The SeniorCare Investor: Debt For Seniors Housing--
Industry Lenders Seem To Be Lining Up For Growth
Ever since the banking crisis that started in late 2007 and, for some people, never really ended, access to debt capital has been a primary concern for seniors housing and care owners and investors. Access to Fannie Mae and Freddie Mac debt has been fairly consistent despite their own financial problems, but turnaround properties are usually left out and obviously skilled nursing facilities can’t access their capital. HUD has been the lender of choice for skilled nursing, but for the last several years the long wait has caused much grumbling among borrowers even though HUD has responded to the problem with some fixes, new programs and, finally, additional staff so that the queue is supposedly going to drop to almost nothing by next summer. We will believe it when we see it, but apparently the confidence level is high unless, of course, the number of borrowers accessing HUD doubles, and then all bets are off.
It has been well documented that commercial banks, as well as corporate America, are flush with cash, perhaps record amounts, but have been reluctant to lend it (banks) or invest it (corporations). Obviously, it is the relationship between risk and return, but the larger problem is uncertainty about the future—the housing market, consumer demand, unemployment, entitlement reform, government deficits, reimbursement cuts, another severe recession, the banking system in general (again) and who is going to lead us after 2012 and will that person be able to provide a needed shot of confidence. There are good reasons for inaction on the part of a lot of people.
We remember a year or two ago when a seniors housing owner, operator and developer told us he was going to skip the fall NIC conference because he was tired of going from room to room and meeting with “lenders” who talked the talk but wouldn’t walk the walk. They just were not putting out any money. And this particular operator was successful with a solid track record, so you can imagine what happened to all those newcomers. At the time, that theme was pretty prevalent. But at the recent NIC conference, something seemed to change in the lending market, not that loans were being completed on site (perhaps they were), but the “buzz” was somehow different, and we were not alone in that feeling. It seems that competition is in the air, and we are talking about an increase in balance sheet lending, something that has been missing in recent years.
One welcome, if not surprising, piece of news was that Berkadia is back in the seniors housing business. While we doubt the Oracle of Omaha had anything to do with the decision (too busy trying to raise his taxes), we have heard that the decision to close up its seniors housing group a year ago and then get back into it had more to do with senior management issues at the corporate level than anything else and was not a statement about the desirability of the seniors housing sector. Anyway, they are certainly trying to make a big splash, having hired Steve Ervin away from Walker & Dunlop (W&D) in August, who then lured Dan Biron away, who had just joined W&D three months before from Lancaster Pollard, as his co-head of health care financing, followed by Chris Fenton who left Deutsche Bank Berkshire Mortgage to join the group. In addition to the regular menu of Fannie, Freddie and HUD, Berkadia will also be extending its bridge financing program to the seniors housing sector with loans between $5 million and $25 million (or larger) with terms of 10 months to two years for acquisitions, refinancing and development projects. This trio is fairly well known in the sector and we doubt they will be sitting around waiting for business cards to be printed up.
And then there was Capital One Bank, which is best known for its credit card business but which is about to become the fifth largest bank in the country. They have been on a hiring spree and while talking the talk, they appear ready to walk the walk if not run. They are in the process of setting up all their systems and procedures (it is a bank, after all) and have conservatively projected at least $500 million of seniors housing and care loans in 2012, upwards of a billion or more in 2013 and maybe more in succeeding years...Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today