EXPERT OPINION: A Conversation with Jim Seymour
October 8, 2012
In this “ Expert Opinion” interview, Jim Seymour, Senior Managing Director, Healthcare Real Estate, GE Capital Healthcare Financial Services, discusses skilled nursing portfolios, RUGS IV, GE, loans and more........
Jim Seymour is Senior Managing Director for the GE Capital, Healthcare Financial Services Real Estate segment. In this role, Jim is responsible for leading the healthcare real estate business providing debt financing and equity for the senior housing, skilled nursing, medical office, and specialty healthcare property sectors.
Jim has held various positions within GE focused primarily on corporate development and finance. Most recently, Jim led the Business Development / M&A team for GE Capital Americas where he was responsible for all M&A activity and new vendor financing program development across the leasing and lending businesses that comprise GE Capital in the US, Canada, and Latin and South America. Prior to that role, Jim spent three years as the Business Development Leader of GE Capital, Healthcare Financial Services where he closed over $3B in related asset acquisitions and divestitures in the healthcare space. He also led GE Capital’s equity group focused on healthcare private equity investments during that time.
Jim graduated from the University of Notre Dame with a B.B.A and received his MBA in Marketing and Finance from the Kellogg Graduate School of Management at Northwestern University. He resides with his wife Lisa and their four children in Winnetka, IL.
Senior Managing Director
Healthcare Real Estate
GE Capital, Healthcare Financial Services
In a lot of the large transactions going on in the senior care market, REITs are making a lot of the headlines. But there are other finance companies that are fully capable of doing very large transactions. I'm sitting here with Jim Seymour. He's a senior managing director of GE Capital's health care financial services group. Jim, it looks like 2012 is going to end up being a great year for all of you. Before the year is over, you already have $1 billion in financing and you're probably going to do more. I know you did a large $445 million deal for Tandem Health’s skilled nursing portfolio. Do you have any other large skilled nursing or senior housing deals in that portfolio in your year-to-date numbers?
As you said, we've done about over $990 million in financing when we issued our September press release. We'll probably end up just over double that for the year. Certainly, there will be some big transactions in that number. The way that breaks out, for the last two years we've been running at about $1 billion to $2 billion a year in financings, a little over 40 to 50 transactions a year range. There will be three or four big deals in that number and then the most will be in that $20 million to $50 million range.
The Tandem transaction is one we announced, we included. We don't talk about specific customers unless we have their permission, but there's another $200 million senior housing deal in there where we held about $120 million. There's another REIT finance of a senior housing deal in about the $135 million range. The rest would be flow transactions, more in that $15 to $20 million to $50 million range.
What attracted you to the Tandem portfolio for such a large loan in their recapitalization? What did you like about that?
The large transactions have been a big part of the heritage of GE Capital as a finance company. We get comfortable with the large transactions based on a few metrics. One is that we like the bigger deals. We even get comfortable with bigger holds in the bigger deals because we get a spread of risk. So we get multiple properties across multiple states where we feel like we have a diversified exposure.
Two, we're only going to do large transactions with owners and investors of real estate who have a successful track record of investing. We know we're going to reinvest in their properties. Certainly in this case that's the case, with the owner of the Tandem business. Also, we need to be comfortable with the operator, how they manage their business and how they adapt to change on the reimbursement front, etcetera. So really, we had all of those in the Tandem transaction.
Then lastly, whereas in the past we'd do a $400 million deal, we would have held the whole $400 million. To do large deals like that today, we look at transactions that we can bring in some partners and syndicate some of the risk and that was certainly the case there as well. We held slightly less than half of that loan and we have three or four other financial institutions in that loan with us.
Are you looking to do any other large skilled nursing portfolios in the sector as opposed to senior housing?
It's interesting, we said last year at this time we were going to be very selective in the skilled nursing facility space as we waited for the RUGs-IV rollback to work its way through and I think that's been the case. We haven't seen as many skilled financing opportunities this year. I don't know that there have been as many M&A transactions, at least at the size level that we normally play in, this year.
So I think the answer is we haven't done just in terms of—that's obviously a big deal, so even if we do $2 billion of financing this year it will be a significant percentage.
