It’s hard to imagine what the senior housing/healthcare industry will look like 40 years from now, but if the past four decades are indicative, some dynamic changes are no doubt on the way.

When Cambridge Realty Capital Co. opened for business in Chicago 40 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.

Cambridge President Andrew L. Erkes says healthcare REITS had yet to form and institutional investors aggressively ignored the industry’s prospects. Mostly, capital funding for the industry came from commercial banks and a few entrepreneurs doing sale/leaseback transactions.

Mr. Erkes says there were a few large insurance companies participating in the sector, but access to these sources was limited to lenders with contractual correspondent relationships.  And much of this activity was with institutional lenders across the border in Canada.

“Four eventful decades have seen significant changes, not only in the types of lending products available to borrowers but also in the way capital is accessed,” he noted.

Early in the 1980s, participation by Wall Street investment firms in the senior housing/healthcare industry was unheard of and HUD loans mostly were used to finance new construction.  Now Wall Street is a primary source for investment capital and HUD funding programs have emerged as the lending vehicle of choice for many borrowers seeking to refinance an existing mortgage loan, Mr. Erkes said.

In the process that has evolved, FHA-approved HUD lenders obtain commitments to fund FHA-insured loans and sell these commitments to major Wall Street investment firms.  The purchased loans collateralize fixed-income securities (bonds), which are broadly sold to corporate and individual investors.

“This process has demystified the way interest rates are established. Unlike the past, rates today are based on spreads over published indexes,” he noted.

Mr. Erkes says that in today’s world, REITS own real estate and actively manage senior housing/healthcare investment portfolios.  Another major change is the way a credit crisis in the senior housing/healthcare sector looks now from the way it looked then.

Forty years ago a credit slump was a localized event, with loans carried on bank ledgers in amounts significantly smaller than some that are observed today.  In today’s global economy, a problem in America becomes a problem for the rest of the world as well.

“What we can say for sure about the future is that there will be a lot more product serving a lot more people,” he said.

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