With more and more conventional lenders getting out of the business of senior living lending, where has this left developers looking to rehabilitate problem properties and flip them for profit? According to Cambridge Realty Capital President Jeffrey Davis, boutique institutions like Cambridge Realty Capital are still funding “problem properties” thanks to HUD. In fact, Davis expects to see a rise in the number of senior living owners and developers turning to HUD loans in the next few years as conventional banks pull back.
That’s not to say that it’s getting easier to obtain a HUD loan. “The criteria for qualifying for a HUD loan are exacting, and they haven’t changed since 2017,” stated Davis. However, even some small, private lenders still won’t deal with “problem properties” because of the potential extra work involved on the part of the lender, regardless of whether the borrower qualifies for HUD funding or not.
Such is not the case with Cambridge. Cambridge doesn’t automatically look at properties with a complicated history and say “no.” In fact, many of Cambridge’s “problem property” owners have expressed gratitude for Cambridge’s willingness to take on their tough cases and help them turn their properties around and make them profitable.
Tom O’Niones is one of Cambridge’s success stories. Not only were the properties involved underperforming, O’Niones was a relatively new and young licensed healthcare administrator. He was contracted to manage two underperforming nursing homes for an absentee owner who was looking to sell. O’Niones wanted to buy the facilities but wasn’t having any luck with conventional lenders that were unwilling to take a risk on an untested owner.
Dejected, but not ready to give up, O’Niones approached Cambridge hoping for, but not counting on, a different response. Cambridge saw potential in both O’Niones and the nursing home facilities and developed a unique deal: a third-party real estate investor would buy the two properties and allow O’Niones to lease the properties and continue managing them. If he could turn them around and make them profitable, Cambridge would sell the properties to him. The young administrator came through and eventually purchased the nursing homes from the investor. O’Niones’ company, Transcendent Healthcare, later went on to build a medical clinic and rehabilitation center.
Gerald Nudo is a partner at Marc Realty of Chicago and can attest to Cambridge’s skill and intuition when it comes to rehabilitating troubled properties. He cites one instance where Cambridge took a property that had lost its license, renovated it, got the license reinstated and helped reopen the facility in good standing. “In the end, we were able to market and sell the property at a nice profit,” Nudo recounted.
This is just one of several partnerships that Marc Realty has had with Cambridge over the years. Nudo believes that Cambridge possesses a level of competence that is part skill and part art that other lenders don’t have. “Jeff [Davis] is a very talented and hard-working guy. There are always issues with the properties we purchase but he finds a way to make things work,” Nudo said, adding that he would be “uncomfortable” making such deals with any other financer.
“The Cambridge staff stays on top of things and is easy to work with. There are issues with every deal but Cambridge finds ways to put whatever is broken back together,” he added.
Scott Pilgrim, CEO of the Diakonos Group LLC of Oklahoma, can also attest to Cambridge’s finesse when working with troubled properties. Diakonos owns several nursing homes, assisted living facilities, independent living facilities and intermediate facilities for adults with disabilities. Diakonos specializes in purchasing and rehabilitating problem properties.
Fortunately, Cambridge was on the same page as Diakonos when it was seeking financing for four newly-acquired facilities. It had approached several financiers, but, said Pilgrim, while many of the institutions were concerned that Diakonos didn’t have a long-enough history of proven success, Cambridge stepped up to the plate with an agreeable offer: a bridge loan with GE Capital which would later be converted to a HUD permanent loan. “I was especially impressed by the expertise and professionalism exhibited by the Cambridge staff,” Pilgrim stated. “The company has a strong service ethic.”