PulsePoints

Earlier this month, we set sail for our annual summer party. We got a great view of the Chicago skyline, cruised out to the water cribs, sharpened our Bollywood dancing skills.

We posted pictures on our Facebook page, so be sure to check them out!

Thanks to Dana taking care of all the party-planning details!

If senior housing/healthcare investors hope to consistently outperform the market in today’s troubled economic waters, they need an active, hands-on asset management program.

An investment’s success is essential to the operational success of a facility’s clinical business. (An operator’s clinical business usually accounts for about 50% of all operational expenses.)

In boom times, senior housing/healthcare owners hope that capital markets perceive their properties as commercial real estate. But when commercial real estate markets are in the pits, the same owners like to remind capital markets that senior housing is a recession-resistant, need-based business, less vulnerable to the ups and downs of cyclical economic activity.

Unlike commercial real estate, where location and building quality are the primary considerations, investment risk and reward in senior housing transactions are dependent on the owner and operators business acumen. Typically, institutional investors want to work with an experienced ownership group that understands the nuances of the business.

Neither verbal affirmation nor a well-crafted loan covenant is enough to ensure that investors and owners are on the same page. What’s needed is a more all-encompassing asset management strategy that addresses common goals and expectations.

If there’s no asset-management strategy, both parties should consider dropping the deal.

The parties need to make certain that economic assumptions are compatible, with everyone pulling for the same thing. Usually, the goal is to achieve mutually-beneficial long-term rewards, but it can be whatever result the parties hope to produce.

Whatever is the agreement, transparency is essential.

Ideally, the ownership group will provide a series of metrics that function as an early warning system for potential problems. Owners should have a plan in place to correct problems before they escalate and to allow for swift operational changes if necessary.

Monitoring contract compliance, analyzing financials and reviewing clinical inspection reports are important ownership group staff functions, and so is the need to routinely inspect the property’s physical plant, review the licensure agreement, and address marketing and occupancy issues.

The ownership group needs to schedule visits to the property on a routine basis, he maintains.

Owners and managers need to learn how to work together. Interests can’t properly be aligned if ownership hasn’t a clue regarding what management is up to.  The operating company is not going to perform well if the financial results of its actions aren’t clearly understood.

To achieve a successful outcome, senior housing and healthcare borrowers need to be more responsive as their loan winds its way through the application process.

At least half of the responsibility for sustaining momentum in a lending transaction rests with the borrower. Without momentum it’s difficult to proceed. Rejection is the likely outcome.

When a lender requests updated numbers or additional data, the expectation is that the needed information will be delivered promptly. Borrowers should have at least three years of historical data copied and ready to present. Five years of data is better.

The important thing is putting together enough information to enable the lender to be sufficiently knowledgeable about the context of a loan application.

For underwriting purposes, the type of information needed to meet the lender’s due diligence requirements will vary depending upon the type of transaction it is. But there is nothing mysterious about the kinds of information lenders need to process a loan.

What’s the best way to a fast loan? Take your time. If you want a positive lending experience, you need to go slow. Make sure you’ve assembled your paper work. Develop a good relationship with your lender. And set realistic timing goals.

Conventional loans can typically take between 60 and 90 days to process after loan documentation is received. HUD loans routinely take between 120 and 180 days, but the timetable for refinancing an existing HUD loan moves along much more quickly with completion in about 45 days.

The two greatest causes of processing delays are missing data and a lack of prompt responses to information requests. It is essential that borrowers respond quickly to a lender’s request for specific information. The things most likely to negatively effect a loan application are partner credit issues, poor performance, poor location, low leasing levels and local competitive factors.

Borrowers need to realize is that it’s possible to save significant amounts of processing time during the advance preparation stages when information needed by the lender is gathered and organized.

While differences between the types of documents needed to process HUD and conventional loans are not all that noticeable, HUD has specific information needs that conventional lenders do not require, such as information related to ownership and debt allocation.

Want to make sure you have your paperwork in order? Cambridge has created a series of Signature Matrix forms that identify the types of information needed to get started on your loan.

In  this tight credit market, owners and operators of senior housing healthcare facilities need to recognize and avoid failed funding strategies.

Financing for senior housing and healthcare properties will continue to be limited over the next l2 months, and local and regional banks and government agencies will be the primary sources for funding.  HUD will still be there for nursing homes and assisted-living properties and Fannie Mae for congregate/independent and some assisted-living properties, but in order to take advantage of these programs, borrowers need to take action.

Jeff Davis believes senior housing/healthcare borrowers must focus on operations and improving systems, and on developing better financing game plans.  He offers this advice to borrowers:

1. Understand your financing needs. Before starting a dialogue with a lender or financial intermediary, understand the type of loan you’re seeking. Is it construction, permanent, or rehab/expansion?
2. Understand your lender/investor’s needs. Remember that lenders are motivated to get your loan, but only if your needs are realistic. It’s up to you to qualify for a good loan.  The more you know and understand and are able to articulate, the better impression you will make with the lender.
3. Have realistic timing goals. Realize that even a fast‑moving financing transaction will take 90 to 120 days.  To make sure that your loan is on the fact track, make sure that all materials are assembled in advance and ready to present upon request. We has application check-lists and other information to help you prepare for you loan in the Resource Center.
4. Research alternatives. Make sure you choose the best intermediary for your needs. Many borrowers don’t feel comfortable dealing directly with lenders. Instead, they’ll choose to have a consultant/financial intermediary represent them. Those who do deal directly with lenders need to make certain they are talking with a decision maker and not a lower‑level loan officer. This will ensure a better chance for success.
5. Understand your facility. You are the expert where your facility is concerned. Any questions a lender has  are fair game, so make sure you’re prepared to answer them.  This includes the number of units in your facility, your current rates, expenses, census breakdown, and more.
6. Have accurate data. The fastest way to disqualify yourself for a loan is to provide inaccurate data to your lender. Review all statements and census data and assemble all legal data in advance.  Make sure you have reviewed in detail all current debt.  If you will be paying off the debt, make sure that debt is open to prepayment.
7. Process lender/investor requirements quickly. More than half the responsibility for a prompt loan closing lies with the borrower.  When a lender requests updated numbers or additional data, it should be delivered  promptly.  Have three years’ historical data up to speed and copied, and ready to present.  Also, have enough area data put together so that your lender can be sufficiently knowledgeable about the context of your loan.
8. Be open minded. Borrowers who think they have all the answers wind up turning off  most lenders. Remember, while you’re the expert on your facility, they’re the experts on financing it. It’s always a good idea to respect your lender’s expertise; if you can’t, find another.  This doesn’t mean you can’t ask questions. Questions are usually accepted and even encouraged by lenders.
9. Remember that talk doesn’t make deals. However, a quality presentation with excellent material does.  Successful applications are all about quality paperwork.
10. Court long‑term relationships. The first loan you make with a lender can be the beginning of an important long‑term relationship.  Be prepared to listen and learn.

Can you think of other tips for financing a senior housing facility? What are some strategies that have worked for you?