EXPERT OPINION: A Conversation with Steve Gilleland

November 19, 2013

In this "Expert Opinion" interview, Steve Gilleland, Managing Director, Healthcare Finance, CapitalSource Bank, discusses ALFs, CCRCs, mergers, SNFs, pro forma numbers, changes, and more.........

Steve Gilleland    Watch the video      Read the transcript

As Managing Director, Healthcare Development within the Healthcare Real Estate Group at CapitalSource, Steve is responsible for developing financing opportunities for the long-term care industry, directing origination efforts and the initial structuring of transactions. Steve has 16 years of healthcare real estate experience–specifically in the long-term care and senior housing industry–from a lending and operations perspective.
Prior to joining CapitalSource, Steve  was a Vice President of Business Development for Centennial Healthcare where he executed $300 million in long-term care and home healthcare transactions. Prior to his experience at Centennial Healthcare, he served as Director of Marketing for Healthcare Capital Finance/ PRN Mortgage Capital for five years where he originated and closed $225 million in long-term care mortgage financings. From 1987 to 1993, he was a manager and senior accountant with the accounting firms of Price Waterhouse and Bennett/Thrasher.

Contact Information:
Steve Gilleland
Managing Director, Healthcare Finance
5 Concourse Parkway
Suite 2950
Atlanta, GA 30328
Tel: 678.405.4905
Cell: 678.637.9926
Fax: 678.405.4932
sgilleland@capitalsource.com


Watch the video of the interview: 

Read the interview transcript:

 

Steve Monroe:
Interest rates have gone up in 2013, but that is still not stopping the lending market. It has been probably as vibrant as it’s been since the Great Recession, I’m here with Steve Gilleland. He’s the managing director of CapitalSource—I call it CapSource, but it’s CapitalSource Bank. Steve, you’ve been around in the industry maybe as long as I have.

Steve Gilleland
Not quite.

Steve Monroe
Not quite, but close. How would you compare the current environment, the investment environment in the senior housing sector, compared with the 2006-2007? Frothy, but with a bit more discipline?

Steve Gilleland
I think that’s a very good way to characterize it. We like the fact that people, when they’re buying, they’re putting in more equity. I think you see less leverage than you used to see in 2006, as well as I think people are buying on more stabilized, in-place numbers versus than you would see people looking at two years out, pro forma numbers, and putting a 6 or 7 cap rate on it, especially on the senior housing side.

Steve Monroe
In the last maybe 12, 18 months, banks have really been coming back into the market since the Great Recession. CapitalSource is in the process of merging with a larger bank. What’s that going to do for you and your platform?

Steve Gilleland
I think the merger with PacWest is certainly going to help. Our cost of funds will go down and will get a little cheaper and be a little bit more competitive. The other banks coming into our industry is great for the industry, but bad for me. They’re very good competitors, also have cheap money out there to put out, and it’ll be good for the industry, though, for sure.

Steve Monroe
With the bigger balance sheet that comes with the merger, will CapitalSource be involved in more large syndications, maybe leading large syndications of bank loans?

Steve Gilleland
I think that’s right. We, in our prior role, hardly did syndications, but these last two years, we’ve been a part of five to six very large syndications, where we share nice hold sizes. That is part of being a bank, as you know; we’re limited on our hold size.

Steve Monroe
Right, yes. Can you describe, what are you looking for from a customer part—the size, location—and what’s kind of the drivers for a customer that you want to have?

Steve Gilleland
I would say our sweet spot is the multi-facility owner/operator that has 3 properties to 20 properties, even up to 100 properties. We probably would shy away from some mom and pop that has one or two and not looking to grow. And as far as experience, yes, that helps. That goes to our mantra, Steve, as you know. It’s not what I lend on, it’s who I lend to, that it’s going to be there for us in the difficult times as well as the good times.

Steve Monroe
You kind of have a bigger background, I would say, on the skilled nursing side. Are you looking for any proportion of skilled nursing lending versus the private-pay senior housing side of the business?

Steve Gilleland
No. We look at both those the same. I would think—it’s kind of funny, you definitely have it right: probably pre-credit crisis, we were 95 percent of our portfolio, SNF. In today’s world, we’re 75 SNF, 25 ALF-ILF, and some CCRC.

Steve Monroe
How about business coming in? The new opportunities you’re seeing, is it split 50/50?

Steve Gilleland
It’s about 50/50. And we’ve done transactions today, probably a number of transactions, more in the assisted living/independent living, but the dollar volume has still been bigger on the skilled nursing side.

Steve Monroe
With your experience in the SNF industry, doesn’t that give you a little bit of an advantage, because you know the business, you know the history, you know the lingo—does that help you at all on the lending side?

Steve Gilleland
I would hope, Steve, yeah.  We’ve been doing this for a long time, me personally almost two decades.

Steve Monroe
And you don’t look a year over 35.

Steve Gilleland
You’re too kind. But, yes, someone’s not going to have to educate us, right? There’s no learning curve. We know most of the state regulations as well as the reimbursements. We know the players. We know who the good, the bad—whoever. So we feel like we know what we’re doing there, and we stick to our knitting.

We also have a certain smell test that some of the other lenders don’t. We’re not just a lender that’s going to go loan on the appraised value. We have a certain smell test to make sure it doesn’t exceed replacement cost, or certain per-bed metrics.

Steve Monroe
And how important, when you’re talking with a—whether it’s an existing customer or a new one—as a bank, how important is it that you, in addition to the mortgage financing, that you get the working capital lines of credit, as part of the deal?

Steve Gilleland
Yeah, I think that’s helpful.

Steve Monroe
Does that happen a lot, though?

Steve Gilleland
It does. I mean, back when CapitalSource was first started, 12, 13 years ago, that was a requirement. We would not do a mortgage loan without getting the receivables. Now we’ve morphed where we would be open to doing it without the receivables. It certainly makes it a better deal for us, and borrowers have asked for that. Sometimes they don’t need the cash management, and they say, we don’t do the working capital revolver. So, we’re fine.

Steve Monroe
2013 was a good year. Is 2014 going to be better?

Steve Gilleland
I think all indications say yes, especially on the senior housing. And I’m still surprised that demand is still up for skilled nursing transactions, even with the overhanging reimbursement, the budget crisis in D.C., and seeing if they can ever balance the budget up in D.C.

Steve Monroe
Demand is still quite strong, contrary to what everyone has been predicting for 20 years.

Steve Gilleland
I know.

Steve Monroe
Amazing, isn’t it?

Steve Gilleland
We’re not going anywhere.

Steve Monroe
Good luck next year.

Steve Gilleland
We appreciate it.

 


 


 

 

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