EXPERT OPINION: A Conversation with Len Lucas - May 2010
May 6, 2010
In this "Expert Opinion" interview, Len Lucas of Love Funding Corporation discusses the lending market and senior care over the past 12 – 18 months and how the new HUD Lean Program has been dominating the lending market.
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Mr. Lucas joined Love Funding in 1998. He is a first vice president-senior loan originator and is based in Boston, Mass. Mr. Lucas originates direct loans for Love Funding in its capacity as an FHA MAP/LEAN lender. He also advises borrowers in all sectors of the senior housing industry; age restricted apartments, independent living, assisted living and skilled nursing as to the type of financing vehicle best suited to meet the borrower’s immediate needs. In those situations where an FHA execution is not the most appropriate, he relies upon his extensive knowledge of senior housing financing vehicles and lenders to place the loan with the appropriate lender. Mr. Lucas is a member of the Massachusetts Bar. He holds a J.D. from the New England School of Law and an A.B. (economics) from Kenyon College.
Leonard A. Lucas
First Vice President – Senior Loan Originator
170 Newbury Street, Boston, MA 02116
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The lending market and seniors care has obviously been very tough the last 12 to 18 months. So, I have Len Lucas, the managing director of Love Funding here to talk with me.
Len, the new HUD LEAN Program hit the market with a lot of fanfare last year. In fact, it seems to be dominating the lending market to an extent, definitely on the skilled nursing side. How long can this last with HUD?
With HUD, it can last a long time. I'm not an economist. I think the answer is when the economy changes to the point when other lenders come in. You know, there are a lot of people who were choking on the word HUD before capital dried up, and those people are calling now and saying, "Hey, forget about what I said. Can you explain that program to me one more time, because this sounds pretty good? You're a nice guy."
So, I'm not an economist, I don't know, but until other capital comes into the market, especially on the assisted living side, those people tend to be more split, in terms of a preference towards non-HUD.
So, you're saying in the past, the borrowers would come in, and they were skeptical about HUD, but now that the options are limited, they're much more eager to pursue HUD?
Right. The program is a little more cumbersome than dealing with a more traditional lender. HUD is an agency program, which just by its nature puts somebody between the borrower and the ultimate arbiter of the transaction, and that makes it a little bit more cumbersome.
Some property types in certain types of economies need to be a little more nimble than HUD is. You look at what happened in the assisted living market five years or whatever it was ago, people were really not interested in operating assisted living programs as much as they were interested in aggregating a portfolio that would then benefit from what at the time was a premium for that portfolio and then sell it. I mean, if you're going to do that, you need to have lenders that can move very quickly and can make underwriting decisions looking forward, as opposed to HUD, which bases their underwriting on in-place revenues, and it takes a bit longer to get through the process.
We all know demand for financing is at a high, especially because of the lack of conventional financing. What kind of pipeline does Love Funding have these days?
Long, long. I'm not being coy. I don't have the number at my fingertips, but I can tell you that our pipeline is as big as it's ever been, and I think that's probably true for most of the HUD lenders out there.
Any more on the skilled side or the assisted living side of people in the pipeline?
I'd say it's weighted towards skilled.
And on the conventional side, are many of your customers looking for straight bank debt, or they just all decided to go to HUD?
They're all looking, but they're not finding it. That's the issue. The big lenders are pretty much out on any given day. You don’t have the GEs and the CITs and the Midcaps. I mean, they're in business, but not in business the way they were before.
But do you see them picking up in 2010?
Yes. I do see that part of the business picking up. I do see they want to do more business and are finding ways to do it.
And are most of your customers coming to you for refinancings? Are they coming for acquisition financings? Are they coming for construction financing?
I would say by far it is refinancings, followed by new construction. There is just no construction money out there, and people are coming to HUD trying to figure out a way to do it. It's also the most challenging of all the HUD product types to be successful at.
I've seen some of your releases. It seems like you're doing a decent amount of acquisition financing.
Right. There is some acquisition financing out there. There are some deals. There are some properties changing hands, but the bulk of it are refis, the people that have to get out of their existing loan, or they've been in a loan at a one percent interest rate and they know they're not going to get that one percent interest rate when it's time to roll it over and HUD's looking mighty good.
All right. Let's hope the HUD flow keeps on going. Thank you very much for spending some time, and I hope you have a good 2010.
Thank you. My pleasure.