EXPERT OPINION: A Conversation with Kathryn Sweeney

October 20, 2010

In this "Expert Opinion,” Kathy Sweeney, Principal of Milford Senior Housing Advisers, LLC, discusses the issue of accessing capital and provides some solutions to some of the capital problems for the senior housing industry.

Kathy Sweeney

Watch the video      Read the transcript

As Principal with Milford Senior Housing Advisers, Kathryn provides strategic advice to owners, operators and capital providers in the senior housing industry.   Through Kathryn’s capital markets and senior housing industry experience she advises US and international clients on strategies that will optimize results, promote liquidity, and effectively manage relationships. 

Kathryn has over 14 years of experience in developing and executing senior housing investment strategies. In her prior roles with The GPT  Group and AEW she was responsible for more than $4 billion of senior living investments in major metropolitan markets in the US. She has more than 30 years of experience in the commercial real estate sector where she was involved in acquisitions, asset management and dispositions of all property types across the nation.

Kathryn is the Immediate Past Chairwoman of the National Investment Center for Seniors Housing and Care Industries (NIC), she serves on the Executive Board of American Seniors Housing Association (ASHA), is a member of New England Women in Real Estate (NEWIRE), is a graduate of Boston University and has earned a certificate in Strategic Decisions and Risk Management from Stanford University.
 

Contact Information:
Kathryn Sweeney
Principal
Milford Senior Housing Advisers, LLC
75 Arlington Street, Suite 500
Boston, MA  02116
Office: 617-347-7621
email:  ksweeney@milfordsh.com
 
Watch the video of the interview: 

 

 

Read the interview transcript:

Steve Monroe:
As everyone knows, the debt markets are not that great; the equity markets aren’t that great.  But there’s a lot of money out there, it’s just a question of how do you access that.  How do you advise people who need the capital?  How do you advise people who want to put the capital to work?

I’m here today with Kathy Sweeney, who’s a principal at Milford Senior Housing Advisers, which she just started.  And she’s going to provide some of the solutions to some of the capital problems for the senior housing industry. 

Kathy Sweeney:
Solve all your problems. 

Steve Monroe:
We hope so.  And after a decade of investing and advising.  You worked with AEW; you were the advisor to GPT on their investment in the Benchmark Assisted Living’s portfolios.  Now you want to attract investors to the industry.  And primarily, investors with a long-term investment horizon; and, obviously, looking at good opportunities.  What’s your first point of attack, now that you’ve launched your new career?

Kathy Sweeney:
Well, Steve, thank you for the opportunity.  And I would say my first point of attack is to put senior housing and capital into two buckets.  So I have the first bucket, which is all of those owners, operators and investors who are already in senior housing.  And that is my first approach, to really talk to the folks who are already in the industry.  And that could be capital. 

Steve Monroe:
See what they need. 

Kathy Sweeney:
See what they need.  For the operators, owners, see what they need.  Investors, see what they need.  Many of the early investors are looking to have some sort of exit.  And then, when I’m finished with that bucket, I go to institutional capital.  And that’s where I get to have a few already partially baked strategies but can go to institutional capital and find out what do they need, how do they view the sector.  Inform them of how the sector has performed.  Some of them have already invested, many of them have been hearing about it through the NCREIF information.  And, from my ear to the ground, there is some movement out there in institutional land in wanting to know more and understand more. 

Steve Monroe:
You know the private equity world pretty well, given where you’ve worked.  And, to me, the performance of the industry has been so good.  This should be the ultimate no-brainer for some of these people that you’re going to talk to.  What’s the hold up?  What’s their cause for concern for investing here?

Kathy Sweeney:
It’s not as if capital has had nothing else to do for the last couple of years.  Capital has certainly not been putting its big toe in the water on new strategies.  Capital is much more comfortable in their original sandbox, or their most recent sandbox in investing and where their comfort zone is.  Where they have history and where they have good performance in the past.  So the hurdle for seniors housing is both understanding the risk and understanding the opportunities and understanding how best to evaluate a particular opportunity or particular strategy.  And even though those of us who are in seniors housing like to think of ourselves as a big pond, we are still a small pond; we are still a niche.  In today’s environment of a great deal of uncertainty and caution, you’re not going to find institutional capital that’s going to want to make a big splash in a brand new niche. 

Steve Monroe:
But a niche that has outperformed every other sector.  To me, that’s a thing to harp on. 

Kathy Sweeney:
Absolutely, couldn’t agree more. 

Steve Monroe:
Now, with all your work with GPT and travel back and forth to Australia, you’ve probably had a little bit of an ear to the ground on any kind of institutional money there.  Are you going to be looking at any kind of foreign money that came in the market ten years ago and disappeared, it seems. 

Kathy Sweeney:
That’s an interesting question.  With regard to first Australia, there is a lot of capital in Australia.  And I could go to Australia for capital.  The issue is that for Australians to invest here in the U.S. in a niche business, it would be a hurdle.  It would probably be something that would be part of a much larger investment strategy for them.  Call it an opportunistic fund, so to speak, that would be opportunistic in a lot of different kinds of real estate, not just seniors housing.  So to come out of Australia with dedicated seniors housing money would not be the most effective way to start.  And then, in terms of other capital— I’m three weeks old.  I don’t have a great deal of resources at this point.  So my view is because there’s NCREIF information and because of the domestic investors who have done quite well in the sector here, that it makes most sense for me to go domestically into domestic sources.  That said, if there were some offshore sources that were already looking at it and wanting some further advice or due diligence or insight, I would be happy to take that on. 

