EXPERT OPINION: A Conversation with Marc Thompson

June 14, 2011

In this "Expert Opinion" interview, Marc Thompson, the manager of health care lending at Bank of the West, discusses how the rise in occupancy is drawing more interest in new developments for properties.

Marc ThompsonWatch the video      Read the transcript

Marc Thompson, CRE, FRICS, has served the real estate industry 27 years as a lender, public speaker, and award winning author.  With 10 years resolving over a billion in problem income property loans and another 17 years of commercial real estate and multifamily lending production, Marc’s experience documenting his observations to better understand real estate cycles has provided him a thesis for supporting valuable strategic initiatives managing risk in the income property loan portfolios grown under his stewardship.  Because of Marc’s portfolio performance since 2002, Marc’s lending group has been successful in providing senior housing and care financing consistently, even through market duress from 2008 and 2009, to this specialty real estate market segment. Marc is the Senior Vice President and Senior Housing and Care Lending Manager for Bank of the West, an affiliate of BNP Paribas.

Marc serves on various commercial real estate and senior housing industry boards and committees.  Marc currently serves on the American Seniors Housing Association Executive Board. Marc is acting President of The Equity Asset Managers Association in San Francisco since 2002, an association serving income property asset resolution specialists and vendors.  Marc also serves as Treasurer on the Counselors of Real Estate San Francisco Chapter Board.

Marc earned the distinguished real estate designations of Counselor of Real Estate (CRE) in 1997, Certified Commercial Investment Member in 1997 (CCIM), and Fellow, Royal Institution of Chartered Surveyors (FRICS) in 2005.  Marc has also written four articles published in Real Estate Issues on commercial real estate investment cycles, income property loan portfolio risk management, and real estate value deflation risk.   Marc’s most recent article was published in Real Estate Issues in February 2011 called “Leadership Roundtable: Different Perspectives: Banking and the Outlook for Recovery in U.S. Real Estate Markets”.  Marc was one of three contributing members on this leadership roundtable discussion led by Anthony Downs, CRE, a Senior Fellow at the Brookings Institution in Washington, D.C.  In May 2010, Marc earned the prestigious Ballard Award for authoring the Real Estate Issues journal’s most insightful article in 2009 called “Managing Risk in Income Property Loan Portfolios”.  Marc is a contributing member and student in both the Santa Fe Institute (www.SFI.org) and the American Real Estate Society (www.ARES.org).

Marc loves to play tennis, golf, kayak, and ride his Moto Guzzi motorcycle.  Please Google “Marc Thompson, CRE” to capture links for more information about Marc and to access copies of his published articles.  Marc can also be located on LinkedIn.com.
 

Contact Information:
Marc R. Thompson, CRE, FRICS
Senior Vice President and Manager, REID Healthcare Unit
Bank of the West
2527 Camino Ramon
San Ramon, CA 94583
(925) 843-4641 Work Phone (925) 956-8647 Work Cell
E-Mail Address: marc.thompson@bankofthewest.com

 

Watch the video of the interview: 



 

Read the interview transcript:

Steve Monroe:
I'm here with Marc Thompson. He's the manager of health care lending at Bank of the West, and they have been pretty busy in the senior housing and care market. With occupancy finally picking up after about 18 months of either down or treading water, are you seeing more interest in new development for properties?

Marc Thompson:
Yes. Since the summer of last year, we've seen an uptick in requests. We've seen a lot more opportunities come across our desk for construction financing, particularly in the western region where we provide lending. We lend in 19 states in the western region, so it's quite a big territory.

Steve Monroe:
Are there any areas or states within those 19 states where you're seeing more construction requests?

Marc Thompson:
We're seeing quite a bit out of Arizona, believe it or not, and Denver, and in California we've seen quite a bit there as well. We haven't seen much in terms of new requests in Oregon or Washington, but we currently are looking at an opportunity in Boise, Idaho, for instance.

Steve Monroe:
What has differentiated Bank of the West, because not many banks like to do construction financing, especially in the last three years. You still have. What's different about you guys?

Marc Thompson:
Well, I think we have been in the industry quite exclusively since 2002, and we've learned who to do business with and what kind of criteria we're looking for to qualify borrowers for construction financing. We're looking for a good track record and good liquidity and good recurring cash flow, and I think if we have operators that fit that bill, then we can lend in any market at any time in the economy. And the one differentiator about Bank of the West is that we never shut down. We continued to do business in 2008 and 2009. In 2010 we did construction.

