PulsePoints

I just participated as a speaker at the Senior Housing Conference put on by the Illinois Real Estate Journal on Wednesday December 1^st, 2010, at Chicago’s historic University Club.  Thank you to all the sponsors and to the Illinois Real Estate Journal for a job well done.

The event was sold out, which either indicates extensive interest in senior housing or continued softening in all of the other real estate sectors.  I truly enjoyed listening to a variety of the participants, as everybody brought their unique insight and perspective to the conference.  Here are some of the conclusions that arose from the day’s sessions:

-           The capital markets and the financing industry remain challenged for commercial real estate.

-           Government agency financing, including Fannie Mae, Freddie Mac, and HUD, continues to remain strong for senior housing and long-term care.

-           Fannie Mae and Freddie Mac’s senior housing volumes are off significantly from their peak years in 2006 and 2007, particularly due to the tightening of waiver criteria.

-           HUD 232 Lean financing continues to be one of the leading programs for financing nursing homes.

-           Large-scale investment transaction activity from public real estate investments trusts remains robust, due to strong performance in the sector and REITs’ extremely low cost of capital.  Speakers’ discussions revolved primarily around major transactions completed by Health Care REIT and Ventas, and their very aggressive capitalization rate and “all-in” investment philosophy.

Summary:

Property level performance continues to remain strong in all sectors of senior housing, with the more need-based sectors performing better.  As the year draws to a close, we at Cambridge continue to be thankful for our transition from commercial real estate to senior housing in the early 1990’s, and that we are still participants in such a vibrant industry.

Recently, I updated my conference and public speaking presentation list, which covers 15 years and 50 separate presentations.

As I looked at the list, a few things came to mind about the places that I’ve given these presentations, and the movement of the senior housing industry over the years.

First, our ability to carry out debt or equity transactions is nationwide, and this is evidenced by the number of coast-to-coast presentations and conferences shown on the list.

Second, if you aren’t looking for a cyclical industry, you should stay away from senior housing and long term care; the industry’s up and down trends are a consistent feature, as demonstrated from the topics I’ve covered over the years.

Finally, although the topics of my presentations may have changed with each cycle, Cambridge’s expertise hasn’t; we’ve always included information on the ways capital interacts with senior housing for each and every audience.

The good thing is, life has never been dull, and thankfully, we continue to work with people that we started with in the senior housing industry in the early 90′s, as well as with new clients, who we continue to meet every day.

As Manager at Cambridge, I am involved with numerous aspects of the company’s business, including originating, underwriting, and processing our conventional and HUD transactions. Like many others in the senior housing industry, our firm attends the annual and regional NIC events. Attending the annual NIC conference each fall is a great way to reconnect with owners and operators, as well as form new relationships.

In keeping with tradition, this year’s 20^th Annual NIC Conference certainly had its own unofficial “hot” topics. Many conversations were focused around the timing of HUD Lean deals. The HUD Lean program has been a great financing mechanism for senior housing borrowers, and due to the demand, the processing time has definitely been lagging. Another topic highly discussed, especially by current owners and operators, is business expansion, both via acquisition or new construction. The number of acquisition and construction deals getting done over the past few years has been slow but steady.

I had a great 30 hours (and one night) in Long Beach as part of the 2010 AHCA/NCAL 61st Annual Convention & Expo (AHCA/NCAL).  My activities included:

            An interview on the AHCA closed-circuit TV network. Clearly, not ready for prime time, but you should find informative.

            Dinner at the AHCA PAC event.  I continue to be impressed by AHCA members’ commitment to providing the best quality care to all residents, and the “Quality First” initiative.

            The positive spirit and attitude of most attendees, despite continued day-to-day business challenges.

            Tremendous leadership from Bruce Yarwood and his AHCA team.

If you’re not a member of the AHCA, I strongly recommend becoming one, as they represent the best interests of all providers and suppliers in relating to the long-term care business, and you could not be part of a better organization.

NIC 2010 showed that the fundamentals – move-ins and payment – for senior care facilities are very strong, even in a lousy world economy.  The only thing that’s hurting the sector is access to more credit to build new properties, acquire, or otherwise expand business.  Holders of property are not selling short but holding long, as they have few other lucrative options for investment.  Cambridge is elated that we can bring credit to the sector for both lending and investing.

