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:
Can you think of other tips for financing a senior housing facility? What are some strategies that have worked for you?
We closed on a $4.68 million FHA-insured HUD LEAN loan for Transcendent Healthcare of Boonville, a 72-bed skilled nursing home in Boonville, Indiana.
Jeff Davis says the fully amortized, 27-year term loan was arranged for the owner, an Indiana limited liability company. Cambridge Realty Capital Ltd. of Illinois, the Cambridge affiliate responsible for underwriting insured healthcare loans, closed the transaction using HUD’s Section 232.
Davis said the loan was processed in the “Green Lane,” a special queue created by HUD to speed the underwriting process for low-risk loans.
The recent plunge in the 10-year U.S. Treasury bond rate means senior housing and healthcare borrowers will be getting an even more attractive interest rate on their HUD LEAN mortgage loans in the weeks ahead, funding expert and Cambridge chairman Jeffery Davis observes.
According to Davis, interest rates for HUD 232 loans tend to mirror developments in the government bond market. In May, there was a significant 50 basis point drop in 10-year Treasury yields, from a high of 3.76 percent in April to 3.25 percent a month later.
Bond yields nudged up slightly in early June but remain well below highs for the current calendar year.
Jeff explains:
It’s not uncommon for volatility in the equities market to drive bond yields lower. The economic crisis in Europe, a disappointing job report and the calamitous oil spill in the Gulf all have investors on edge. Some worry that the U.S. economy could be headed for a double-dip recession, while others, including Fed Chairman Ben Bernanke, see a tepid recovery continuing but with stubbornly high unemployment. Whichever scenario unfolds, it’s unlikely that Treasury bond yields will be moving dramatically higher anytime soon.
Davis said the Cambridge staff is reminding senior housing and healthcare clients that rates for refinancing with the popular new HUD LEAN product are probably as low as they’re likely to get in the current.
Want to take advantage of these rates? Contact us.
Do you think interest rates will continue to drop? Or do yo agree that they’ve hit bottom for this cycle?
Last week, our CEO Jeff Davis attended the Civic Affairs Society Breakfast Forum at the University Club of Chicago. The topic of discussion was “Issues Today and Tomorrow”, with Dr. Charles L. Evans serving as keynote speaker.
Charles L. Evans is the president and CEO of the Federal Reserve Bank of Chicago. He serves on the Federal Open Market Committee and the Federal Reserve System’s monetary policy-making body. Evans has published several articles in financial journals and has taught at the University of Chicago, as well as other universities.
Dr. Evans reported that the gross domestic product is expected to grow at a rate of 3.5% this year. While that may seem slow, 3.5% is considered a moderate rate for a rebound like this one. In the last quarter, the gross domestic product increased, and should continue to increase, thanks to the federal government stimulus, increased inventory consumption, and increased consumer spending. Evans noted that the auto industry alone has seen an increase of 17% in sales.
As evidence of the still-struggling economy, recovery in the job market continues at a snail’s pace. Job increases will come about modestly, while hiring will continue to be slow. Part-time and temporary hiring, however, are at an all-time high.
On a more positive note, inflation is projected to stay at 1.25%, and rise to 1.75% 2012, which is well below Evans’ 2% guideline.
Dr. Evans finished his talk by discussing the European debt crisis. He explained that there will be a lower demand in Europe for U.S. products, and more European imports to the U.S., but Evans feels that U.S. panic over the effects of the crisis are overblown. European exports make up only 15% of our economy. In contrast, trade with Canada alone makes up 18% of our economy.
Overall, the economy is on good footing, according to Evans. Recovery will progress, and Evans is optimistic that there won’t be slippages. The federal stimulus was a strong lubricant in the process of bringing the U.S. up to speed, and recovery could not have happened with out it. That being said, Dr. Evans feels an entitlement program will continue to have drag on the economy as well as commercial real estate. Expect slowdown to continue for some time, but remember that recovery is imminent.
Do you think the U.S. economy is on good footing? Or do you think we should be more concerned about what’s going on in Europe?
Joe Resor, Resor Financial Group
It’s not uncommon for healthcare clients to labor under the impression that applying for FHA-insured HUD financing means enduring a tedious, inflexible, by-the-numbers process, says Joseph Resor.
Joseph is a banking, merger, and acquisition consultant. He’s the CEO of Cleveland-based Resor Financial Group, a boutique consulting and investment banking firm. RFG is working with Cambridge on a multi-facility transaction involving the purchase and refinance of a 14-property portfolio using HUD’s new LEAN funding program.
“Borrowers sometimes get this idea based on personal experience or horror stories from others,” says Joseph. “But not all HUD underwriters are alike. Some are able to bring creativity and out-of-the-box thinking to the process.”
Throughout the process, Cambridge has come up with creative ideas and solutions that have the transaction steaming towards a successful conclusion.
Joseph says RFG helps senior housing and healthcare clients raise debt capital and facilitates mergers and acquisitions for both buyers and sellers. The company also consults clients on various strategic and tactical aspects of their businesses.
“When the task is to raise debt capital to refinance an existing property or make additional acquisitions, FHA-insured HUD funding has emerged as a very attractive option in today’s tight capital markets. Cambridge understands the nuances of HUD financing and can apply tailored solutions better than anyone else in the business,” Joseph says.
Cambridge is a niche provider that has focused exclusively on senior housing and healthcare financing for many years. Joseph says our staff is knowledgeable, focused and professional, and understands what will or will not work. ”Cambridge definitely is the go-to company for the FHA option,” he said. ”The amount of success the company has had in the marketplace speaks to its depth and expertise in this area.”
Looking for an update on this week’s news? Here’s a list:
‘Doughnut hole’ Medicare drug rebates start going to seniors soon
The L.A. Times reports that $250 checks will be sent out to seniors soon.
Nursing organizations release list of competencies for nursing home culture change
Nursing organizations are working together to raise the standard of living in nursing homes, and have released a list of basic standards.
For Elderly, a Different Different of Make a Wish
The Seniors Have Dreams Too organization works to grant “wishes” for elderly citizens.
Senior Housing News Lists the Week’s Transaction Briefs
Check out the mention of Cambridge in the third paragraph!
What’s the Best Way to Handle Departures from a Senior Living Facility?
Patricia Conlon gives several tips to help seniors have smooth transitions between facilities.
Study of health-care law rebuts state protests on Medicaid costs
The Federal government will bear the brunt of Medicaid costs, and many governors predict fiscal calamity.
Want to know what clients are looking for in senior housing facilities?
Did we miss anything? What do you think the most important headline of the week was?
