EXPERT OPINION with Brian Beckwith

December 4, 2009

In this “Expert Opinion” interview, Brian Beckwith discusses his view of the lending market, what GE is interested in doing and what their lending volume will be for 2009 and into 2010.

Watch the Video     Listen now     Read the transcript

Brian Beckwith is Senior Managing Director for the GE Healthcare Financial Services Real Estate segment.  In this role, Brian is responsible for managing the real estate business providing debt financing and equity for the senior housing, skilled nursing, medical office, and specialty healthcare property sectors.

Brian joined GE Capital in 1998 and has held a variety of positions within GE focused on healthcare investing and real estate.  Prior to his current role, Brian served as the General Manager of GE Healthcare Financial Services European business which included real estate, leveraged finance, equipment finance and life science finance.   Until 2005, Brian served as Managing Director of Portfolio Management and Underwriting for the Healthcare Financial Services commercial finance team focused on real estate, asset based and leveraged finance investing.  Prior to joining GE, Brian’s professional career included positions with Taylor Consulting Group focused on mergers and acquisitions and healthcare, Dun & Bradstreet and Delta Air Lines.

Brian received his bachelor’s degree in finance from the University of Georgia and his MBA from Georgia State University.  Brian and his family currently reside in the Chicagoland area.

Contact Information:
Brian Beckwith, GE Capital
Healthcare Financial Services
500 West Monroe Street
Chicago, IL 60661
Brian.beckwith@gecapital.com
  
Watch the video:

Read the interview transcript:

Steve Monroe:
All right, I’m here with Brian Beckwith today. He’s a senior managing director of GE Capital in Healthcare Financial Services. Brian, it’s been a tough year for finance companies, there’s no question about that. Other than the obvious issues with Sunwest Management, how is GE’s senior housing portfolio performing right now?

Brian Beckwith:
We have exceeded even our own expectations, which were pretty high at the beginning of the year. The bad deals—Sunwest being one of them—didn’t turn out to be as bad as we thought. So we’ve had a great result from a loss perspective. Very minimal losses, almost zero. And we’re working through some of our tougher accounts. And it’s been a good result from that standpoint.

So our portfolio’s held up really well. I think we’ve seen a little stress that came from occupancy declines on assisted living and independent living. But LIBOR’s helped out a little bit and they’ve managed their costs well.

So, in general, every sector of our portfolio has done well and the bad deals which we knew were going to be challenges have worked out a little better than we thought they would.

Steve Monroe:
So that must really help things in terms of senior management, if everything in real estate has been kind of crashing and senior housing is still performing that well, you must be looking pretty good.

Brian Beckwith:
It helps. It certainly—as everybody has, I think, when you go through internal credit committees, health care is a little bit hard to understand sometimes. There’s a reimbursement component that could change with the stroke of a pen. And having this type of history and this type of environment sets us out a little bit better when compared against our peers. Even internally at GE, half the job sometimes is managing that internal process.

Steve Monroe:
And what types of loans are you looking at today in the seniors housing erea?

Brian Beckwith:
I don’t think we’ve changed a lot from what we normally do. So, portfolios of properties, as little as two or three on occasion, but three and upwards. And both skilled and assisted living is really where we’re seeing the activity. We’d like to see all across the board—independent, assisted, skilled. But generally our normal transaction is three to five properties, it’s a portfolio, it’s cross-collateralized and we’re somewhat indifferent as to what part of the industry, what sector. And we’ve actually had a little success with those this year.

Steve Monroe:
Good. And you’re a big company, you’ve got your size, you’ve got your balance sheet, you’ve got your industry expertise. Over the last several years, you were one of the few lenders, one of the go-to lenders for the big portfolio loans—I’m talking $100 million up to a billion dollars.

Brian Beckwith:
Right.

Steve Monroe:
When they come back, is that a business that you want to get back into?

Brian Beckwith:
It is. I think the days of doing a billion dollar deal for us are …

Steve Monroe:
Limited?

Brian Beckwith:
It’s going to be more difficult. But we’re thrilled with those, specifically two of the deals where we took really, really large holds. That’s Genesis Healthcare and Manor Care. And they’re both performing really well. There are issues that you deal with, because those maturities will come due one day. And we’re trying to work proactively with that right now with Genesis, I’m sure we will going forward, to try and manage that exposure that do some things good for us and good for them.

But, certainly, going forward, we expect—and GE expects and, specifically, GE Capital—to continue to commit money and funds to this industry. So billion dollar holds aren’t out of the question, they’re just going to be a little bit hard.

