PulsePoints

2011 has been a year of great accomplishments for Cambridge Realty Capital. Over the past seven months we have exceeded all the goals we have set forth for the year.

Cambridge has already closed $181 million dollars in financing during the first six months of the year, and our monthly loan origination requests in May were the highest we’ve received since 2003.

Additionally, Cambridge has gained exposure by attending conferences across the country, including the 2011 NIC National Skilled Nursing Investment Forum in Los Angeles, and the 2011 AHCA/NCAL Independent Owner Leadership conference in New Orleans, where our Chairman, Jeff Davis, provided a well-received presentation titled Blue Skies Ahead or a Storm Coming for Long-Term Care Capital.

Internally, we continue to enhance our internship program, which offers students from the most prestigious universities in/around Chicago the opportunity to work directly in finance and the senior housing and healthcare industry. As a marketing intern myself, I have been able to take what I have learned in the classroom at Northwestern and apply it to a professional setting at Cambridge. Together with other interns, we have launched a social media campaign that extends into Facebook, Twitter, the blog-o-sphere, and LinkedIn.

Overall, Cambridge already has a great number of achievements under our belt, and we look forward to more such success during the second half of 2011.

Student internships are a great way to gain exposure in a desired field and develop new skills in a professional setting.  However, we have all heard that many internships lack the element of a true learning experience.   Instead, duties include going on coffee runs, making photocopies, and any other less-than-glamorous tasks that need to be done in the office.  Because of these types of internships, students take away little from the experience and fail to inherit a skill set that they can carry with them in their future professional endeavors.  Luckily, my experience with Cambridge Realty Capital as an Associate Intern has been the complete opposite- and I couldn’t be more grateful for such an extraordinary opportunity.

As an Associate for Jeff Davis and his accomplished team of finance professionals, I was able to refine my analytical and communication skills and actively participate in the transaction process.  Working directly with the team on specific deals allowed me to familiarize myself with real situations that can not be accurately represented in a classroom setting.  Duties of all associates included training in financial analysis and due diligence work, participating in marketing calls and projects, and interfacing with potential clients.  Jeff and his team also did an excellent job in assigning specific projects tailored to each intern’s unique set of skills. 

Through this hands-on experience, I have acquired exceptional skills and distinctive knowledge of Commercial Real Estate, specifically within Senior Housing, that will help me succeed throughout my career.  I sincerely thank Jeff and the Cambridge team for this tremendous opportunity, as well as their hard work and dedication to the Associate program.  I highly recommend the Cambridge Internship program to any student looking to pursue a career in Finance or Real Estate. This was, hands down, the best opportunity for me as an aspiring Real Estate professional. 

(And for the record, I never once had to get anyone coffee!)

The recent recession has had an impact on all sectors of real estate, including senior housing.  Occupancies have been somewhat reduced, especially in Independent Living facilities, because with slumping home prices and a tighter lending climate, seniors are having a harder time selling their homes and therefore have to delay moving to a senior living community.

Despite these obstacles, there are signs that the overall outlook for the senior housing sector remains positive. Cap rates, for example, are moving downward, which is a lagging indicator that the market is improving.

Underwriting parameters are experiencing a warming trend; banks and life companies are becoming more active in the sector, slowly but surely. Currently, refinances and acquisitions of existing assets are favored over new construction. The most viable source of funding for senior housing and healthcare right now remains government entities such as HUD. HUD has several programs tailored to senior housing, and as one of the country’s leading HUD lenders, Cambridge has seen a dramatic increase in the number of requests we receive for HUD-insured financing.

Because of the general uncertainty caused by the current economy, borrowers have been putting pressure on their lenders for speed, and for reliability – they don’t want any surprises. Borrowers are also looking to rate lock ASAP because rates continue to be low and favorable towards borrowers.  This bodes well for better cooperation between borrowers and lenders, resulting in a smoother transaction for all.  Thus, despite some bumps in the road caused by recession, the climate for the senior housing/healthcare market remains positive overall.

Just as you know that the sun rises and sets every day, you also know that nothing ever stays the same in Washington, DC.  It seems like every minute of every hour of every day, something new is happening.  Thankfully, the Committee on Healthcare Financing has remained a strong and collaborative voice with the FHA/HUD on behalf of HUD 232/242 lenders, borrowers, and, most importantly, community residents.

Cambridge has been a member of the Committee for many years, and has worked with it on numerous, significant issues which impact and affect HUD 232 lending and the delivery of the program’s benefits to all participants in the senior living and long-term care community.

As in the past, the agenda for this year’s annual meeting was full, packed with a variety of speakers and concepts.  It began with the welcome speech from Phil DelVecchio, the Chairman to the Committee, followed by an update from Rod Owens, Counsel to the Committee.  We then received updates on the current overall mood of Washington from Scott Reed of Chesapeake Enterprises, and a Washington update relating directly to HUD from Scott Keller of National Strategies Group.  They were both terrific speakers!