Steve Monroe:
And with the increased sophistication of the seniors housing business, since the mid-1990s— that was always a cause of concern.  Is that concern pretty much gone from an investor point of view?

Kathy Sweeney:
And the concerns, specifically about?

Steve Monroe:
Not enough managers out there.  If things go wrong, the managers really don’t know what they’re doing.

Kathy Sweeney:
You’re talking about the operators, right?

Steve Monroe:
Yes, the operators. 

Kathy Sweeney:
The operators…That’s a very good question, because I ask myself this a lot.  First of all, having spent three and a half years embedded with an operator, I have a much deeper appreciation of the challenges, the complexities and the successes and the failures.  And, truthfully, the pending failures are pending successes that an operator can get themselves into.  So if I think back to my career early in the sector, about 14 years ago, I wish I knew then what I know now.  The sophistication of operators generally has increased.  The number of talented professionals in the industry has increased.  That said, it’s a highly fragmented market. 

I think there was a recent study done for the NIC investment case that says the top ten operators operate only 25% of senior housing stock, which is still pretty amazing.  Fourteen years ago, we looked at the sector as a consolidation play.  And here it is, still a consolidation play, all this time later.  And it really is a sector that needs more operating talent.  And it will have a voracious appetite for operating talent.  There have been some mergers and acquisitions that have occurred that have then allowed some talent to go to some of the smaller regional operators.  I think the industry has done a fairly good job at educating and providing experiences for operators.  But absolutely, operating business is inside real estate; and at the end of the day, the value is very largely driven by the operation that occurs inside and strong operating talent is a must. 

Steve Monroe:
So, much better than the 1990s, but still room for improvement? 

Kathy Sweeney:
Yes. 

Steve Monroe:
On the operator’s side on your strategic advising, do you think you’re going to be looking more at advising them on growth and acquisition strategies, on operations strategies or both?  Is there going to be one focus?

Kathy Sweeney:
Yes.  Operations strategies, I can give a top-level view to and help with some areas of talent attraction and identification and be able to give an unbiased view of how operations is occurring and performing.  But more so for operators, what I think I can help them with is their capital strategies.  Many operators today grew organically from a capital standpoint on an ad hoc level and had capital.  Either they attracted the capital or the capital came to them, with probably a fairly high price tag.  And so they found themselves with a balance sheet and a capital strategy that’s constraining their ability to grow.  And I think I can help them evaluate their current strategy.  Make some recommendations and execute for them, if that would be helpful. 

Steve Monroe:
That would be, because the good providers aren’t necessarily very good on understanding how to fund the growth.  They can grow their company operationally, but when it comes to the balance of equity and debt and where to get it, they need help.  Talk about that for a second, get your crystal ball out.  What do you think is going to happen?  Throughout your career, all your investments and all the providers did what they needed to get debt capital.  How long will it take to get a better market for that?  You talk a lot to the Fannie and Freddie people and the banks.  What’s your take on that, do you think?

Kathy Sweeney:
Thank God for the GSEs and for HUD.  Obviously, we entered a cycle in 2008 and I’m not sure we really exited it yet, even though the recession has been officially called to have ended just over a year ago.  We are in a period of very massive deleveraging.  So to not have a lot of leverage available in a de-levering environment makes a ton of sense.  That said, there have been, other than the GSEs and HUD, there have been some interim sources of capital that have become available.  Key Bank is doing some interim.  They’ll park some deals on an interim basis on their balance sheet.  Not all balance sheet lending, really interim bridge-type financing.  Of course, Kevin McMeen with MidCap Financial has also been doing this for a few years now, with his line that is available for interim and bridge-type financing. 

Steve Monroe:
Which he just expanded significantly.

Kathy Sweeney:
Yes.  But to your point, you’re likely looking for efficient, long-term flows of capital and debt capital into the sector and I don’t see the sector changing and opening itself up more in debt.  Certainly for the next six months.  A year from now, I think there might be some more momentum.  We might see some CMBS restart in the industry and I do hear that the life insurance companies are coming in, in a small way, and hopefully that will grow as well.  And then, of course on the GSE side, getting some clarity from the federal government on what exactly is the long-term purpose for those entities from how they will operate and how they will be able to continue to support senior housing will be important.  And I do see that clarity coming in the next 12 months. 

Steve Monroe:
And I think everyone’s assuming that Fannie and Freddie will still be around for senior housing because there’s not a good argument for them not to be around, because they’ve outperformed most of the other loan portfolios. 

Kathy Sweeney:
Very true.  You answered your question well. 

Steve Monroe:
I try to, sometimes.  Listen, good luck.   I hope you’re successful and can get a lot of business and we can certainly refer people your way. 

Kathy Sweeney:
Great.  Thank you, thanks for the opportunity.
 

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Sunrize Senior Living (SRZ)

Kathy, What's your opinion on the long term viability of Sunrise Senior Living (SRZ)? See recent Quarter as a positive and that they're viable long term. Michael

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