But in terms of numbers of deals, we've done fewer skilled nursing facility deals than we have in the past, but I think that has less to do with our appetite for the space and more to do with we haven't seen as many. We just haven't seen as many transactions. I think particularly early in the year, when we were kind of in those first few quarters of post-RUGs-IV rollback, there was a significant bid-ask spread between what sellers were willing to sell at and buyers were willing to buy at. I expect we'll see more volume as the year goes through. But that's the only big SNF deal this year.
Some lenders are taking a step back obviously with the economy, with the election. They're worried about Medicare and Medicaid risk. Especially with large transactions, you can't really financially hedge against it, but how do you deal with that risk and underwrite that risk?
We're comfortable underwriting. One of the nice things about having a large group of people focused on health care, not just in real estate but in health care lending, is we can make some investments to really understand those risks. We have what we call our investment research group, we have a device expert, we have a pharma expert and we have a gentleman who is a senior housing and care expert. His job really is to understand Medicare at the federal level, Medicaid at the state level. We build that into our underwriting for every single transaction. So we'll have an expected case, we'll have downside scenarios.
To give you an example, when the initial RUGs-IV was implemented a couple years back, we didn't believe it was permanent when we saw what it was going to do. We didn't underwrite to that benefit. So as a result, we really didn't have a lot of stress in our portfolios as a result of it because we never built it in in the first place.
We pay a lot of attention to it and we build it into our projections, I think that was part of the problem earlier in the year. It was because the impact was going to vary by operator; it was very hard for lenders to look at cash flow and underwrite. This was because you had trailing data that were on an old set of rules, right? So I think now there's been three or four quarters of data with the new rules, I think you'll start to see lenders get a lot more comfortable with what operators are doing.
I know you do a lot on the skilled nursing side. Are you trying to grow your assisted living, independent living and senior housing private-pay portfolio?
If you take a look at the volume that we're going to do this year, because there's fewer skilled nursing, it does mean we are doing quite a bit in the senior housing space. It's actually good to be here and listen to what other folks are saying about what they see in the M&A markets, etcetera. But absolutely, I think the private pay, the IL and the AL and the memory care is absolutely a huge part of what we're doing. In terms of number of transactions this year it will dwarf the number of skilled transactions that we do.
That's kind of a change, it seems, from the past.
Our volume in the past has been relatively evenly split between the two. If you look at us over the last couple of years, we had a couple of very big positions in skilled nursing, which were refinanced in 2011. So our skilled book as a percentage of our total is smaller now than it's been in a decade.
As a lot of people know, going back 10 years, GE was always kind of known as one of the few go-to firms if you needed a $500 million loan, $1 billion loan. There aren’t many of those out there, sometimes it's easier to do the big deals, but are you tapping into the $20 million to $40, $50 million loan size a lot?
On the larger deals, we absolutely still like to do those transactions. I think one of the things going on today is with the tremendous amount of REIT activity, a lot of those larger deals don't need third-party financing. But in the ones that are there, we're very aggressive on them. We like to do them. Like I said, the big difference is we don't hold 100 percent of those loans anymore. We'll hold anywhere between a third to 40 percent of those loans.
But with less of the larger deals being available, we absolutely are spending a lot more time and energy focusing on what I call the mid-sized deal. We're never going to be the right borrower for one SNF in a rural location, but for smaller portfolios, as small as $10, $12 million up to $50 million, we're trying to be much more competitive in that space so we can have a much broader presence in the market space.
I'm not going to project, but say it's around $2 billion of volume this year that might be similar to what we did in our best years before the economic crisis. Where that might have been 12 or 15 transactions in a year, it will be more like 40 or 50 transactions for us today.
Any forecast for 2013, what you think your volume will be?
I would be very happy if we could have a year very similar to this year. I think we're trying to grow the debt business and I'm sure I would be handed a target for next year that looks a lot like what we have now, somewhere in that $2 billion range, $1.5 billion to $2 billion.
That's certainly what I'd say is an industry leader, so that's up there. Well, thanks for sitting down with me and catching up with what you're doing.
Thank you very much, Steve.