In my 14 years in this business, I don’t think I’ve ever seen so many consistently solid plans for business growth as there are right now.  I work on both originations of new loans and acquisitions, so I see a lot of business plans.  I also work on the asset management of properties owned by Cambridge investors, and that experience affirms that opportunities are strong.  The best source of capital right now is shown on your statement of cash flow from operations, and it’s organic: refining operations.  Once you have operations refined, then the next source of capital is external lenders and investors, and that’s where I can help.

When I read this release a month ago, I sat on it with the hopes that commercial real estate’s continued losses might be diminishing.  Unfortunately, everything I’ve been reading or observing over the last 40 days continues to point towards even more commercial real estate losses.  If you take the time to read this release, you will note that over the last year, there has been a 120% increase in commercial real estate loans that are 60 days late with mortgage loan payments. Translated to dollars, that’s roughly $22 to $51 billion.

It’s hard to say what the solution to the current problem is, since job growth continues to wane and employers are very reluctant to make any additional capital outlays with the current level of unpredictability.

The silver lining in this environment, specifically in various real estate sectors, appears to be most variants of senior housing.  The business is need-based, servicing an aging population and demographic trend, and not directly tied to job growth or employment.  We are grateful that things continue to happen in this area.

The recent 20^th Annual NIC Conference in Chicago was a hub of activity; there were education sessions to help guide senior housing borrowers and investors in their decision-making process, but the true heart of the Conference was the opportunity it provided to meet owners, developers, lenders, and brokers face-to-face.  As VP of Production and Acquisition for Cambridge, I am actively involved in all aspects of our senior housing transactions: underwriting, analysis, evaluating acquisitions, and due diligence; so NIC is an important week for me to meet with others in the industry, stay on top of what’s going on, and of course, find those deals!

And what exactly is going on?  The “talk of the town” is currently HUD 232 Lean financing.  The demand for HUD loans continues to rise as conventional lenders remain on the sidelines.  To help with this demand, HUD has created a fast-track process known as the “Green Lane” to speed processing of low-risk loans for qualified borrowers.

Overall for the senior housing industry, acquisition activity has slowed down and there are limited resources for construction financing, but with interest rates being low, the most attractive avenue is to refinance existing mortgages. And thanks to what we’ve learned at NIC 2010, we are ready to focus on these refinancing deals via the HUD 232 Lean program.

As you can probably tell from our website, our ePULSE! Newsletter, and our presence on Twitter, Facebook, and other sites, Cambridge loves the Internet.  Communicating electronically is fast, easy, and reaches a large audience.

But sometimes, there is nothing like receiving information in person—from a live panel of experts, for example. Cambridge’s Chairman, Jeffrey Davis, will be participating in such a panel on Friday, so if you are in the senior housing/healthcare industry and you happen to be in the Minneapolis area, you may want to check out the Minnesota Real Estate Journal’s Senior Housing Summit 2010.  Jeff will be a member of the Capital Market Strategies and Financing Solutions for Senior Housing Projects panel, discussing the 2011 outlook for lenders, buyers, sellers, developers and investors, as well as other topics, including how to get your HUD deal done.

So if you enjoy listening to a live exchange of information and ideas from industry leaders and you do find yourself in Minneapolis on Friday morning, put the laptop away, grab some coffee and head over to the Senior Housing Summit!

Despite the continuing credit and global economic crises, there was an almost fantasy-like quality surrounding the recent 20^th Anniversary NIC Conference in Chicago.  The senior housing/healthcare industry has been surprisingly resilient throughout these turbulent times. 

Some people may be euphoric about receiving the approximate $110 billion in Federal government stimulus spending for Medicaid patients in skilled care facilities.  For others, their positive outlook may be related to the HUD 232 Lean program for healthcare loans, although the demand for this program is high, HUD is currently swamped with applications and not responding quite as fast as originally anticipated.  The long wait times in the queue proved to be a popular topic of conversation among NIC attendees.

Another much-discussed item at NIC was the enthusiasm for new construction projects.  However, in the current market, the chances for completion are not that good; commercial real estate is currently out of favor with commercial banks and there haven’t been many new construction projects reaching completion in recent months.

Attending the Annual NIC Conference is always a great opportunity for us to stay on top of everything happening in the senior housing/healthcare industry and to maintain contact with our clients and colleagues.  This year, we were fortunate to have approximately 110 formal meetings, along with dozens of informal conversations.  And we look forward to doing it all again during NIC Regional in early 2011!

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!