EXPERT OPINION: A Conversation with Doug Bath

June 1, 2010

Doug Bath

 


In this "Expert Opinion" interview, Doug Bath, group head of Health Care Finance at Walker & Dunlop,  discusses the hot topic of financing in today’s senior housing and care market, and what the options are for borrowers who are interested in either construction or acquisition financing.
 

Listen now     Watch the video      Read the transcript

Mr. Doug Bath, group head of the Healthcare Finance group, is responsible for all aspects of Walker Dunlop’s healthcare lending initiatives throughout the United States. Since 1995, Mr. Bath has held leadership roles in the senior housing industry. He has worked for both an operator, Sunrise Senior Living, Inc., and a real estate investment firm, JPMorgan. While at Sunrise, Mr. Bath served in many capacities including operations, debt and equity departments and most recently was department head / senior vice president of Sunrise’s equity transactions / asset management department, which oversaw Sunrise’s 448 facilities as well as its equity transactions initiatives. While at JPMorgan, Mr. Bath was a vice president and played a key role in raising and investing a $700M+ equity fund. Throughout his career, he has been involved in over $6.5B of senior housing transactions. Mr. Bath completed his undergraduate studies at Virginia Tech and his master’s studies at University of Pittsburgh.
 
Contact Information:
Doug Bath
Group Head, Healthcare Finance
Walker & Dunlop
dbath@walkerdunlop.com
Phone: 301/215-5501

 
Watch the video of the interview: 


 
 

Read the interview transcript:

Steve Monroe:
Everyone knows that financing is really one of the hot topics in senior housing and care these days.  There's just not enough of it out there, and we're hoping that in 2010 that will change a bit, but to talk about this subject I have Doug Bath.  He's the group head of Health Care Finance at Walker & Dunlop and has been in various roles in seniors housing for the 15 years.

Doug, I know Walker & Dunlop does Fannie Mae.  You do Freddie Mac.  You do HUD.  Where do you see the most activity today?

Doug Bath:
Clearly, HUD is very active.  I think HUD is getting a lot of attention because they're one of the few lenders that are doing construction financing, but HUD is also very attractive for a lot of folks because the interest rates are so low, the terms are so good.  Fannie and Freddie are also very active.  Freddie Mac's CAP ARM program is much sought after, especially in multifamily but also in seniors.  It's a great floating rate option, and then on Fannie Mae, their credit facilities are pretty popular as well for the bigger portfolios.

Steve Monroe:
But with Fannie and Freddie, with their particular financial problems, is it getting harder to process loans through them?  Are they tightening up or changing any of their underwriting criteria, or is it just pretty much business as usual because they've had such a success in the seniors housing area? 

Doug Bath:
The one message that a Fannie Mae or Freddie Mac representative would like to get out is: We are open for business.  And they are.  They are hungry to put out dollars.  I think it's interesting in that the early part of 2009 the MBS market came back with pretty strong interest and continues to have interest and demand.  So, that has kept rates very low.  Obviously the ten-year Treasury is low, but as it relates to the corporate issues that are going on with Fannie and Freddie, I don't really see much of that.  I don't see any tightening of underwriting principles in the last 12 or 15 months.  Obviously, prior to that there was some tightening.  Pretty much business as usual.

Steve Monroe:
Good.  And Walker & Dunlop's client base on the senior housing side, is it more assisted living, independent living, skilled nursing or completely across the board?

Doug Bath:
Well, up until a year ago it was exclusively assisted living with some very well known borrowers and managers and then also some more regional or smaller.  A year ago we merged with a Credit Suisse subsidiary called Column Guaranteed.  The reason we did that is because they had a Freddie Mac and a HUD license.  Prior to that, we only had a Fannie Mae license.  So, now for the last year, we've been able to offer Fannie, Freddie and HUD to our clients. 

What that has brought us is a different sort of customer base, and that has obviously opened us up to the skilled nursing sector, and we're seeing a lot of interest there. 

Steve Monroe:
Are borrowers today realistic in terms of what they can get in the market, or are they just happy to get anything?

Doug Bath:
Well, I guess, being realistic is a relative term, right?  They are happy to get anything.  I think they're realistic on their interest rates.  I rarely find a borrower disappointed in the interest rate.  If there's one thing that they more tend to get disappointed with, it would be the loan-to-value, the general proceeds.  With the underwriting criteria really exclusively focused on the historical performance, you often get challenges with borrowers really wanting to price off of the future, and so that's where the disconnect happens.

Steve Monroe:
With that loan-to-value, obviously the loan-to-value has decreased.  Where are all your customers getting their equity?

Doug Bath:
Well, in terms of construction or refinancing –

Steve Monroe:
Construction, acquisition financing, you name it.  Where's the equity coming from?

Doug Bath:
Well, first of all, there's not very much acquisition financing going on.  I don't really necessarily see very much of that.  I think what I tend to hear from the equity investors (or from our borrowers) would be that they, as a sponsor, have an equity investor that is willing and ready to invest subject to that same sponsor lining up the debt.  So, it's kind of a chicken and the egg type thing where you end up parallel tracking your equity and your debt.  Once the debt is on board, the equity quickly follows suit. 

In terms of the borrowers having to come up with extra cash, I don't necessarily see that, but again, with agencies it's more about financing stabilized properties, not necessarily the ones that are distressed.

Steve Monroe:
And are you seeing much interest in construction financing?  On the skilled nursing side?

Doug Bath:
Not so much in skilled nursing.  The CON process has really curtailed that quite a bit.

Steve Monroe:
Assisted living?

Doug Bath:
I get a lot of interest from assisted living developers.  I don't know how many calls a week or a day I get, but it's many.  We don’t do a ton of that business because we really are talking about HUD then, and HUD will do AL new construction, but to say they're bullish on that would be probably an overstatement.  They're cautious.  They are, again, open for business, but they're cautious with investing in AL new construction because they've analyzed their existing portfolio and have found that the higher number of claims or foreclosures come from assisted living as opposed to their skilled nursing portfolio, and of the assisted living, the higher percentage of those foreclosures come from assets that have just been opened for one to three years.  So, they're still in lease or the borrower is not able or willing to put in extra cash to fund shortfalls and, therefore, turns the keys over to HUD.

Steve Monroe:
And your forecast for this year, are you going to have a solid year, do you think, or similar to last year?

Doug Bath:
We're going to do more than last year.  Last year was a very good year for us, not just from a company perspective but also senior housing.  This year we're expecting a very robust year on all agency fronts.

Steve Monroe:
Good.  Okay.  Thanks for spending some time with us.

Doug Bath:
Thank you.

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