Griffin-American Healthcare REIT II - Innovative Three-Party Deal Restructuring Satisfies All Involved

Challenge

Griffin-American Healthcare REIT II, a major healthcare REIT, was part of a multi-party transaction involving the purchase of a portfolio of skilled-nursing facilities and, simultaneously, the leasing of the facilities to a new operator. Several factors complicated the deal. An operator had the property and business assets under contract, but it preferred to purchase only the business assets and lease the real estate from a third party. Local regulations would have imposed a hefty transfer tax on an assignment of the purchase agreements (or the portion thereof relating to the real estate) to an unaffiliated purchaser. And the operator that had the property under contract wanted the continuing opportunity to purchase the real estate had Griffin-American exercised its right to not proceed with the transaction.

Approach

AGG Real Estate attorneys mapped out the objectives, goals and risks of all parties to the transaction and identified a three-party restructuring of the transaction that created a win-win-win scenario for all involved. The deal was structured in a way to avoid transfer tax liability while preserving the buyer’s right to acquire the assets. In addition to the new operator securing licensure approval, the REIT received a loan that was part of a larger loan transaction involving several properties the REIT previously acquired. The loan terms were negotiated with the understanding that at least some of the previously acquired properties would get HUD financing.

Result

After extensive discussions regarding the proposed deal structure, all parties became comfortable with what was proposed. The parties executed documents formalizing the structure, which enabled the transaction to move forward.