The annual meeting then continued with terrific presentations on healthcare reform from a variety of representatives from different organizations, including the Coalition for Seniors Health Care Reform; the American Health Care Association; the American Hospital Association; the American Senior Housing Association, and the Greater New York Hospital Association.  Next, senior HUD representatives delivered a two-part presentation, led by the Deputy Assistant Secretary, Roger Miller.  Roger, continued congratulations for your tireless efforts in support of the HUD programs impacting seniors.

Then it was time for a terrific lunch, where a surprise award was given to Michael Mazer of Krooth & Altman, former Counsel to the Committee and defacto Executive Director and now retired.  This award is given annually to the representative best impacting the Committee’s results.  We can’t say enough “Thank You’s” to Mike and the tireless work he did championing the Committee on Healthcare Financing for many, many years.  We can’t even count the number of issues that were resolved due to the Committee’s overall impact and support.  Everybody in the audience realizes that we would not be doing business the way we are today without Mike’s tireless leadership.

Mike, you certainly deserve this award, and we’ll definitely miss you.

After-lunch presentations and speakers included Robert Ryan, the FHA Commissioner; a presentation on financial markets and health care credits, and a discussion, always interesting, on the appropriation challenges impacting our world.  You’re probably tired just reading the agenda; for those of us in attendance, it was a complete and full day.

What did I learn?

It’s amazing to realize how many people are involved in healthcare.

The upcoming 2012 election will continue to lead the headlines.  A key point that Scott Reed brought up is to see if the election is a discussion of unemployment and its issues, or a referendum on our current president.  We can only hope that the dialogue remains professional throughout the campaign.

With regards to national politics, there were numerous key states pointed out for the primary season, which include Florida, North Carolina, South Carolina, Colorado, Wisconsin, New Hampshire, Iowa, and Pennsylvania, to name several

As it relates to HUD and its status on the Hill, like every other element of Washington, there is lots of discussion going on regarding the massive budget cuts being contemplated.  Among the most important and relevant items that were discussed during the Washington HUD and Administration Update was the point that HUD 232 and 242 are both money-making programs for government, and that both of these programs have a major job creation element, which is business point Number 1 in Washington these days.

The healthcare reform discussion was intriguing.  The battle between cost-cutting and efficiency versus jobs was also a key point being debated.

Much more at our level was the discussion led by Roger Miller and his senior leadership team from HUD.  Roger, the HUD Lean program for 232 financing, built practically from scratch, definitely seems to be taking hold.  Congratulations on all dimensions of this program.  Michael Vaughn, please accept our public congratulations for becoming the Director of the Office of Residential Care Facilities; the combination of bringing in outside contractors plus the hiring initiative of 2011 will hopefully resolve the backlog and “queue” that currently exists today.  Your goal is shared by all.

Commissioner Ryan – Good luck with one of the most challenging jobs in Washington.  Many thanks for sharing some of your issues, and all we can say is–we have your back!

Things change, yet in many dimensions, they stay the same.  It’s hard to discuss and break down all of the amazing dynamics that go into doing business today. Cambridge’s trip to Washington was just one of these many dynamics that are part of managing a successful business.  I hope you enjoyed the update.

It’s been many years since I graduated with an MS degree in Real Investment Analysis and Appraisal from the University of Wisconsin-Madison, and I’ve been fortunate to become re-engaged in alumni efforts involving the MBA program over the last few years.  Along with attending various meetings and other activities, I’ve joined the Board of the Graaskamp Center for Real Estate, and I had pleasure of being at the Spring Board Meeting in Chicago a few weeks ago. Wow! After attending this meeting, it feels like I’ve been out of graduate school for a very long time…even longer than the years indicate.

A tremendous group of speakers, highlighted by Dean Adler, CEO and co-founder of Lubert-Adler, presented at the meeting, titled US Real Estate Markets – The Next Decade.  I continue to feel amazingly fortunate to have attended the University of Wisconsin – Madison and been part of its real estate program, and even more fortunate to have applied my knowledge and skills towards finance and investment in senior housing since the early 1990’s.

As Dean Adler and many of the other speakers indicated during the board meeting, we’ve seen lots of improvements in the capital markets, yet they are still a long way away from where they were from 2004 to 2007, and everybody is paying for the excess that took place during that time.  There were some very interesting thoughts and comments that were brought up, and I’ll highlight a few that might be of interest to senior housing and other commercial real estate participants.

The keynote address by Dean Adler broke down real estate capital into a few specific eras:  The pre-2008 era; 2008 – 2010; and 2010 – 2014.

- Prior to 2008, capital was plentiful and undisciplined. 

