, and needs AR financing to smooth out its cash flow as it waits for reimbursement from the state. And lenders can get uncomfortable doing deals in states that can’t seem to issue timely payments.

“Illinois is the worst state in the country,” Rosen adds, when it comes to reimbursment. However, “this agreement governs how the flow of dollars will work.” Federal law prohibits Medicare and Medicaid payments going to anyone but the service provider, and the new agreement, which HUD requires all the parties sign before it will allow deals with AR financing, sets out how government payments will eventually move from providers’ accounts and into the lenders’ accounts.

ManagCare, a Chicago-based family business that operates a network of 10 skilled nursing facilities in Illinois, purchased the Lake Shore facility at 7200 N. Sheridan Rd. in 2009 and has invested over $1 million in renovations.

“We were familiar with ManagCare’s portfolio,” Rosen says, “and believed that HUD financing could significantly reduce its debt servicing costs for this property and help it recoup recent capital expenditures.”

“There’s nothing like a HUD loan,” he adds. Providers dealing with HUD typically get a long-term, fixed-rate loan that can stretch out 30 to 35 years. ManagCare’s new loan is for 30 years. Instead of worrying about new financing every five years or so, going the HUD route provides “peace of mind and the interest rates are really competitive.”

HUD will keep the new agreement open to public comment until March 31, 2014, but it will also allow deals to go forward if all parties involved agree to the current draft.

The lack of such an agreement has had an impact on the pace of these loans.

“This deal was definitely stuck in the queue waiting for this agreement to be signed,” Rosen says.