Armadale Capital leads $316M FHA insured loan financing for new Shawn Jenkins Children’s Hospital & Pearl Tourville Women’s Pavilion

On November 17, 2016, FHA hospital lender Armadale Capital (New York, NY) closed a $316 million Section 241/242 FHA-insured mortgage loan for MUSC Medical Center (also known as Medical University Hospital Authority or MUHA), the teaching hospital unit of the Medical University of South Carolina.  Loan proceeds will be used to fund construction of the $385 million MUSC Shawn Jenkins Children’s Hospital & Pearl Tourville Women’s Pavilion.  Site preparation began in late 2015 and construction officially commenced pursuant to an “early start” authorization from HUD in late October, 2016.

FHA Section 242 of the National Housing Act provides mortgage insurance on loans for acute care hospital facilities ranging from large urban teaching institutions like MUHA to rural critical-access hospitals.

The MUSC Shawn Jenkins Children’s Hospital & Pearl Tourville Women’s Pavilion will replace the 30 year-old MUSC Children’s Hospital, providing much needed space for the thousands of patients and families served by MUSC Health each year.  The new 225 bed replacement facility will provide modern, family-centered amenities and expanded services, including a bigger neonatal intensive care unit, an entire floor dedicated to the care of children with cancer and the most comprehensive pediatric heart center in South Carolina.

In 2015, MUSC Health was ranked by U.S. News & World Report as the top acute care hospital in South Carolina and one of the nation’s top 50 children’s hospitals in six pediatric specialties: cancer, cardiology and heart surgery, diabetes and endocrinology, gastroenterology, nephrology and urology.

The MUSC Board of Trustees played an active role in this project for the past several years, working closely with MUHA management executives and participating in presentations and site visits with HUD OHF professionals.

“Our vision is to replace and upgrade our entire campus over time and Ashley River Tower, the first step in that master plan, has been quite successful,” said William H. Bingham, Sr., MUSC Board of Trustees vice chairman. “We achieved a top 50 national ranking for children’s hospitals with a facility built in 1986, so we are excited for this next component of the plan to open so we can further enhance our ability to deliver world class health care to our patients, for decades to come.”

In addition to the FHA insured loan proceeds, critical to the funding of the new hospital was the state of South Carolina and private philanthropy. The state has contributed $35 million toward the project and the university has received an additional $69 million in gifts and pledges, including a $25 million commitment from Shawn Jenkins, Benefitfocus CEO.  “We could not be more gratified by how people throughout South Carolina and beyond, from both the public and private sectors, have supported this project,” said Jim Fisher, vice president for Development and Alumni Affairs. “When it comes to the health of young people in our state, only the best will do. And thanks to these people, that’s exactly what we’re going to build.”

An extensive rate lock marketing process was conducted during several months in the capital markets and on October 21, 2016, and with Armadale’s help MUHA was able to secure a fixed interest rate of 3.59% during construction and the 25-year amortization period. This rate is the lowest rate for an FHA insured hospital construction loan in decades. After the rate lock, it was critical for MUHA to coordinate the timing of pre-construction and construction elements with the financing process. “Because Armadale Capital was able to obtain early work approvals from HUD to accommodate all of our construction timelines, we were able to continue moving forward and stay within our construction timeline,” said John Sion, the new hospital’s project manager. “Of course our focus is now on delivering a world class facility and opening its doors in mid-2019.”

Armadale Capital, based in Manhattan, served on the 2004 HUD financing for Ashley River Tower, also served as FHA lender and led MUHA’s $361 million FHA Section 242 refinancing in 2012 and $47 million FHA Section 241 refinancing in 2013, and to date has saved MUHA more than $70 million in interest costs.

“Given that Treasury market yields have gone up substantially since the election, that strategy saved us millions in interest expense over the next 28 years,” said Steve Hargett, MUHA chief financial officer.

Stephen Pack, Armadale Capital president said that this financing shows other large teaching hospitals how they might benefit from HUD mortgage insurance. “MUHA has successfully availed itself of HUD’s refinancing and supplemental loan programs during the past 12 years; it’s an honor working with this institution and being asked to lead something so beneficial to South Carolina.  They are well positioned for the future because they have great people and a long term vision.” Pack added that securing HUD’s mortgage insurance commitment has been facilitated by MUHA’s ability to perform well financially in the last several years.

Harris Beach PLLC (New York, NY) served as FHA lender’s counsel to Armadale Capital.  Kaufman Hall served as financial advisor to MUHA for this transaction.                                                                        

About MUSC Health 

MUSC Health is the clinical enterprise of the Medical University of South Carolina (MUSC) comprised of a 700-bed Medical Center, the MUSC College of Medicine and the physician’s practice plan.  It serves patients across South Carolina and beyond through four hospital facilities in Charleston and more than 100 outreach sites.  Among these are the Hollings Cancer Center, a National Cancer Institute-designated center and the only one of its kind in South Carolina, and a nationally recognized Children’s Hospital.  The Medical University was founded in 1824 and has become a premiere academic health sciences center at the forefront of the latest advances in medicine, with world-class practitioners and scientists providing groundbreaking research and technology that is often the first of its kind in the world.