- From 2008 – 2010, there was a 40 to 60% loss of value, little to any debt available, and very  poor real estate fundamentals.

- From 2010 to 2014, Dean predicts that we are getting to a tipping point for many assets. We will see banks begin selling assets again, and a market that, as a result of extremely low interest rates and lack of opportunities, will have a lot of capital and lots of buyers for those assets that are performing well.  He spoke extensively about the challenges in retail, with the stronger retailers getting stronger and the weaker retailers getting weaker, and also took some time to talk about the other product types, and made some very good points about hospitality, with an emphasis on full service business hotels in major markets as the most desirable property.

- Other speakers covered a wide range of topics representing many different types of real estate users and capital providers.  I was still amazed by how few people in the room knew anything about, nor wanted to discuss, senior housing, and how many people appeared to want to compete for these same types of assets.

All in all, I was impressed with how positive and optimistic everybody in the room continued to be, despite what has been widely proclaimed as a once-in-a-lifetime economic downturn.

Feel free to call at 312-521-7600 or email me at jd@cambridgecap.com with any thoughts or comments.

I can’t believe how much has happened during the first quarter of 2011. Deal closings, deal submissions, HUD refinancings, acquisition opportunities, travel and conferences; it’s amazing, and it seems like it’s been a full year’s worth of activity, not just three months. Many thanks to all for keeping us busy. Here’s a brief summary of our first quarter:

HUD Closings

It’s been an amazing first quarter for Cambridge as it relates to closed HUD deals, and we also have a great pipeline of pending transactions. During the first three months of 2011, we’ve closed 10 transactions totaling over $103 million, located in Illinois, Ohio, and California. To all of our clients: We sincerely appreciate your continued loyalty and support. HUD interest rates remain extremely competitive, so if you’re looking at a HUD opportunity, please call and we can discuss.

Deal Log-Ins

It’s been an incredibly active first quarter for deals. For the 1st quarter 2011, we’ve logged in 54 transactions totaling $976,108,183. These transactions range from HUD refinances, conventional refinances, acquisitions, and new construction. HUD remains extremely active. Conventional transactions are challenging, but we’re beginning to see better acquisition opportunities and have several offers out on some that are of high quality. Thank you to all.

Conferences

It’s been a very active quarter for conferences, as many organizations have both a winter and a late summer/early fall conference. Representatives of Cambridge have attended the American Senior Housing Association’s Annual Conference in Phoenix and the National Investment Center’s Regional conference/symposium in Los Angeles, as well as the American Healthcare Association’s Independent Owners Conference in New Orleans. We were honored to present a white paper titled Blue Skies Ahead or a Storm Coming(link!), and this was received extremely well. We view each conference as an opportunity to meet existing and prospective clients, and share with them what Cambridge Realty Capital Companies is all about. As closely as the Cambridge name is associated with HUD financing, our goal is to create an identity revolving around senior housing capital as a whole, and we are on the way to making this happen!

New Hire

We are also happy to announce that we’ve expanded our permanent staff by adding Junior Loan Officer and Financial Analyst Zach Scardina. We were fortunate to get to know Zach during his internship at Cambridge and felt he had some unique attributes that fit this open position, so he was brought on full-time. Feel free to introduce yourself to him by phone (312) 521-7625, or email zachary_scardina@cambridgecap.com.

Other Travel

We’re also working hard to continue visiting with as many owners, operators and capital sources as we can each and every month. Beyond conferences, we also made trips to Cleveland, Ohio and St. Louis, Missouri to meet with clients and capital sources. We intend to continue this activity throughout the year.

Summary

 Wow! It’s tiring just writing about everything we’ve done in the first quarter. Our staff is terrific and work together closely. Keep reading PulsePoints for more news about everything going on at Cambridge!

I was recently in New Orleans to give a presentation to the American Health Care Association (AHCA) Independent Owners’ Leadership conference.  I have not been in New Orleans since Hurricane Katrina, and frankly, from what I saw in the tourist areas and around my hotel, there was no evidence of Katrina anywhere.  Since the conference took place after Mardi Gras, those of us in attendance were not in New Orleans for beads or parades, but to collaborate on and share ideas about the senior housing and healthcare industry.

My presentation was titled Senior Housing and Commercial Real Estate Capital: Drinking from the Same Fountain…Blue Skies Ahead or a Storm Coming? You may view the entire presentation here, but below I offer a brief summary:

-           There’s been a huge recovery from the depths of the capital crisis of Fall 2008.

-           However, senior housing capital is still challenged outside of HUD, Fannie Mae, and Freddie Mac.

For the nursing home owners in the audience, HUD continues to remain their best option, and we addressed lots of questions regarding its feasibility.

We look forward to receiving deals and follow-up to our discussion.

