Steve Monroe talked with Angela Mago of Key Bank Real Estate-Healthcare Group recently about the type of lending opportunities she is seeking, her thoughts on the government takeover of Fannie Mae and Freddie Mac, and how current marketing conditions are affecting the seniors housing sector of the industry.
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Angela Mago joined Society National Bank, one of KeyCorp’s predecessor companies, in 1987. Throughout her career at KeyCorp, Angela has been involved in structuring and arranging financing for many types of health care companies including senior housing and care providers, hospitals, medical office developers, and health care Real Estate Investment Trusts. Angela has been the National Manager for KeyBank Real Estate Capital’s Healthcare Group since March 2003. Her current responsibilities include managing a $3.2 billion health care portfolio and directing the sales efforts of 26 health care professionals nationally, as well as supporting the efforts of 23 professionals in Key’s Community Bank in the development of health care business in Key’s 23 districts. The Healthcare Group at Key is focused primarily on arranging capital for seniors housing providers, hospitals, medical office developers and health care REITs, including construction financing, acquisition/bridge financing, and permanent mortgage financing. Angela received a B.A. in Economics from the University of Michigan and an MBA in Finance from Case Western Reserve University. Angela is on the Board of Directors of National Investment Center (NIC), American Seniors Housing Association (ASHA), the Healthcare Real Estate Insights Advisory Board, and Catholic Charities Corporation of Cleveland.
Contact Information:
Angela Mago, Senior Vice President/National Manager
Key Bank Real Estate Capital/Healthcare Group
127 Public Square
Cleveland, Ohio 44114
(216) 689 3247
Angela_Mago@keybank.com
Read the interview transcript:
SeniorCare Investor Managing Editor Steve Monroe interviews Angela Mago, Senior Vice President & National Manager, Key Bank Real Estate Capital-Healthcare Group.
Steve Monroe:
I’m here today with Angela Mago, the National Manager of the Healthcare Group at Key Bank. Angela, I understand Key Bank is still open for business. What kind of lending opportunities are you looking for in the seniors housing and care market today?
Angela Mago:
Well, today we are looking at opportunities to finance portfolio buybacks from REITs, acquisitions, refinances. We are looking at some bridge-to-agency executions and direct-to-agency executions as long as that window continues to be open for us. And also, as you know, there’s been a lot of activity in the REIT space with a couple of companies filing S-11s with the intention to go public and we’ve always been a very active REIT lender. So we are seeing some great activity there.
Steve Monroe:
Are most of the loan requests coming in that you’ve seen, are they for refinancings or acquisition financings right now?
Angela Mago:
Both. Probably more refinance, and, as I mentioned, many of the REITs that are interested in recycling their capital have given their operators an opportunity to buy back portfolios. So we’ve seen a lot of buyback of assets, which has been an interesting source of opportunity for us this year.
Steve Monroe:
With the current market conditions-and we know they’re not very good-has the profile of the type of borrowers you are targeting changed from a year or two ago?
Angela Mago:
I wouldn’t say the profile has changed. We aren’t doing as much development financing today. We have about 20% of our book of business that’s in construction or lease-up. And, given the market risks associated with the housing market impact, we’ve decided that 20% is enough exposure right now for us, so we aren’t actively seeking development financing. For borrowers whose primary need is development financing, we’ve had to slow down in that respect. And the only other thing I would say is that we are focusing on borrowers with enough scale where we can be meaningful and where they have needs not only for debt capital but for other bank products and services. Given our cost of capital today, we need to be very strategically focused on who we’re doing business with and making sure that we can get a full relationship, where we’re finding opportunities to generate fee income outside of the use of our balance sheet.
Steve Monroe:
And with the change in market conditions, have any of your underwriting criteria changed in the past year, such as loan-to-value, coverage ratios, the use of pro formas? Angela Mago: We always historically underwrote on a trailing basis and looked very carefully at execution risk and getting behind the EBITDA bridge from actual to proforma operations. So, from that perspective, we really haven’t changed how we underwrite. I would say loan-to-value has probably tightened a bit. That’s a function of not only our comfort level, but also where paper will clear the market if we’ve got to arrange a bank group. For example, if we were doing something in the low to mid-70s on a project last year, you might see lenders more comfortable in the 65% range today. Steve Monroe: Are borrowers easier to deal with today than two years ago?
Angela Mago:
I would say sure, that’s absolutely the case. We’ve always been very relationship-focused and I think the more that we understand what our borrowers’ challenges are-and they understand what our challenges are-we can all make good decisions together in a difficult environment. But, clearly, there’s not as much capital and there’s still a need, so people are friendlier to us today.
Steve Monroe:
At the height of the market, seeing that lenders competed almost entirely on price because it was basically a transaction-dominated business, how has that changed and how are you competing with other lenders today?
Angela Mago:
It’s all about execution. It’s all about our ability to execute and get the job done versus price. That’s very critical. And as I mentioned a few minutes ago, relationship is key.
Steve Monroe:
And are you finding that some of your competitors cannot execute right now?
Angela Mago:
Yes, absolutely.
Steve Monroe:
Want to name names?
Angela Mago:
No.
Steve Monroe:
We all know that if Fannie Mae and Freddie Mac disappeared from the seniors housing market, any liquidity we have now would mostly disappear. Any thoughts on what the government takeover of these two institutions will mean for the senior care industry?
Angela Mago:
I think it’s very hard to say. I think for the time being, they will continue to lend and it will be business as usual; but it’s very hard to say what the long-term prospect is going to be. It is concerning, because I think they’re a critical source of liquidity to the space. I would hope that they will continue to make capital available to seniors housing in some way, shape, or form in the future.
Steve Monroe:
Okay. And how are you, as a bank, responding to the downturn in occupancy on the seniors housing side that many providers experienced in the first half of the year? Have you had any requests for easing up on any loan covenants from any customers?
Angela Mago:
Where we’ve probably seen the biggest impact are projects that are in lease-up. And in some of those cases, where absorption has been slower than forecast, we’ve had to go back and rework some of the budgets. So sometimes that necessitates revising covenants, but we’re generally also resetting the budget and, if needed, shoring up the working capital reserves. So we’ve had to do a little bit of covenant resetting, but in general the existing book of business has held up pretty well. The projects in lease-up have been slower than expected to absorb and have needed the most attention.
Steve Monroe:
And what are you hearing from your customers on the assisted and independent side? Is the worst behind us on occupancy?
Angela Mago:
You know, it’s hard to say. I think it just depends on the project and the market. We have seen some rebound in occupancy that we’ve been pleased with in our portfolio. But I do think that, from what we can see, the impact of housing across the country is not over and there could be more compression. In our experience it’s been very project- and market-specific.
Steve Monroe:
Okay, Angela. Finally, can you make any forecasts? Get your crystal ball out? Can you guess when you think the capital markets will turn back?
Angela Mago:
That’s very tough to predict. I think the next year is going to be very rough. I don’t think the ripple effect of the housing crisis has played out fully. So, personally, I can’t imagine that any sooner than 2010 we’re going to see any real light at the end of the tunnel, but it’s very, very difficult to predict.
Steve Monroe:
Do you think it’ll get worse?
Angela Mago:
Very possibly, yes.
Steve Monroe:
That doesn’t sound good. All right, Angela, thank you very much for your time today.
Angela Mago:
Okay, thanks.
Recorded September 11, 2008
