EXPERT OPINION: A Conversation with Bob Kramer

February 18, 2010

Bob Kramer
In this "Expert Opinion" interview, Bob Kramer discusses some of the results of recent NIC studies as well as the new young executive leadership program.

Listen now     Read the transcript

Bob Kramer is founder and president of the National Investment Center for the Seniors Housing & Care Industry (NIC), a non-profit education and resource center that serves debt and equity investors interested in the seniors housing and long term care industry. Bob, a frequent writer and speaker on trends in seniors housing and long term care, has directed NIC since its inception in 1991.

A former county government official and Maryland state legislator, Bob was a leader on healthcare and environmental issues while representing the state capital of Annapolis in the 1980s. Bob was educated at Harvard and Oxford Universities and also holds a Master of Divinity degree from Westminster Theological Seminary.
  
Contact Information:
Robert G. Kramer, President
National Investment Center for Senior Housing & Care Industry
1997 Annapolis Exchange Parkway
Suite 110
Annapolis, MD 21401
Phone: (410) 267-0504
Fax: (410) 268-4620
  
Read the interview transcript:

Steve Monroe:
I’m here with Bob Kramer, president of NIC, at the conclusion of the 19th Annual NIC Conference.  Bob, how do you think the overall tenor of the conference was this year?

Bob Kramer:
Well, I think it was not downcast.  I would say there was a significant energy level and I think people sort of, in a sense, fed off of that.  In several senses, one, I think a lot of people were surprised by the numbers, we were pleased by them.  Over 1,600 people, the third highest attendance that we’ve ever had in a time when many commercial real estate conferences are down 40, 50 percent.  And, I think there’s an energy level of what I’d call expectancy.  We aren’t seeing things really happening yet, but people have a sense that some good things are happening based on fundamentals.  I’ll be very surprised if our third quarter numbers don’t come out showing some good things, unless there’s a total disconnect between what different operators here were telling me and what’s going on across the hundred markets.

But, I think a lot of people have seen a good performance in their portfolios in July and August and I think, in terms of operating fundamentals, that made people feel a little better about things.  And, I think there’s a sense that generally things are starting to pick up.

Steve Monroe:
Yeah, I think you definitely will see an uptick in occupancy and I think the loan performance is going to continue to be extremely high, as I think some of your statistics have shown.

But it seems that we’re almost at a little bit of an industry crossroads again with the NIC Conference.  You know, providers are in an upswing, operating providers.  The providers of capital are kind of in hibernation, we’ve seen this before.  Do you get a feeling this is a little bit of déjà vu with that kind of disconnect between the people who want the capital and the people who are supposed to have it?

Bob Kramer:
There’s no question there’s a bit of that.  I think that there is a sense that we’re beginning to see a little bit more reality setting in and perhaps we’ll see more of that over the next six months.  By that I mean in terms of such things as the bid-ask spread and so forth.  I think another difference is, though, we’ve been through this before.  I don’t think we’ve been through it with as much data to sort of give us a sense of just where we are.  Before we’ve more relied on sort of an anecdotal sense of, “Where are we?” 

We now know, for instance, that we’re not in an overbuilt situation.  We’re not like many other sectors where they’ve got a lot of supply that they’ve got real problems they’re facing because of excess supply.  We’re in a situation where construction starts have plummeted; the pipeline is going to be emptying out by mid- to, at the most late-2010.  And we’re going to see very little new supply coming on line.

So, I think things like that – my sense is we’ve got some data; we have a sense of where we are.  Yes, the credit markets still are not where we’d like them to be.  Where is the debt going to come from?  But still, with major sources of debt basically on the sidelines, or totally out, where is new debt going to come from is still a major question.

But at the same time, as we’ve seen before, as you well know, Steve, those times create opportunities.  That’s where you see people as you have seen in some other crisis; somebody like Arnie Whitman comes in and says, “Hey, I can figure out a way, I’ll take a chance on this.  I think there’s a way to structure something here.”  And, I think we’re going to see some things like that.  I don’t know what they’re going to look like but it’s going to create opportunity.  Because there’s a void right now.  And, there’s going to be a demand and there’s a void.  Somebody’s going to figure out a way to fill that.

Steve Monroe:
Now, you and the American Seniors Housing Association just came out with the construction report and I think the numbers said for the 12 months through March 31, 2009 new starts for the industry were down 37 percent.

Bob Kramer:
That’s right, 37 percent year-over-year.

Steve Monroe:
I almost was thinking it was going to be a larger decline.  What do you think is going to happen because, let’s say, you go out to December for all of 2009 compared to 2008, a bigger drop?

Bob Kramer:
Much bigger.

Steve Monroe:
Any feel?

Bob Kramer:
I think it could be in the nature of 80 percent.

Steve Monroe:
Wow.

Bob Kramer:
Basically, the bottom has fallen out of new starts and we started to see that in the fourth quarter of ’08, so basically, in terms of this report, we’re only capturing about two quarters of dramatic drops in starts.  So, when you look year-over-year on the calendar year, it’s going to be a very different picture because things are very flat.  So it’s down, you’re right, 37 percent from year-over-year as of March 31st, 45 percent compared to two years ago.  But, the second quarter continued to be just totally flat in terms of new starts, so you’re going to see just a huge drop by the end of the year.

