Arbor Bay Investments Senior Housing Opportunity Fund

 

Arbor Bay Senior Housing Opportunity Fund I, LLC, is a newly formed Virginia limited liability company (the “Fund” or the “Company”) organized on January 11, 2024, to invest in wholly owned subsidiaries that develop or acquire active senior,independent living, assisted living, and memory care communities and other investments. Our target residents will be private pay however, we recognize that from time-to-time we may acquire facilities that have residents who pay their expenses through Medicare or Medicaid. Our primary focus will be in the Mid-Atlantic and Southeastern states of the United States.

The Fund, operating through wholly owned special purpose entities (“SPE”) as seniors housing investors and real estate owner-operators, intends to acquire, create, operate, and hold a portfolio of properties, seniors housing operating entities, and other investments.   The Fund plans to hold the properties and investments until approximately December 31, 2029, at which time it would ultimately dispose of its assets to generate revenue, for the Fund. 

 

We believe significant opportunities exist to grow a portfolio of senior housing communities by strategically evaluating opportunities current in the market for acquisition or that may become available.  Following the COVID-19 pandemic, several owners and operators of senior housing communities have decided to liquidate their holdings.  We have received a significant number of potential acquisition opportunities.  In addition, over the past several months Twenty/20 has been presented more and more opportunities to serve as third party managers of existing facilities. At these locations we are already managing, we know the property, the market, and the staff. That knowledge gives us a significant advantage and reduces transition risk if, and whenexecute an acquisition.   Our experience on the management side has given us significant insight into the current seniors housing marketplace, especially on the East Coast. 

We believe we have a unique opportunity to build and grow the enterprise by utilizing the experience and knowledge gained from operating English Meadows Senior Living, LLC, a Virginia limited liability company (“EMSL”)), and Twenty/20 Management, Inc. (“Twenty20”).  We plan to acquire facilities and other assets based upon a strategic set of parameters, as further discussed below.

We plan to grow the Company through the selective and opportunistic acquisition of senior living communities and seniors housing related investments that have potential under our operating systems to produce income and appreciate.

 

 

The seniors housing market continues to grow, and it is estimated that 70% of seniors over 65 today will need long-term care assistance.   Between shifting demographics increasing demand, and the construction delays experienced during Covid, followed by inflation pressures, rising interest rates and a challenging lending environment slowing the new supply, the seniors housing outlook shows a huge supply shortage.  This provides an opportunity to capitalize on the shortage.  The Fund will take advantage of multiple opportunities that present themselves.

 

Senior housing can generate stable and attractive cashflow from rent, fees, and ancillary services. The aged population is increasing while new supply is limited.  That coupled with a needs-based care model will continue to drive occupancy.  We plan to invest in a number of opportunities to help spread risk. We plan to utilize our experience and existing relationships to opportunistically acquire investments to build out the portfolio.  The Fund will provide the necessary capital to acquire, improve and stabilize multiple assets, increasing value before eventual liquidation. We plan to utilize Funds assets in combination with approximately 60% debt leverage.  Financing may be used from a variety of sources including regional banks, bridge lenders, insurance companies, or others. The Fund may assume debt where those terms are attractive.  We plan to utilize non-recourse financing where possible.  Fund investor members are not required to guarantee any debt and are not subject to any future capital calls. 

 

In addition to an owner-operator strategy, the fund may utilize other strategies to create value. The Fund may invest in publicly traded bonds, other owner- operators, and debt investments where the risk- reward is attractive.  EMSL and Twenty/20 through their existing relationships, have unique insight into many potential investments. 

 

Below we show the typical owner-operator investment structure and typical structure with other investments, as well as the relationships between the entities and parties.

 

 

We anticipate the Fund will acquire senior living communities and become an owner-operator.  To build our portfolio, we plan to own and operate the spectrum of care, including Active Adult, Independent Living, Assisted Living, and Memory Care.  We will be focused on targeting communities located in Mid-Atlantic States, areas we know well,  and areas where we understand the regulatory environment.  

The real estate interest for each facility will be held in an SPE property holding company (“PropCo”) and will lease the facility to a SPE operating company (“OpCo”) to operate the facility.  Each OpCo will enter into a management agreement with Twenty / 20 Management, Inc., a Virginia corporation (“Twenty / 20”) or such other management company as determined by the Fund.  The diagram below shows the planned structure.

 

 

The Fund may participate in other investments. 

Publicly traded bonds:  

Many of the locations that Twenty/20 is managing are financed with publicly traded bonds. This provides a unique insight into the market value and expected value of those bonds.  The fund plans to take advantage of market conditions and swings in bond prices.

Acquisition of EMSL assets:

We anticipate potentially acquiring EMSL assets to build our portfolio.  EMSL assets that provide strong cashflow or value growth could be acquired by the Fund.

