EXPERT OPINION: A Conversation with Adam Heavenrich

January 8, 2013

In this "Expert Opinion" interview, Adam Heavenrich, Managing Director, Heavenrich & Company, Inc., discusses funding new construction, investment brokerage, REITS, financial consulting, and more........

Adam Heavenrich, Heavenrich & CompanyWatch the video      Read the transcript

Adam Heavenrich is a longtime transaction and finance professional with over 25 years of experience in structuring, selling, acquiring, and underwriting senior housing and healthcare real estate projects.

Prior to founding Heavenrich & Company, Heavenrich was senior underwriter for real estate lending at the U.S. unit of Sanwa Bank, then the world's fifth-largest bank. Prior to Sanwa, Heavenrich held positions with Shearson Lehman's real estate investment banking subsidiary. He began his career as director of sales and marketing for a New York Stock Exchange-listed healthcare real estate company.

Heavenrich earned a Diploma from the London School of Economics and his M.B.A. in finance and marketing from Northwestern University's Kellogg Graduate School of Management, with a concentration in healthcare and real estate finance. He earned his B.A. in economics and graduated with distinction from the University of Wisconsin at Madison. He serves on the board of Glencoe Education Foundation and lives north of Chicago with his wife and three children.

 

Contact Information:
Adam Heavenrich,
Managing Director
Heavenrich & Company, Inc.
203 N LaSalle Street, Suite 2100
Chicago, IL 60601
Office (312) 558-1590
Cell (312) 590-1590
Fax (312) 896-1501
adam@heavenrich.com


 
Watch the video of the interview: 
 

 

Read the interview transcript:

Steve Monroe
A lot of money is coming into the senior housing and care market and obviously we've had a very busy M&A market the past year. I'm here with Adam Heavenrich, who's the founder and managing director of Heavenrich & Company.

At Heavenrich & Company, you're a bit of a jack-of-all-trades. As a firm, where do you spend most of your time? On the M&A side of things, the financing side, other financial consulting?

Adam Heavenrich
We're splitting our time fairly evenly right now between the M&A side, the investment brokerage side, as well as the funding of new construction. Over the next few years, we think that there's going to be a lot of activity in terms of new construction, new development, that we also have traditionally, historically been known on the M&A side. So we're financial advisors.

Steve Monroe
On the M&A side, what's the main reason why your seller clients are selling today?

Adam Heavenrich
Clients are—actually, there was some motivation fairly recently in the skilled nursing sector in terms of the uncertainty of reimbursement that was causing some anxiety with the owners that motivated them to sell. But we've had a very good run since 2010 in terms of deal volume. As you know, it's been over $10 billion a year over the past two years, because you have a terrific environment. You have low interest rates, you have low capital gains. And people have built up a lot of equity on the assisted living side, certainly, and just want to take a few chips off the table while the environment is so positive.

Steve Monroe
Are your clients more on the assisted living side or the skilled nursing side?

Adam Heavenrich
I was looking back and generally we think of ourselves as evenly split. Over the last nine months we've done about $130 million of transactions and about two-thirds of that was nursing, as I said, skilled nursing, I think simply because of the change in reimbursement.

Steve Monroe
On the buyer side, in your travels is there one aspect of a target facility or portfolio that the buyers are really looking for, that kind of convinces them to do the deal?

Adam Heavenrich
Well, again, as you know, Steve, the majority of the transactions in this very strong market since 2010 have been run by the REITs and they've been driving the transaction volume. So the REITs have been looking for two things, yield and lease coverage. So if the yield is there and they can have the coverage, you can make a transaction work.

So, by way of example, I think we secured about $240,000 per bed for a skilled nursing facility that was a somewhat older facility, but they had the lease, yield and we structured it with adequate coverage so that everybody was comfortable.

Steve Monroe
Oh, my god, I have to go look that one up. On the financing side of your business, can you describe a typical loan you've put together and for what type of borrower?

Adam Heavenrich
Again, we're more advisors. We're financial advisors, capital advisors and what we like to do is think that when a client comes to us, we provide the integrity of judgment in terms of analysis of their situation. So what we try to do is craft a solution that makes sense for what they need. We're not just going to come with them and tell them that they need to sell a facility. We try to develop a solution that meets their needs.

People aren't generally coming to us for debt. They'll come to NIC if they want to identify a single loan. If somebody comes to us and says corporately, we want to make a very large acquisition. We need to figure out the best way to approach that, how do we do that? We'll take a look at them and, you know, the cash flows with in the corporate level, their level of leverage they have on a facility level and an understanding of their growth plans going forward and we'll craft a solution that best meets their needs.

Steve Monroe
The environment has changed and continues to change. Are you finding now that borrowers have no pressing need, as opposed to three or four years ago, no pressing need to refinance now that the Fed has come out and said, Well, we're going to keep interest rates close to zero through 2015. So why rush to refinance?

Adam Heavenrich
Well, again, I don't think it's a refinance-driven market. I think that the good operators are seeing the next five years as a great opportunity to grow and to continue to grow, so they're thinking, and they should be thinking, how do we effectively meet the demand of our customers and grow our operations. So how do we generate equity to do that, how do we generate sufficient capital and what will our capital structure look like, you know, in five years? So we're trying to help craft that. And there's plenty of demand for that.

Steve Monroe
Last summer, you announced that you were exclusive advisors to a new $200 million fund, pretty much for any type of financing or acquisitions in assisted living and the memory care side. Can you give us a little flavor about what you're looking for? What size and what kind of transactions?

Adam Heavenrich
Sure. The fund is driven by development needs, so whether it's related to new construction or renovation, the core of the fund would like to keep transactions under the $15 million threshold, although we now have a solution that goes above the $15 million threshold. The fund will provide the entire capital stack to—what we're looking for is really good operators that have done a really good job and are looking to the next five years, as I'd said, and saying how do we most effectively and efficiently grow and build our company without splurging all our capital on one project? They want to diversify, but expand in the markets where it makes sense to expand.

Steve Monroe
For new construction, the fund will do 100%, basically equity financing to get the property built up?

Adam Heavenrich
That's correct. We're looking to provide 100% of the financing, but we're looking for very strong operators. The commitment that we're looking for from the operators is that they need to be diligent in terms of having known their market and where their new market needs are and they need to commit to a lease.

Steve Monroe
I would think you'd have a lot of demand for that, especially on the 100% financing on development as development starts kicking up, so you should have a lot of demand for those funds, just have to find those good operators.

Adam Heavenrich
Yes.

Steve Monroe
Now, 2012 sounds like it was a pretty good year. What are the prospects for this year?

Adam Heavenrich
I think we're going to be very, very busy. I think we're already seeing our pipeline filling up for 2013. I think it probably will be more weighted heavily towards the new development, new construction. But there's still plenty of M&A activity. But the bulk of it is probably coming on the new development side.

Steve Monroe
Good. All right, well, thanks for the update.

Adam Heavenrich
Thank you, Steve.

Steve Monroe
Good luck in 2013.

 


 

 

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