Steve Monroe:
And on your NIC map – I know you expanded it – the initial one was 30 markets?

Bob Kramer:
Yeah.

Steve Monroe:
Thirty major metros.  You then increased that to 100 major metros.  And I know you’re capturing a significant percentage of the population.  Do you think you’re going to ever go beyond the hundred or is this not worth it from a time-benefit basis.

Bob Kramer:
Well, I would say one thing, never say never.  But, immediate plan was to expand to 100 markets because we’re getting the bulk of what we consider the “investable universe” by doing that.  And so that’s where our focus is.   Now, there may be certain areas where we’ll cover a wider swath but for right now our plans are more to do such things as more analysis on the data of 100 markets. 

We’re just now beginning, for instance, to look at the differences between the more secondary markets that we’ve added and the top 30 or 31.  And, what we see there is that occupancies are running consistently higher in the secondary markets but rates are about 10 percent below the rates that you’re getting in the top 30.  And, we’re going to start to look at that more closely and also see where there may be breakpoints that we see differences.  Is it really the top 31, as we now do it, or 32 to 100, or is it the top 50 versus the bottom 50 and we want to look to see what differences are there that may be helpful as, particularly, institutional investors are seeing what sorts of things are they really comfortable with.

Steve Monroe:
And I assume, with the construction activity going down, that’s going to give you more time to focus on what’s already there, when you get those stats.

Bob Kramer:
Absolutely, but we now are in a situation where what we’ve got is a mother lode of data and, therefore, what we’re reporting now, in terms of analysis is like a tip of an iceberg.  And there are so many issues, as you know, in our industry, compared to other areas of commercial real estate.  There’s virtually no good research on demand and supply drivers.  So, there’s a lot of anecdotal sense about what drives supply, what drives demand and particularly the relationship between the two.  Does new supply bring out demand?  Does it sort of lift everybody when you have a new supply come into a market?  And issues such as that.  And we’re starting to look at those things.  Obviously, during this recessionary period, we’ve been starting to look at things like home sales velocity, home sale pricing, how that relates to independent living occupancy.  We’ve been looking at employment and income levels of adult children and how that relates to assisted living, occupancy, and rents.  And so things that I think many in the industry have anecdotally felt to be the case for a long time, we now have a huge database to really look at from a statistical point of view.  Are there correlations here that really stand up?

Steve Monroe:
Right, and then you’ve got to deal with the whole demographic versus psychographic, where in one market it may say this and in another market it says that.  And then, lastly, you just started, I think literally this month, NIC started the NIC Future Leaders Council to help development future leaders in seniors housing.  How long do these young executives stay in the program and is the program – I know it’s probably a work in process a little bit, but is part of it going to be – are these people going to then, also do a little stint at the Erickson School as part of that educational process?

Bob Kramer:
Good questions.  First of all, they’re two-year terms except for this inaugural class where half of them will have three-year terms, and that’s just to provide continuity.  And one of the areas that we have tasked them to be involved is working with the Erickson School.  And some of them may, indeed, be taking courses there, others may be helping to development an internship program for the school, may be helping with regard to even being involved in different courses, helping to design, maybe even doing some modules of them.  This is a very talented group.  I sat down and talked to three of them over dinner when we had our kickoff dinner with the group and, at the table one individual was currently at Kellogg while working full time in our industry, a second individual had done her MBA at Harvard and had done a doctorate where her dissertation was in our field.  A third individual at the table had gone to Stanford Business School and then a fourth one came over and joined us who had also gone to Harvard Business School.  So, this is an extremely talented group, it’s the kind of talent our industry needs to attract.

And in the past, quite frankly, we often haven’t.  And, I think now, attracting the best and the brightest coming out of our top schools, our top business and finance programs, we want to keep those folks in the industry.  We want them energized and excited about engaging the issues that are coming up over the next 10 to 20 years.  And, as I said to this group, “Folks, whether it’s me or whether it’s the different board members that they’re going to be interacting with, these are folks that have brought the industry to a certain point and we can pat ourselves on the back and feel like how much we can accomplish.” 

But the greatest changes are ahead for this industry.  The next 20 years as we get ready – because we’re not there yet, thank goodness – in terms of the baby boomers.  But, I believe that what we call our products, how we package and deliver our products, and how we finance our products are all going to change dramatically.  And I said to the group – this inaugural 21 folks in this Future Leaders Council, “We expect you to be the ones to really shape these areas over the next 20 years.”  So, we don’t see these folks coming right on the NIC Board after they finish.  But over the next five, to eight, to ten, twelve years, we expect to see them in real leadership positions in the industry, with NIC, and in their own companies. 

Steve Monroe:
And they’d better be because in 10, 12 years you and I will probably be retired.

Bob Kramer:
My wife would say, “Amen.”

Steve Monroe:
So do I.  All right, well, thank you very much.

Bob Kramer:
I appreciate it, Steve, as always.

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.