EMSL membership shares or EMSL affiliated membership shares:

We anticipate potentially acquiring EMSL membership shares or shares in EMSL controlled assets. EMSL has a network of investors at the EMSL level and at the individual property level.  We anticipate the Fund acquiring shares of some of those members.

Debt investments:

Working capital and Debtor in Possession “DIP” loans:   Twenty/20 is managing bond financed locations for third party owner-operators that need working capital. The Fund as a DIP lender would be positioned in front of the Senior Lender with double digit returns and very low risk.  

Technology: 

EMSL and Twenty20 are exposed to a number of technology services targeting the Seniors Housing industry. The Fund could potentially be used to invest in technology companies. 

 

Any transactions involving affiliated parties including EMSL or EMSL affiliated entities, Twenty/20, or  Arbor Bay Investments shall be  arms-length.  Examples could include supplier relationships with the Fund or any communities it controls, any terms of any transaction including but not limited to management agreements, potentially acquiring existing EMSL assets, EMSL membership shares, EMSL affiliated property holding companies shares, or guaranteeing debt for the Fund.

 

Mike Williams and Steven Orndorf founded EMSL in 2008 with the goal of creating a senior living community business based on quality senior housing communities, programming and care for the residents, and respect and compassion for their staff and colleagues.  EMSL is well respected in the industry. 

Today, through affiliated special purpose entities, EMSL operates ten locations with a combined 465 units in Virginia and West Virginia EMSL owns four or those locations and has purchase rights to the other six locations. 

EMSL is not part of the Fund, however the fund may acquire EMSL assets or EMSL membership shares, and the Fund may acquire locations where EMSL holds existing purchase rights. 

 

Mike Williams and Steve Orndorff founded Twenty/20 in 2009 to offer full-service management for senior living communities.  Twenty/20 manages the EMSL operating entities and manages for third party owner-operators.  Today, Twenty/20 manages a total of 27 locations with a combined 1162 units in Virginia, West Virginia, North Carolina, South Carolina, and Georgia.  

 

Twenty/20 is not part of the Fund; however, the Manager of the Fund intends to use (but is not required to use) Twenty/20 for management services at operating entities the Fund may acquire.  

 

We operate under the direction of our Manager.  The Manager is responsible for directing the management of our business and affairs, managing our day-to-day affairs of the Company. The Manager is a single purpose limited liability company established solely to serve as our Manager.  The Manager will be managed by the individuals identified below, who are not required to devote all of their time to our business and are only required to devote such time to our affairs as their duties require.

We will follow investment guidelines adopted by our Manager and the guidelines and policies set forth in this Memorandum unless they are modified by our Manager. Our Manager may establish further written policies we acquire and will monitor our administrative procedures, investment operations and performance to ensure that the policies are fulfilled. Our Manager maychange our guidelines and objectives at any time without the approval of our Members.

Our Manager performs its duties and responsibilities pursuant to our Operating Agreement.

We have agreed to limit the liability of our Manager and to indemnify our Manager against certain liabilities.

We do not currently have any employees, and, at this point, we do not anticipate the Company will have any employees. TheManager reserves the right to, on behalf of the Company, hire employees or contractors if the Manager determines that to be inthe best interests of the Company. If the Company does hire employees or contractors, the Company will be responsible thepayment of such employees or contractors (the compensation for the employees and contractors will not reduce the compensationor amounts payable to the Manager), which compensation will be determined by the Manager. All employees or contractors of the Company will be managed by the Manager.

The business affairs of the Company are managed by Arbor Bay Investments, LLC through certain personnel.

These individuals receive compensation for his or her services from the Manager and not from the Company; however, we do indirectly bear some costs associated with the compensation paid to these individuals. These individuals, in their capacity of key personnel of our Manager will be instrumental in managing our day-to-day affairs.

 

As of the date of this Memorandum, the following individuals are considered key personnel of our Manager.

Michael C. Williams. 

Mike Williams is the CEO of our Manager.   He is also the CEO/Co-Founder of English Meadows, a regional owner/operator/manager of senior living properties. He is also the CEO/ Co-Founder of Twenty/20 Management. He is a 3rd generation caregiver in senior living. His grandmother and father opened a senior living community in 1973 and his father owned communities in Virginia for 37 years. Literally growing up in a community, Mike quickly understood the bonds between residents and caregivers. He has long championed the unique culture of English Meadows and strives to create a wonderful home for residents and a rewarding and enjoyable workplace for caregivers. Mike is respected as one of the current leaders of the senior housing industry in the US.

Steve Orndorff SVP, Director of Investor Relations of our Manager.  He is also the President/Co-Founder of English Meadowsand VP/Co-Founder of Twenty/20 Management Steve has been in the assisted living industry for 17 years. Prior to forming English Meadows, Steve started and ran a family business from 1993-2008. The business was a furniture manufacturing company, focused on building church furniture, restaurant seating, and courtroom furniture. Steve graduated from West Virginia University.