PulsePoints

Since the first of this year, 40 percent of the healthcare loans processed by Cambridge have been refinances of existing HUD loans, and a lot more of these transactions are in the Cambridge pipeline. HUD 223(a)(7) is currently the most popular funding program available.

This program enables eligible borrowers to refinance the full, original loan amount, which makes additional funds available for capital improvements.  Those borrowers whose existing HUD loans are currently beyond the lockout period can apply for the HUD 223 (a)(7) program right now.  But even borrowers who are within the lockout period can also apply; because interest rates are at historically low levels right now and lower rates equate to higher operating profits, even with a prepayment penalty, the numbers may still be favorable.

Debt service is the only major underwriting consideration involved in HUD 223(a)(7) transactions. There is also a smaller checklist of data to submit: Appraisals and environmental reports are not needed. Only a PCNA is required.  HUD also appreciates the relative simplicity involved in underwriting these “low risk” loans!

Know the ins and outs of HUD 223 (a)(7) program: Our Executive Summary on our website details more !

In today’s restrictive credit market, making an effort to get inside their lender’s head might be a good idea for senior housing/healthcare borrowers who are seeking to either acquire or refinance an existing property.

Lenders want to understand what their borrowers’ objectives are and what, specifically, their loans are trying to accomplish. Sometimes this is not always apparent, so lenders love it when borrowers communicate their situation and specific needs in a clear, concise manner.  And they love it even more when borrowers are responsive and decisive; a speedy “yes” or “no” reply can not only impact the way that a borrower/lender relationship develops, but also affects the speed at which the loan can reach a successful closing.

These points may seem obvious, but deals can unravel because borrowers sometimes fail to respect the process and the effort it takes to get projects funded in today’s investment climate.  It’s important to get into a lender’s head and see things through their eyes.

As we see it, bond prices and the economy behave a lot like entangled particles in quantum physics.  When the economy weakens and loses its forward momentum, bond yields move lower.  This causes bond prices to spin higher, in the opposite direction.  But the lower bond yields also lead to lower borrowing rates, which is what’s happening right now.

 Even though credit markets are still tight for anyone looking for a new construction or acquisition loan, these low rates should motivate senior housing/healthcare borrowers to refinance existing loans now.  There’s no telling how long this cycle might last or how long interest rates will remain at these historically low levels; September brought some gently encouraging reports on the economy and we remain optimistic that things are continuing to improve. So it doesn’t take physics–or rocket science—to see that refinancing your senior housing loan now is a “capital” idea!

These days, everything happens so quickly; thanks to technology, we can get the news and information we seek in seconds, just by pushing a few buttons on our computers or smartphones.

Some things, however, just take time because they have to follow a specific process, and no Blackberry is going to change that. Loans, for example.  When you apply for one, you need to establish some realistic timing goals and have some respect for a process that requires the receipt of information in an orderly fashion.

In these tight credit markets, lenders are demanding even more detailed information than before, so it’s important for borrowers to be aware that missing data and failure to respond to a lender’s request for information is going to slow down that loan application.  Whether it’s a new loan or the refinance of an existing one, paying attention to what the lender needs is the best way to keep your application moving along towards closing.

So no matter what kind of loan you are applying for, take a deep breath, get organized, and don’t let the process frustrate you. If you’re prepared and responsive, everything will proceed smoothly and your loan will close without any delays.

In the business of financing senior housing/healthcare properties, when the going –and the credit market – gets tough, the tough get creative.

Imagine a scenario involving two under-performing nursing home properties in Southern Indiana. The owner wanted to sell, and the company brought in to manage the properties under a consulting agreement wanted to buy.  But conventional funding sources weren’t going to work for this deal, so that’s where Cambridge entered the story.

Cambridge was approached by a broker to see if we could make this transaction work, and we came up with an interesting strategy.  First, two investor-funded entities purchased the real estate and then entered into a lease agreement with the management company.

The management company operated both of the nursing homes and brought them back to clinical and financial health, and under the lease agreement was able to keep any profits they made from operations after the rent was paid.  By 2009, the performance of both properties had improved enough so that the management company was finally able to purchase the properties.  To sweeten the scenario, Cambridge also assisted the new owner in obtaining HUD-insured mortgages for both properties at very favorable terms.

So this story has a happy ending:  some inventive and long-term strategic planning enabled this management company to move from being a lessee to an owner without seeing its real estate costs rise.  And that’s one way to get creative in a tough credit market.

How well do you know your business?  This may seem like a silly question, but when you have to explain your operations to someone else (like, say, your lender), can you articulate the particulars?

The more you know and the better you are able to describe your business in detail, the better your chances are of making a favorable impression and letting others understand exactly what it is you do and how you do it.

