EXPERT OPINION: A Conversation with Richard Lerner

April 8, 2013

In this "Expert Opinion" interview, Rich Lerner, Director, Housing & Healthcare Finance, LLC, discusses long-term fixed rates, HUD, bridge financing, staff, and more.........

Watch the video      Read the transcript

Richard Lerner is a Principal at Housing and Healthcare Finance, one of the nation’s leading financiers of Senior Housing through the FHA.  Prior to joining HHC Rich was a Managing Director at Credit Suisse, where he was responsible for all the company’s healthcare and affordable multifamily housing loans. During his tenure, Credit Suisse originated mortgage loans against healthcare related real estate totaling over $6 Billion.  He pioneered the business of lending to healthcare properties as bridge loans to the Department of Housing and Urban Development, (HUD) highlighted by a $480m loan to Life Care Centers of America in 2000.  He was instrumental in creating HUD’s large loan program as the take out for the same deal.  He structured the first Prop Co / Op Co structure for a skilled healthcare company as a means of going private and reducing PL / GL costs.  That structure was used in the privatization of 4 of the country’s 5 largest skilled nursing chains.
Prior to joining Credit Suisse, Mr. Lerner was a Managing Director at Donaldson, Lufkin and Jenrette where he ran the firm’s CMBS trading desk until the firm was purchased by Credit Suisse.  He also spent 3 years running the CMBS Trading desk at Daiwa Securities, America and spent 10 years before that in the mortgage trading business for Credit Suisse First Boston.
 

 

Contact Information:
Richard Lerner
Principal
Housing and Healthcare Finance
2 Wisconsin Circle, Suite 540
Chevy Chase, MD 2081
847-933-9464
rlerner@hhcfinance.com



 
Watch the video of the interview: 
 

 

Read the interview transcript:

Steve Monroe
I’m sitting here with Rich Lerner. He's with Housing and Healthcare Finance, a major HUD lender. Rich, you've seen a lot of things in your career, but have you ever really seen 2-1/2% long-term fixed rates before, like we're seeing today?

Rich Lerner
Uhh, no. Clearly, I don't think myself or anyone my age has.

Steve Monroe
How has that changed the market for you?

Rich Lerner
Clearly, it's made it easier to loan money, especially against an asset class like senior housing, which has not really, on the cap rate side, kept pace for the lower interest rates, long-term interest rates.

Steve Monroe
You do a lot of HUD business. Aren't borrowers just licking their lips to kind of get in there at that kind of low rate?

Rich Lerner
A lot of them are, as long as they're willing to put up with some of the headaches that are involved in the HUD process, yes, very much so.

Steve Monroe
But is that really that much of a headache today, given a lot of the things have been cleaned up?

Rich Lerner
It is a lot less of a headache than it was and a lot less of a headache than people sometimes think. But if you haven't seen the new HUD, then you don't know how good it is, remember from 10 years ago?

Steve Monroe
They still think about 10 years ago?

Rich Lerner
Yeah.

Steve Monroe
Really? Okay.

Rich Lerner
People's perceptions are very slow to change, especially if you haven't had the experience and get to see that it's different.

Steve Monroe
Interesting. The HUD queue, let's say a year ago was quite long and people started complaining again about that. But that's changed, they've gone through that from what I understand. From start to finish, how long does it take you to bring someone through for a refinancing of an existing HUD loan?

Rich Lerner
For refinancing of an existing HUD loan, it's about four months, give or take.

Steve Monroe
Start to finish?

Rich Lerner
Start to finish. Sometimes it's more, could be up to six or seven, but usually it’s four months as long as everyone's doing what they need to do. It has more to do with the responsiveness of the underwriters and the borrowers and the third parties. And, really, HUD at this point.

Steve Monroe
Can't you push some of the third parties along on that?

Rich Lerner
You can try, but sometimes it's the borrower that's not getting it done that quickly.

Steve Monroe
Oh, okay. Well, then…

Rich Lerner
Sometimes it's the third party and occasionally it's HUD. But it’s much better than it used to be.

Steve Monroe
How about for acquisition financing, when it's not refinancing an existing HUD loan?

Rich Lerner
That's six months on the inside and sometimes it can go up to nine.

Steve Monroe
Why does that take longer?

Rich Lerner
More third-party reports, more underwriting on HUD's part.

Steve Monroe
Because it's a new loan?

Rich Lerner
Because it's a new loan, they don't have a lot of the old documents.

Steve Monroe
When you're talking to your customers, what's the primary reason, especially in this interest rate environment, that they don't go to HUD? The hassle?

Rich Lerner
It can be a lot of different reasons. Some of it can be a little of the hassle, some of it is having to deal with the replacement reserve requirements and getting your cash out and having the systems in place you need to take your money out of replacement reserve to do repairs in the facility.

But, for the most part, it's that they don’t want the long-term loan yet. They believe there's more upside in their facility, they're not sure if they're going to be keeping it for the long-term or selling it or repositioning it. So it's more that they want more of a short-term financial structure.

Steve Monroe
So it has nothing to do with the fact that they think rates are going to go even lower, it's just that they want the flexibility.

Rich Lerner
Not many people think rates are going to go lower.

Steve Monroe
I can imagine.

Rich Lerner
We are never going to see that. It's more flexibility. Interestingly, it might be even easier for people to refinance their existing HUD loans, as HUD's just come out with a program on the multi-family side to do loan modifications where you don't have to do a new Ginnie Mae, you don't have to get a new FHA. Almost the mod program they used to use for defaulted loans or loans that were in trouble. And they're talking about rolling that out to the health care side.

Steve Monroe
Has it worked well so far on the other side?

Rich Lerner
Also very new—

Steve Monroe
Too early.

Rich Lerner
But, yes, it's a quicker process. And they're doing that, again, to reduce the tension and reduce the wait for A7s and reduce the stress of HUD staff. So, if they don't really need to do that much underwriting, if the loan is staying the same and all they're doing is lowering the interest rate, it makes sense to make a streamlined process.

Steve Monroe
What percent of your business is existing or repeat customers coming back?

Rich Lerner
Probably 70% is repeat customers coming back and I'd say 90 to 95 percent is either repeat or referral. We have a very loyal customer base.

Steve Monroe
I know your HUD business has been going like this. Do you do anything on the Fannie/Freddie side?

Rich Lerner
We don't.

Steve Monroe
Or bridge financing?

Rich Lerner
We do bridge financing. We've seen quite a bit of activity there. We actually have a new program where we can do smaller bridge loans, $5-to-$7 million. Totally our underwriting, a very quick, streamlined process. And we've done some medium-sized mezz loans.

Steve Monroe
I assume your goal is to do a bridge-to-HUD.

Rich Lerner
Usually we will do bridge-to-HUD, that is the goal.

Steve Monroe
How's your pipeline for 2013 looking?

Rich Lerner
Extremely robust.

Steve Monroe
Very robust?

Rich Lerner
Very. Very nice.

Steve Monroe
Are you adding staff?

Rich Lerner
We added quite a bit of staff last year. Right now we have the staffing we need to handle it.

Steve Monroe
Because you had about triple—is your volume last year about triple what it was three years ago?

Rich Lerner
Yes.

Steve Monroe
HUD?

Rich Lerner
Triple what it was three years ago and our pipeline is on course to maybe go up by the same amount this year.

Steve Monroe
Good, good. So another good year for 2013.

Rich Lerner
We hope so.

Steve Monroe
All right, well, thanks for the update.

Rich Lerner
Thank you.


 

 


 

 

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