The independent owners (generally those who own less than five facilities) expressed their concerns during some unfiltered time.  Let’s face it–they are constantly challenged by many people: regulators, their staff, residents, and families.  (At least plaintiffs’ lawyers for liability insurance issues have taken a back seat of late!)  We listened to the owners’ concerns regarding reimbursement, state budgetary issues, aging physical plant, and continued challenges to the revenue stream.  It was great conversation.

At the end of the conference, we concluded that despite all its challenges, long-term care is the business these owners are committed to.  They are clearly the “heroes” of long-term care, and they do a wonderful job for all members of their constituency.  Thank you, Owners, for giving us this opportunity, and we hope to join you again at next year’s conference.  Feel free to contact us anytime with your questions concerning capital and its impact on your business.

As a result of Cambridge Investment and Finance Co.’s acquisition of the four-facility Cottage Living assisted living/memory care portfolio in Appleton and Green Bay, Wisconsin, I’m happy to be part of the Direct Supply Executive Operators Forum/CEO group that meets quarterly in Milwaukee.  Many thanks to Direct Supply and Brad Klitsch, their Senior Vice President of marketing, for hosting these quarterly meetings.

At the most recent meeting, I had the opportunity of meeting Direct Supply’s founder and CEO, Bob Hillis, and hearing him speak to the group. He was one of a select few founding members of the Alliance Partners, a collaborative industry advocacy group, and is very closely associated with the American Health Care Association.

Bob is uniquely generous with his time, spending much of it lobbying on behalf of long-term care and senior housing interests.  In his presentation to the CEO group, Bob shared a unique, businessman’s view of Washington life today.  In short, Bob echoes the views of senior members in Washington whose sentiment is that both the federal and state governments are “out of money,” and provider costs need to be significantly reduced, such that more and more value will be required from owners and operators; clearly, a very tough requirement.

Bob was kind enough to share many other thoughts and comments from the Hill.  Kudos to him for being an unbelievable advocate for all participants in senior housing and long-term care.

For the last 20 years or so, the bellwether event for commercial mortgage lending has been the Mortgage Bankers’ Association – Commercial Real Estate Finance conference, which is almost always held at a great, warm location. This year was no different, since the conference was held in San Diego, California. I’d like to share some of the more important observations which were discussed at the conference.

Lenders, mortgage bankers, and almost all industry participants are significantly more optimistic than at any time since the fall of 2007. The markets, with the exception of community banks, have significantly rebounded, and underwriting terms and conditions have taken on old school attitudes and definitions.

Additionally –

- Almost all lenders are focused on increasing loan production in 2011.

- Apartments, net lease retail, and grocery-anchored retail are favored asset classes for lenders.

- LTV’s can be up to 80%; however, most loans are 70% or less.

- Commercial mortgage-backed securities are back, with over 20 new lenders in the market.

- Life companies have returned, providing whole loans, but at conservative underwriting.

- All lenders are trying to determine the best way for their programs to gather market share.

- Many mortgage bankers seem busy again and most are trying to put the tough times behind them.

- There is a huge difference between performing assets in strong locations and non-performing assets. Additionally, lenders have a very difficult time moving from standard real estate into specialty products; i.e., hospitality, self-storage, mobile home parks, senior housing, etc.

To summarize, lending conversations should be much more pleasant in 2011 and, as the year progresses, should get even better.

The weather may be warming up in Chicago but our staff is still looking forward to the 2011 NIC Regional Symposium and National Skilled Nursing Investment Forum, taking place in warmer! Los Angeles from March 7 – 10.  Several senior Cambridge executives will be on hand to discuss our HUD and conventional lending programs, as well as joint venture opportunities.  If you’re attending, please contact us to schedule a meeting so we can catch up!

As rosy as the senior housing and healthcare industry may be when compared to other businesses, it still faces some unique challenges.

In particular, skilled nursing and assisted living facilities that receive a majority of their funding from Medicaid residents can expect a challenging 2011.

The following points were brought to light in a study by Eljay, LLC, a major institutional supplier of durable goods for skilled and assisted living nursing facilities nationwide:

• Medicaid has a $17 per day shortfall and almost $6 billion of costs that were unreimbursed.

• Medicare’s subsidizing of Medicaid should continue.

• There is a continuation of funds to provide housing, along with care, in non-institutional settings.

• A lot of these deficits are offset by the provider tax payment.

• The reimbursement outlook for 2011 is bleak.

These challenges are not insurmountable, but facilities that depend on Medicaid reimbursements are facing a less-than-rosy year ahead.

The weather may be warming up in Chicago but our staff is still looking forward to the 2011 NIC Regional Symposium and National Skilled Nursing Investment Forum, taking place in warmer! Los Angeles from March 7 – 10.  Several senior Cambridge executives will be on hand to discuss our HUD and conventional lending programs, as well as joint venture opportunities.  If you’re attending, please contact us to schedule a meeting so we can catch up!