September 9, 2013

$203M private financing deal funds Health Center project

Rendering | Submitted
Rendering | Submitted
The rendering of the new UConn outpatient care center, scheduled to open in January 2015.
Photo | Contributed
Gov. Dannel P. Malloy prepares to sign legislation at the UConn Health Center campus in Farmington creating a $200 million fund for small bioscience businesses.
Robert Leary, executive vice president and president of TIAA Asset Management, TIAA-CREF

The UConn Health Center and New York City asset manager TIAA-CREF are expected to announce Monday a unique $203 million private financing deal to pay for construction of a new 300,000-square-foot outpatient ambulatory care center in Farmington.

The funding package — called a credit tenant loan — represents the only private financing that will be used to build out Gov. Dannel P. Malloy's ambitious $840 million Bioscience Connecticut initiative.

The deal also is a departure from how the state traditionally funds its projects — through government bonding — and could be the first step toward more creative public-private financing deals in the future, officials say.

The UConn Health Center (UCHC) sought private financing for the facility because legislation creating Bioscience Connecticut capped the amount of government bonds that could be used to fund the initiative.

"This public-private partnership between the UConn Health Center and TIAA-CREF is a win-win for Connecticut," Malloy said. "A state-of-the-art outpatient care facility will allow the health center to better recruit top talent and address the medical needs of the community."

Under the terms of the deal, TIAA-CREF is providing UCHC a $203 million loan at 4.9 percent interest for 25 years. The funds are paying for construction of the new ambulatory care center. UConn maintains ownership of the building and will pay back the loan through a percentage of the future rent.

"For the lack of a better word, this is basically a construction mortgage," said Jeffrey Geoghegan, UConn Health Center's controller.

Rather than going through a private developer or other third-party, the credit tenant loan gives UCHC the flexibility to construct the outpatient center as it sees fit, to its own specifications, Geoghegan said.

The financing also gives UCHC the ability to control costs on the project by buying in bulk construction materials, patient beds, and heating and ventilation systems to be used by other facilities that are part of the $840 million Bioscience Connecticut build out.

"It puts more control back into the health center," Geoghegan said.

The outpatient center will be the third largest part of the Bioscience Connecticut initiative, which also includes renovations to John Dempsey Hospital, new research and lab space, and build out of the Jackson Laboratory research facility.

Most of the initiative, however, is being financed through government bonds. Last year, for example, lawmakers approved $291 million in bonded funds for Jackson Laboratory to add 300 jobs and build their state-of-the-art research center.

Construction on the outpatient care building and parking garages began in January. It will open to the public in early 2015.

Last week Malloy also signed legislation to create a $200 million bioscience fund for innovation in smaller companies.

"We are very excited about the growth opportunities that the new outpatient care building will afford our faculty practices and clinician-researchers," said Frank Torti, executive vice president for health affairs at the UConn Health Center, and dean of the UConn Medical School. "The building will enable us to transform our medical practices and clinical programs so that we can provide the best possible quality and service to patients and their families for many years to come."

The credit tenant loan is a relatively new financing mechanism that provides more control to public agencies in public-private projects, said Robert Leary, TIAA-CREF's executive vice president and president of TIAA-CREF Asset Management. TIAA has done several of these deals before, mostly in New York and New Jersey, although the company does have four others with nonprofit and corporate clients in Connecticut.

"It is something that is attractive to us from an investment perspective," Leary said. "This strengthens and deepens our commitment there."

Leary said the financing package is attractive because it gives UConn quick and easy access to a large amount of money to do what they want to do. "They know upfront that they've got the financing, and they can space out the payments," he said.

TIAA is a financial services company with $523 billion in combined assets under management, including $10 billion for 73,000 Connecticut residents and $1 billion in state of Connecticut retirement assets. The firm has offices in Hamden and Stamford and more than 350 institutional clients in Connecticut.

The firm's size, Leary said, gives them the ability to underwrite UCHC's entire $203 loan, so they did not have to get other financiers involved.

"They came up to the plate and did the whole financing themselves," Geoghegan said of TIAA-CREF. "It made the deal incredibly smooth."

In other scenarios, when there are multiple financers and third-party developers, drafting contracts and agreeing on terms can be a long drawn-out process, Geoghegan said, where everyone gives their input, often diluting the final product.

Aside from the control, the deal with TIAA was attractive because terms of the private financing were so good, Geoghegan said.

"The rates were so low at the time, it was very advantageous for us to do this," Geoghegan said.

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