When you are working with a lender, you may often find you are faced with perplexing questions about your operations; for nursing home/healthcare owners, these may deal with occupancy or lease-up projections, expense management and costs, or timing issues.  Your lender needs to ask these questions in order to assess your financing needs correctly and make more intelligent lending decisions.  If you’re worried about divulging certain kinds of financial information, rest assured that lenders always treat your information in the strictest confidence. 

To make sure you are prepared for such information requests, it’s important to stay organized.  If your lender provides checklists for you, use them; they are tools to help you provide the right details about your operations.  Missing information can affect the kinds of financing solutions lenders can offer you.  But armed with the right details about your business and operations, your lender can provide you with the best possible solution to your financing needs.

If you are a senior housing/healthcare property investor, you’re focused on ensuring that your investment continues to perform even in today’s rough economic climate.  Investment risk and reward in a senior housing/healthcare transaction is very dependent on the owner/operator’s management skills and business sense, so a hands-on asset management program is crucial to maintaining performance levels.

Property investors in senior housing like to work with experienced ownership groups that fully understand the nuances of the industry and the property type they are working with.  And communication is essential; owners/investors need to know what management is up to, and management needs to know that their actions are being interpreted correctly, so that they can maintain performance and occupancy levels at the property.  Analysis of financial statements and reviews of clinical inspection reports are just some of the important things that owners and investors can do to understand how their property is performing.  It’s also a good idea for investors to inspect the property themselves, too, on a regular basis. “Hands-on” means hands-on!

Astute senior housing/healthcare borrowers seeking to maximize their funding options may find the best route has them walking a few miles in their lender’s shoes.

To get the best results, borrowers should be aware of the things that are important to the person who is processing their loan. It just makes good business sense.

Within any lending organization, loan officers are motivated to make good loans that will be paid back. But they also want to work with borrowers they can introduce to the boss, and they prize working relationships that have repeat business potential

Ideally, borrowers have already decided upon the type of loan they want before talking with the lender. Motivated lenders want to fully understand the borrower’s objectives and what, specifically, the funding is for. This isn’t always apparent.

Lenders are always hopeful that borrowers will communicate their needs and describe their specific situation in a clear, concise manner using specific examples as appropriate.
The expectation is that borrowers will provide meaningful exhibits, professional photos and readable maps. The numbers presented need to be accurate and are expected to add up.

Lenders are especially appreciative when borrowers are responsive and decisive. A borrower’s willingness and/or ability to deliver a speedy yes-or-no response when a decision is needed can profoundly impact the way the relationship unfolds.
While these points may seem fundamental, a surprising number of deals unravel because potential borrowers fail to respect the process and what is required to get a project funded in today’s tight credit markets. If you don’t want your deal to unravel, you need to understand your lender.

Many people look at today’s historically low interest rates and think “refinance!” And single-family homeowners are not the only ones who can take advantage of this opportunity. Existing HUD healthcare loans can be refinanced, too, and the process is surprisingly more uniform and user-friendly than it used to be, thanks to HUD Lean.

The HUD 223(a)7 program provides a way to get these existing loans that are beyond the lockout period into the refinance queue so borrowers to take advantage of the low rates now.   Healthcare property owners can refinance the full, original loan amount, which makes additional funds available to use for capital improvements to the property.

HUD loans still require borrowers and lenders to provide the right documents and meet all the required loan criteria.  But for borrowers who have been through the process once already, things are a lot easier.  So it makes sense for healthcare owners to talk to an FHA-approved HUD lender (like Cambridge!) to learn how refinancing their existing loans can put more money back into their properties–and their pockets.

Lenders usually get accurate data, but it’s almost always incomplete. Borrowers need to carefully review all statements, census data, and legal documentation. If the borrower will be paying off the debt, it’s important to make certain that the debt is open to prepayment.

It’s never a good idea to fudge even a little bit when presenting information to lenders. However, lenders routinely deal with projections and projections can get very aggressive.

A pragmatic approach is most desirable. It’s important to spend the necessary time and energy needed to generate and project the most accurate information possible.”

There are many ways to organize census data, none better than others. The key when presenting a rent roll or similar document is for the borrower to generate as much detail as possible. More information is generally better than less.

When lenders ask for current debt information, the important items are outstanding debt amount, term, interest rate, amortization, prepayment option, and personal recourse. Ideally, the lender will get a copy of the mortgage and note.

There are many reasons why it’s important for borrowers to be diligent and careful when presenting information to lenders.

Productive, long-term relationships are built on the expectation that the information provided by borrowers will be accurate and reliable. Long-term relationships are important because they enable borrowers to gain greater understanding of the capital markets but also because they make the outcome of any loan application more predictable.