EXPERT OPINION: A Conversation with Jim Sherman

April 24, 2012

In this “Expert Opinion” interview, Jim Sherman, Senior Managing Director of Red Mortgage Capital, LLC, discusses refinancing, loans, new banks in the market, and more.
 

Jim ShermanWatch the video      Read the transcript

Mr. Sherman joined RED in June 2000. He has more than 40 years of experience in the seniors housing and health care industry, and is an expert in providing financial advisory services in seniors housing and health care finance. Beginning in 1969, he worked as a Certified Public Accountant advising health care, long term care and seniors housing clients on accounting issues, third party government reimbursement issues, and real estate and corporate finance issues. He has experience in health care and seniors housing in both the public and private sectors.

During his career, he has advised clients and completed financings totaling hundreds of millions of dollars. These financings include conventional bank debt for new construction and acquisitions, bond financings, taxable and tax-exempt financings, Fannie Mae, and FHA guaranteed financings utilizing several of the programs for housing, health care and hospitals. Previously, he served as the President and Chief Executive Officer of Churchill Estates, Inc., an assisted living provider. Earlier, he was Senior Vice President of Finance at CareMatrix, Inc. where he structured financings for the company’s aggressive development and acquisition plan. Mr. Sherman’s previous experience also includes more than twenty-five years in public accounting as a health care consultant, including serving as the National Healthcare and Public Finance Partner at Laventhol & Horwath.

Mr. Sherman is a graduate of Macalester College and received his Certified Public Accountant certificate. He is a recognized leader in the seniors housing industry, having served on the boards of many professional organizations, including a term as President of the National Association of Seniors Living Industries.

Contact Information:

Jim Sherman
Senior Managing Director
Red Mortgage Capital, LLC
2 Miranova Place, 12th Floor
Columbus, OH 43215
614.857.1664
jfsherman@redcapitalgroup.com

 

Watch the video of the interview: 

 

Read the interview transcript:

Steve Monroe
A lot of people think the debt markets are coming back, we had a very good year in 2011, and it has continued to be good in 2012.  I’m here with Jim Sherman.  He’s a senior managing director with Red Capital Group.  Jim, interest rates have remained pretty low, and pretty much historic lows, and everyone is expecting it to stay that way this year.  Do you find almost everyone wants to refinance right now, and if not, why wouldn’t you refinance?

Jim Sherman
Well, most people are looking to refinance.  A lot of refinancing was done in 2011.  One of the negatives on refinancing right now is the fact that interest rates are low, and everybody thinks now because the Feds are going to keep rates down that maybe they can wait awhile.  Maybe their property will get a little better and they can get greater proceeds.  But I think that 2012 is a transition year because a lot of refinancings were done in 2011, and I believe that their emphasis is going to be on reconstruction, remodeling and renovation of properties.

Steve Monroe
What about, what I would call the average properties?  Not the A properties built five years ago and all that.  Is it difficult to refinance them?

Jim Sherman
I think it is. Lenders are becoming more and more cautious about type A properties versus B or C properties.  But one of the ways that you can work around it is by developing your refinancing funds for renovation, to fix it up, to meet any deficiencies that you see in the building. But the other area that I think you really should focus on is not just the building, but who is managing the building? Who is the sponsor?  That is as critical as the quality of the building.

Steve Monroe
What’s the common question or the most common question a borrower comes in and asks you, as the lender?

Jim Sherman
Well typically, in this market, the first question that anybody asks is, how high up will you go into loan to value?  Will you give me an 80% loan?  More of an emphasis on proceeds; everybody expects a low interest rate.  And the second question after proceeds is how long of a term loan can I get?  So those are the two major questions you seem to get all the time.

Steve Monroe
I look at the market and to me, as an observer, it looks like the lending market has improved in the last 12 to 18 months.  Do you think it has?

Jim Sherman
I’m afraid there’s more competition now than I’ve seen in a long time.  Yes, the lending markets—

Steve Monroe
Well, that’s an improvement for the borrower.

Jim Sherman
That’s an improvement for the borrower, yes.  The lending market has opened up, there are several new companies.  Banks are getting back in.  I even have found some construction lenders who are getting into the business now. I think the market for the borrower is broadening across the board.

Steve Monroe
Well that’s good.  And then Fannie and Freddie, I mean we all know about some of the problems they had, or have, but they are still great deals from a cost basis and a timing perspective.  Do you have any real idea what their true capacity to lend is in seniors housing?

Jim Sherman
No, I don’t know the true capacity.  I mean, both Freddie and Fannie are very committed to the industry and plan to stay committed to the industry, but like many of the lenders, they’ve tightened their credit standards a bit.  They’re looking more for the A properties. They’re being a bit more selective, but very active and a lot of opportunity for borrowers to look at either one or both.

Steve Monroe
So other than Fannie, Freddie Mac and HUD, you said you’re seeing more of the traditional lenders coming back into the market?

Jim Sherman
Yes, yes.  We’re seeing banks come into the market, and we’re seeing new companies being developed, finance companies, and mortgage companies like Red Capital coming back into the market.

Steve Monroe
If people are not coming back, what do you think would be keeping them from coming back and lending in the seniors housing business? 

Jim Sherman
That’s a tough question. I think my first answer would be because they don’t understand the industry. You know, a lot of people saw this Medicare cut of 11.3% in the skilled sector, and they somehow thought maybe this applied to the whole industry. There are a number of lenders that just still, after all these years, really don’t understand the industry that well, and they don’t like the real estate class.

Steve Monroe
Well, everyone has been educating and educating, and somehow it just doesn’t work.  What do you think Red Capital’s fastest growing business line in seniors housing and care will be this year?

Jim Sherman
Continued emphasis on the assisted living and Alzheimer’s, doing joint ventures, and participation with other lenders.

Steve Monroe
All right, well good luck.  You had a good year last year. I hope this year continues to be a good year.

Jim Sherman
Thank you very much, Steve.

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Good Insight

As usual, a very insightful interview. Looking forward to the next one. -Sal

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