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Fresh Thinking Capital

Success
Stories.

The Situation.

Care home finance for a care home that needed some care of its own.

 

A care home that needed some care of its own. It was tucked away in a pleasant suburban location in the Midlands. Operated by two brothers who decided to venture from property investing into the care home sector. The duo had limited experience in operating care homes and struggled to maintain the necessary care standards that the residents needed. Consequently, the care home failed its CQC inspection and was instructed to close.

The care home was comprised of two blocks. The first block consisting of 39 rooms with 19 occupied. Whilst the second block had 29 rooms but was completely vacant due to it requiring a major refurbishment. The asset had the potential to be worth c£7m in the right hands. But due to the condition it was in, the valuer had marked it down closer to £5m.

The brothers struggled to find a buyer due to the large amount of work that needed doing to refurbish the property and rectify the operational standards to regain approval from the CQC.

Our client was an experienced property entrepreneur and was currently expanding a mental health business specialising in autism. They had a full team of individuals experienced in the turnaround of failing care providers that were in special measures, making this acquisition a natural fit and a great opportunity to add significant value to the care home for our client if they could obtain the care home finance needed.

Our client was therefore introduced to the owners with a view of acquiring the business and the property. Due to the scale of the project, our client negotiated a favourable deal to buy the care home for a total of £3m. With £1.8m to be paid upfront and £1.2m deferred consideration to be paid 3 months after the home achieved 85% occupancy.

Car House

Where we came in

Needing funding to purchase the care home business and refurbish the second block, our client was introduced to us by their broker. Other funders had displayed little appetite in assisting our client due to the failed CQC, the scale of the refurbishment works and the risk around occupancy levels producing the cash flow needed to service the interest on the funding.

We looked past the difficulties and saw a brilliant opportunity to add value to the care home through a refurbishment delivered by an experienced team of operators. Our client anticipated that they would be able to increase occupancy by two residents per week, however, to be prudent, they decreased their forecast to one resident per week and expected the works on the second block to take no longer than 4-6 weeks.

On review of the forecasts, it was clear that the client needed a funder who was willing to take a flexible approach. The forecasts showed a reliance on an increase in occupancy to meet the monthly interest requirements and a substantial capital expenditure cost to complete the refurbishment, pay the stamp duty fees and cover other professional fees related to the transaction. To support our client, we agreed to lend them a total of £2,250,000. This would cover the initial £1.8m payment to the vendor and roll up 3 months of interest to support our client’s cash flow whilst they worked on increasing the occupancy. In addition, the extra funds would also cover the capital expenditure for the refurbishment works, stamp duty costs and professional fees.

Amount:
£2,250,000
Term:
9 Months
Timing:
3 Weeks to complete
Security:
1st charge over care home | Debenture | Share charges | Corporate guarantee | Personal guarantee
Globe

The Result

We lent our client the £2,250,000 they needed to purchase the care home and begin working on this great opportunity. They wasted no time and had a team of tradesmen start refurbishment works on the vacant block immediately. In addition, following the successful CQC registration, the new team of operators began to receive brilliant feedback from the residents on the fantastic changes that were introduced. The occupancy is steadily increasing and with the refurbishment on track, the entrepreneur is well on their way to achieving a refinance with a longer-term lender once the business has evidenced that it can generate consistent profits.

Fresh Thinking Capital