Steve Monroe:
Right. And even though you do have a very good reputation on the large loan side, just in talking with some of the people, I was surprised over the years that you actually did a lot of smaller, one-off property loans. Is that the activity you’re seeing in 2009?

Brian Beckwith:
You know, we’ve—we’re not as good at those. We’re not really good at one-off property deals. So we’re not doing as many of those and really haven’t done any this year. So we’re not seeing a lot–

Steve Monroe:
Really? Even a $20 million one-off?

Brian Beckwith:
No. That’s probably worse. A $20 million one-off is probably worse than a $7 or $8 million one-off.

We’ll do small portfolios, but I think the one-off properties, it’s not our strong suit. So we’re staying clear of those. We generally like the portfolios.

Steve Monroe:
Are you seeing many of the large portfolios right now? I mean, there’s not that much activity.

Brian Beckwith:
There’s not. There’s a lot of talk about activity coming in the fourth quarter. There’s a portfolio here or there that may trade and, if that happens, we’re doing our best to be involved.

Steve Monroe:
You want to be at the table.

Brian Beckwith:
Yeah, but I think, the transactions we’ve done this year have been with current borrowers who may be exercising a purchase option on three or four properties or those types of transactions. Where we’re the likely “go to” lender, because they’ve got a relationship with us. We can cross it with a different portfolio and kind of put some new funds out the door with somebody that we know and trust already.

Steve Monroe:
Gotcha. And when do you really think credit’s going to start flowing back into this market? In a meaningful way.

Brian Beckwith:
In a meaningful way? I think there’s a couple of triggers. One, people have to feel a little bit more stable and I think when the residential market comes back a little bit or at least people feel that it’s stabilized, you’ll see some folks come back into the independent and assisted side. I think there’s a little bit of a hangover with the health care reform things that are out there; until you have some clarity you probably won’t see in a meaningful way people coming back.

We’re looking forward to it because I think there’s been a lack of the big deals that we like to do and, when I say “big,” $50 million and above. And I think when we finally get that—so you have to have some clarity on reform. I think you have to have a little bit of clarity on some of the residential real estate, because it has brought a lot of what we see on the earlier problems.

Steve Monroe:
And the new construction market has been—people say it’s dead, there’s actually, in regional spots there’s some development going on. But as a lender, if you look out thinking into 2010, ’11 and ’12, you see very little opening up. Doesn’t that make you feel much more, you and your credit committee, feel much more secure about the industry?

Brian Beckwith:
I think it’s one of the strongest points. From a senior lender’s perspective, we’ve made that argument forever. So there’s always been the demographic argument that, here’s the growth rate of the people who need it and here’s how much is out there, so you need more facilities. And I think it’s more acute now because that exact dynamic that you described. So we’re thrilled about that and it actually has a little bit more weight now I think when we talk about it, both internally and when we look at deals on the market.

Steve Monroe:
I would imagine.

Brian Beckwith:
It’s a strong, strong point, I think.

Steve Monroe:
And I think you said this morning you’ve already done $300 million of new debt, new financings this year, which I was actually surprised—pleasantly surprised, I thought it would be a little bit lower than that. What do you think your full year will be and do you have a budget for 2010?

Brian Beckwith:
We’re working through the budget for 2010 now. I can see—and we expect to be more. I think we expect 2010 to be a more active year. I’m cautiously optimistic that we have three or four deals in the fourth quarter that would be new transactions, where there’s an opportunity to put some more money out. So you could see anywhere from, if none of those happen, sticking around where we are all the way up to probably $500 million of new volume for the year. And if things continue down the path, I would expect a little more activity next year, so there’s a little bit of a game going on internally to figure out what that budget would look like.

Steve Monroe:
Yeah, this kind of market, it’s hard to budget anything.

Brian Beckwith:
It is. If you’d asked me at this time last year, I don’t even know that I could have answered the question. And I’m sure I would have been wrong.

Steve Monroe:
And on the equity side, you guys did that large acquisition from Formation Capital, portfolios of leased skilled nursing facilities. You bought the real estate, all the tenants were in place and had nice coverage. Are you still in the market to do any more deals like that?

Brian Beckwith:
We’re not going to be doing equity I think next year.

Steve Monroe:
No equity.

Brian Beckwith:
We’re not—we’ll do some strategic pieces to support the deals that we have. But I don’t think, for the fourth quarter and probably not for 2010, that we’re going to be looking for big equity plays. So we’re going to probably focus more on senior lending.

Steve Monroe:
Senior lending. Okay, good. Well, good luck next year, I hope you hit the $500 million target this year and more next year.

Brian Beckwith:
I do, too. Yep, great, thank you.

 

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