It was interesting because loan demand was so low, so we actually had been in application a number of times where the borrower just withdrew from the construction financing, even though we already had it approved. So that was interesting.

Steve Monroe:
Any property types you prefer? Skilled, assisted, independent, Alzheimer's?

Marc Thompson:
Typically what we do is a campus-type independent private-pay product. We are looking for independent living, assisted living and memory care communities. We'll do some skilled nursing if it's part of that, but we will not do skilled nursing on a standalone basis. We just have not been able to get comfortable nor do we have the staff for monitoring purposes of the Medicaid type receipts, and Medicare actually as well. So we just don't have the capacity to really monitor that.

Steve Monroe:
And are you doing any expansion, substantial rehab type of financing, or is that too small unless it's an existing client?

Marc Thompson:
We're doing the second phase or third phase of a project. So we're looking at those. The rehab, we have a number of those, but what we're finding is reposition rehab is very high risk. In my whole construction career of over 20 years, I've yet to see one that has come within budget and built on time, even in senior housing, and I keep testing that theory with senior housing, and it seems to be very difficult to overcome the previous management's legacy in the marketplace.

Steve Monroe:
I assume if you do the second or third phase that means you've already done the first phase.

Marc Thompson:
Not necessarily.

Steve Monroe:
Really?

Marc Thompson:
Not necessarily. We're actually looking at a project for a second phase, and that project we didn't have anything to do with.

Steve Monroe:
Can you give me a profile of the kind of construction borrowing client you like to have?

Marc Thompson:
Well, we like to see four or five communities at a minimum that they own. What we found is smaller type operators have had a higher risk profile for us, given our experience with that. So we're looking at four to five. We make exceptions to that, but we're looking for four to five, minimum. But we do regional and super regionals and large corporation type credits as well. So really what we're looking for is recurring cash flow, the ability to make payments in the event of operating deficits and interest reserve, once the interest reserve is exhausted, say the lease uptake is longer, and the ability to repay and remargin in the event that that's ever needed down the road. We don't typically do that and we haven't had to, but we want that capacity.

Steve Monroe:
When you do construction financing, who is usually doing the takeout permanent financing, and does that have to be mostly committed before you finance it?

Marc Thompson:
No, we do all our construction financing uncovered, but we underwrite to Fannie and Freddie. We always have. And our policy has lined up that way very well. In fact, when Fannie and Freddie loosened up in 2007, we were still staying where they were. So we've held to that underwriting standard, and now, they're back up to their old underwriting standard in terms of debt service coverage ratios and what have you. All our debt is recourse. Fannie and Freddie are non-recourse.  All the risk is building it and leasing it up to stabilization, and then you are able to get non-recourse when you get into the permanent.

Steve Monroe:
So they can't wait to have Fannie and Freddie take them out.

Marc Thompson:
They're so incentivized, it's unbelievable. But it actually works out really well because that's where our risk is I think in the marketplace in this type of industry. It's in the construction and lease-up. So we can't afford to be in this business if we didn't have a balance sheet to depend on to solve the problem. We can't take the losses. That's the problem with what we have in the banking industry, that we have a lot of banks that are exposed to losses, and they just don't have enough margin to overcome those losses.

Steve Monroe:
Now, you said that a year ago, loan demand has obviously slowed and some of your clients were pulling out deals that you had approved. With the economy turning, with occupancies going back up, are you seeing more requests for construction financing?

Marc Thompson:
Yes, we are. We're seeing a lot more requests. We're really busy. All my loan officers are very busy looking at new opportunities.

Steve Monroe:
So what's going to be your big challenge for 2011 and 2012?

Marc Thompson:
As a group, it's basically processing what we have and looking at new opportunities, and just processing the business. In the last couple of years, it was more finding new business that was good enough. Now, we still see—we're seeing some credits that are just on the margin in terms of being good enough, but there's a lot more that we're seeing that are certainly satisfactory and will work. It's just about processing those loan requests and getting them approved and closing them.

Steve Monroe:
Well, I think with all the pent-up construction demand out there, I think you're going to have a pretty busy next five to ten years, would be my guess.

Marc Thompson:
I'm hoping.

Steve Monroe:
Good luck, and thanks for sitting down with me.

Marc Thompson:
Thank you so much. Appreciate it.

 

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