EXPERT OPINION: A Conversation with Kathryn Burton Gray - December 1, 2010

December 1, 2010

In this "Expert Opinion" interview, Kathryn Burton Gray, Managing Director of CIT Healthcare, discusses some of their lending activities and strategies in the skilled nursing and assisted living markets since the company’s restructuring in 2009.

Kathryn Burton GrayWatch the video      Read the transcript

Kathryn Burton Gray is a Managing Director of CIT Healthcare, Long-Term Care and Real Estate. She is responsible for managing the national real estate originations team.

Before joining CIT, Burton Gray was one of GE Healthcare Financial Services’ top originators in the national Skilled Nursing sector. She has more than 24 years' experience in the banking and financial services industry, primarily in credit and relationship management. She held management positions for institutions such as Wells Fargo Bank and Imperial Bank, the predecessor of Comerica Bank. Kathyrn Burton Gray is an alumna of the University of Arizona in Tucson. 

Contact Information:
Kathryn Burton Gray
Managing Director, Long-Term Care and Real Estate
CIT Healthcare
1028 Van Dyke Dr.
Laguna Beach, CA  92651
917-679-9982
kathryn.burtonGray@cit.com

 
Watch the video of the interview: 
 

 

Read the interview transcript:

Steve Monroe:
The seniors housing market has been in need of debt capital for at least the last 12 to 24 months, given everything going on in the banking world and credit crisis. I’m here with Kathryn Burton Gray who is the Managing Director of CIT Healthcare, and CIT is back in the market, looking for senior housing loans, good quality providers.

Kathryn, since your parent company’s restructuring last year, what’s been the major focus of the health care group and specifically in the seniors housing market?

Kathryn Burton Gray:
The focus has been in what we’ve done best, which has been skilled nursing and assisted living. We really didn’t do much in independent living. So the restructure aside, we’re still looking at the same type of products that we’ve been doing in the past. Probably just more strategically with the borrowers that we have. We have some good relationships that we’d like to maintain. We’d like to introduce some new relationships, but within the confines of skilled and assisted living is really our focus.

Steve Monroe:
So no independent living, no CCRCs, no dementia.

Kathryn Burton Gray:
No, we’ll look at some dementia; I like that product a lot, but skilled is something that we do really, really well.

Steve Monroe:
Can you tell us anything about some of your recent lending activity?

Kathryn Burton Gray:
We just closed a rather large transaction on Friday and we’re very happy to be part of a bank consortium that did the transaction. It’s a very large one, it’s over $500 million, and it’s a new relationship for us although a lot of the operators within the transaction are well known to us and we’ve had some relationships with them in the past.

Steve Monroe:
So that gave you comfort in joining the syndicate of banks that—

Kathryn Burton Gray:
Plus I think the other lenders that were involved in the transaction gave us a lot of comfort.

Steve Monroe:
So now with the restructuring, now that you’re a full-fledged commercial bank, are you going to be doing all balance sheet lending, or are you going to be looking at any kind of agency stuff?

Kathryn Burton Gray:
We’re going to be looking at balance sheet lending, but we will be looking at transactions directly with our borrowers and possibly some participation. I don’t want to say “participations,” I would rather say club transactions. Maybe a small consortium of banks as well.

Steve Monroe:
It’s good to hear you’re doing balance sheet lending, because everyone else is talking Fannie/Freddie and HUD, so the more balance sheet lending we can get out in the market, I think it will be better for the industry. And on your loans, are you looking more at fixed rate or floating rate?

Kathryn Burton Gray:
We have the capacity to do both fixed and floating. I actually like the floating a little bit better, just because I don’t think borrowers like paying defeasance if they want to get out of the transactions early. I think it really gives them more flexibility to do more of the floating-rate transactions.

Steve Monroe:
Do they like floating now because floating tends to be cheaper, given where they’re based off of?

Kathryn Burton Gray:
Yes, but there’s also LIBOR floors that the lender makes sure that they get a return.

Steve Monroe:
And what kind of term for your loans are you generally trying to do on your balance sheet?

Kathryn Burton Gray:
Probably like five years. Three to five years is typical, although even with five-year deals, I’m seeing a lot of them are paying off early in I would say 24 to 36 months.

Steve Monroe:
Oh, really?  Any difference in term and rate that you charge for skilled nursing versus assisted living? Because I know your background is more on the skilled side.

Kathryn Burton Gray:
No, there isn’t really a difference.  Obviously the risk profiles are different and then we take that into account when we’re pricing a transaction. But leverage is really important, and whether it’s assisted living or skilled nursing, we want a certain amount of leverage in the transaction that we’d be comfortable with.

Steve Monroe:
And are you looking at the new normal of 70%?

Kathryn Burton Gray:
Yes, I saw that. Yes. I would say to 60% to 70%. Seventy-five is on the higher side, is probably the leverage that we feel most comfortable with.

Steve Monroe:
Okay. I realize 2010 was a transition year for you guys. In 2011, what kind of loan volume are you targeting to do in seniors housing and care?

Kathryn Burton Gray:
I think we’re looking at anywhere from $100 million to $200 million for 2011. I would say that 2010, as you had stated, was a transition year, particularly for CIT. I think it’s also for the industry as well, because the transactions that I’m seeing getting done have been mostly agency transactions. So I’m starting to see more balance sheet lenders out there. And it’s kind of a walk, not run. If the transaction makes sense, obviously the underwriting standards have changed, more conservative. We want more equity in the deal, we want proven operators. I think that’s always going to be important, and I think it’s important now. Trying to do turnaround transactions is going to be very, very difficult. We don’t want to take any kind of pro forma risk, and I think you’re going to see other lenders.

Steve Monroe:
But with so few lenders out there right now and specifically so few banks doing balance sheet lending, is your demand way in excess of that $100 to $200 million in terms of people calling you up or you calling people?

Kathryn Burton Gray:
More deals are coming online now that I’m seeing, but they fall into really two categories: either the very large transactions or they’re smaller, more regional operator transactions. Is there going to be enough capacity to do that? Yes, there is. You just have to pick your spots. You’re going to have to make sure it’s the right transaction for your institution, and that’s why we’re being more selective.

Steve Monroe:
How do you like the competitive field for you now, especially with fewer lenders out there and you coming back to the market. 

Kathryn Burton Gray:
I think it’s a great time—it’s a great time for us to be in the industry. We have to be bank-compliant now, so we meet the same standards as a lot of the banks, but we don’t require depository relationships to do the transactions, unlike a lot of banks. We’re not in that camp right now, so that gives us a tremendous amount of flexibility.

Steve Monroe:
I’m going to guess a lot of that was they’re repairing themselves and they need to make money in many different ways besides just loans, so—

Kathryn Burton Gray:
Absolutely, because the loans were loss leaders for them in a lot of cases. It was more of the relationship.

Steve Monroe:
All right. I’m glad you’re back in the lending business.  I hope you hit the $200 million mark next year and can maybe get above that the next year.

 

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.