What does the New Year have in store for senior housing/healthcare operators?
“Expect more change. And expect the outlook to continue to improve for those seniors who will populate the many new and refurbished properties that open for business in 2016,” says Cambridge Realty Capital Companies Chairman Jeffrey A. Davis.
“A few decades have made a great deal of difference in the way senior housing properties are developed and financed,” he observes.
Cambridge is one of the nation’s leading HUD Section 232 lenders. The company also offers conventional financing programs and is involved in direct property acquisitions, joint ventures and sale/leaseback transactions through its Cambridge Investment and Finance Co. subsidiary.
The company was founded in 1983 and has specialized in senior housing/healthcare finance since 1995. However, members of the company’s leadership team have been following the industry for more than 35 years, observing progress from a front row seat.
Thirty-five years ago the industry was mostly comprised of small mom-and-pop operations. There were few large companies and assisted living properties were non-existent, Mr. Davis said.
In the 1980s there were a few large insurance companies participating in the sector, but access to these capital sources was limited to lenders with contractual correspondent relationships. And much of this action was north of the border with institutions in Canada, he noted.
“Today, there’s little that hasn’t changed. Three eventful decades have significantly affected not only the types of lending products available to senior housing/healthcare borrowers but the way capital is accessed as well.
“Back in the day, participation by Wall Street investment firms in the senior housing/healthcare industry was unheard of. Today, Wall Street is the industry’s primary source for investment capital. And HUD loans have emerged as the long-term lending vehicle of choice for many borrowers seeking to refinance an existing mortgage loan,” he added.
In the lending process that has evolved, Mr. Davis says HUD lenders obtain commitments to fund FHA-insured HUD loans and sell these commitments to major Wall Street firms. The purchased loans collateralize fixed income securities (bonds), which are broadly sold to corporate and individual investors.
In a significant development, REITs now own real estate and actively manage senior housing/healthcare investment portfolios. Also very different is the way a credit crisis in the senior housing/healthcare sector looks today vs. the way it looked then.
“Thirty years ago, a credit slump was a more localized affair, with loans carried on bank ledgers in sizes significantly smaller that we find today. In today’s global economy, lenders have little control over securitized commercial loans that are sold to investors at home and abroad,” Mr. Davis said.
“But change is pushing the industry in positive directions, with America’s aging population the big winners. Simply put, an entrepreneurial industry has responded to the challenge of finding creative ways to fund, build and market more attractive housing options for the nation’s seniors,” Mr. Davis believes.