EXPERT OPINION with Steve Gilleland

November 2, 2009

In this “Expert Opinion” interview, Steve Gilleland discusses the state of the lending market and some of CapitalSource’s loan programs, what types of borrowers are looking for capital and how he sees his loan volume in the next year or two.

As a Director within the Healthcare Real Estate Group at CapitalSource, Mr. Gilleland is responsible for developing financing opportunities for the long-term care industry, directing origination efforts, and the initial structuring of transactions. Mr. Gilleland has 16 years of healthcare real estate experience–specifically in the long-term care and senior housing industry–from a lending and operations perspective.

Prior to joining CapitalSource, Mr. Gilleland was a Vice President of Business Development for Centennial Healthcare where he executed $300 million in long-term care and home healthcare transactions. Prior to his experience at Centennial Healthcare, he served as Director of Marketing for Healthcare Capital Finance/ PRN Mortgage Capital for five years where he originated and closed $225 million in long-term care mortgage financings. From 1987 to 1993, he was a manager and senior accountant with the accounting firms of Price Waterhouse and Bennett/Thrasher.

Mr. Gilleland has served as a panelist at several industry-sponsored events discussing various long-term care and senior housing market topics. He is a non-practicing CPA and received his B.A. in accounting and finance from North Carolina State University.

Click here to listen or here to watch the video, or simply read the transcript below. 

Steve Monroe:
I’m here today with Steve Gilleland, director of healthcare real estate at CapitalSource. Steve, the market seems to be gaining some momentum these days. Are you seeing an increase in financing requests coming in to CapitalSource?

Steve Gilleland:
We are, Steve. Compared to the first half of 2009, I would say the last two to three months, a big pickup. Fifty, 75 percent increase in people asking for financing.

Steve Monroe:
Are they coming to you on kind of a “what if” basis? Like, what if I have this $40 million deal? What kind of terms will you give me? How fast is the turnaround?

Steve Gilleland:
We are seeing some of those what I would call tire-kickers, checking out just in general terms and parameters, mostly from the broker side, people checking out and making sure they’re getting the best deal for their client.

Steve Monroe:
Oh, the brokers, not the borrowers themselves–

Steve Gilleland:
Correct.

Steve Monroe:
Oh, okay. And what’s the ratio of your financing interest between skilled nursing and assisted living/independent living?

Steve Gilleland:
I would say it’s more heavily weighted toward the skilled nursing. Seventy-five percent to 25% for the assisted living.

Steve Monroe:
Oh, still that much interest in skilled nursing. Well, that’s encouraging.

Steve Gilleland:
Well, you got to also remember, Steve, to throw out the needle in a haystack, Sunwest, broker stuff that was coming to us all this year. I didn’t include that. If you include that, then of course the ratios go up.

Steve Monroe:
And how is your new fixed rate loan program going?

Steve Gilleland:
It is going well. We have still had most of our borrowers elect to go variable rate because variable rates are so cheap right now, with LIBOR at 25 bips [basis points], most folks are still electing to do the variable rate.

Steve Monroe:
Okay. And low leverage has been, or lower leverage has been the key of late. When your borrowers come to you and obviously we’re in the 65, 75 percent loan-to-value market, where are they getting their equity these days? How are they filling in that gap when they’re not getting the 80, 90 percent financing?

Steve Gilleland:
The deals that we have seen, Steve, are coming from their own pockets. They’re coming out of that, for the equity piece, from their own pockets. We have seen a couple of deals that haven’t been done yet, but they also asked the seller to take a big seller note back as part of the equity structure, as well.

Steve Monroe:
And are borrowers interested in the fixed rate financing or are they really just want that floating rate because the rate’s so low right now?

Steve Gilleland:
Right now, I’d say yeah, they’re sticking to the variable rate. The only—if they go fixed rate, Steve, they’re going to go, in my opinion, down the HUD route. Because it’s 5-1/4 percent.

Steve Monroe:
And then the borrowers who are going floating, are they swapping into fixed or just—are they riding the…?

Steve Gilleland:
For the most part, they’re riding the low float.

Steve Monroe:
Any forecast for next year, what kind of business volume you see in 2010?

Steve Gilleland:
We, compared to the pre-credit crisis days, we had a kind of a down year this year. But for us, we consider it pretty successful, almost $200 million in closings is what we’re looking to do in 2009. In 2010 and ’11, we’re projecting around $300 million for each year.

Steve Monroe:
$300 million, okay. All right, very good. Well, let’s hope we can hit that target. Thank you very much.

Steve Gilleland:
You’re welcome.

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