In this “Expert Opinion” interview, Doug Korey discusses the important role of Contemporary Healthcare Capital (CHC) in helping provide acquisition financing, mezzanine financing and construction financing to the seniors housing industry at a time when other lenders are scaling back.
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Douglas Korey is responsible for the day-to-day management and oversight of Fund’s activities at Contemporary Healthcare Capital (CHC). He has over fifteen years of structured finance experience and has spent the last ten years developing relationships in the healthcare industry. Prior to forming CHC (formerly Ziegler Healthcare Capital), Mr. Korey was President of Dynex Healthcare, Inc. At Dynex, Mr. Korey originated over $300 million of long-term care product. Before that, Mr. Korey formed the first long-term care mezzanine fund in the country at Ziegler Capital Company. He was also employed by Alex. Brown & Sons, Inc. in their Housing and Long-Term Care Group, and at AMBAC Indemnity Corporation in their Structured Finance Department.
Douglas A. Korey, Managing Director/Partner
Contemporary Healthcare Capital, LLC
1040 Broad Street, Suite 3B Shrewsbury, NJ 07702
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Steve Monroe, managing editor of The SeniorCare Investor, interviews Doug Korey, Managing Director of Contemporary Healthcare Capital.
I’m here with Doug Korey, Managing Director of Contemporary Healthcare Capital at the annual Seniors Housing Association meeting. Doug, Contemporary Healthcare Capital provides acquisition financing, mezzanine financing and construction financing. Given the absence of many other lenders out there in this market, are you busy today?
I think busier than in many years. We’ve had a pretty record volume in the last six months. We’ve closed five transactions in the last two months of the year and have another three transactions closing in the first two months of this year. What we’ve seen is that, aside from the fact that a lot of the traditional lenders in our space have scaled back a bit, we’ve also seen a complete absence, obviously, of the Wall Street lenders, the second lien lenders on the hedge funds, and the like, which has made our pricing easier for customers to come to us and say: “You know, we can accept those terms.” We have not changed our terms over the years. In fact I think we’ve stayed that course very well, and it’s a lot easier for us to get those terms today.
What’s the profile of your typical borrowing customer?
We’re a bit unusual in the sense that we only stick to small to mid-sized borrowers, mainly because two of our funds are licensed small business investment companies by the SBA. So we have certain mandates to follow regarding size. But also that’s always been our bread and butter. We feel that the regional operators, and even smaller than a regional, have been the cornerstone of the industry for a long time, both on the skilled side and the seniors housing side. These operators tend to do very well in their local markets. They don’t mind personal recourse and they slog it out when times get tough, which is what we’re dealing with right now.
Are there lending opportunities out there for you that are a lot better than they were two or three years ago? And are you changing some of those opportunities, so to speak?
Yes, we’ve always been focused on leverage with the products we have. We have our senior products, we have our mezzanine-which has been our core-and we have our preferred equity programs. And as we’re moving into 2009, the opportunities for our customers we’re seeing, whether on the acquisition side or construction, we’re seeing a bigger plug number needed on the mezzanine and equity because of the reduction by many of the senior lenders. So we’re probably moving more in that direction this year than ever before, and probably for the last six months that’s where this has been going.
What’s your average loan size? And is it typically fixed or floating? Can you talk about your participating loans?
Years ago we offered swaps for our senior programs, but no one’s ever taken that, obviously. I think in this market, floating rate has been what most people have taken. And that will continue. On the mezzanine side, it’s always a fixed-rate product. We have very flexible ways of how to use our mezzanine and our equity products, even though they’re fixed rate. We carve out coupons and cash-flow participations and the like to reach our yield targets. We can start out lower and build higher. But in the end, that fixed rate product is beneficial. It’s a quasi-equity product, and people know exactly what they’re paying at the beginning and at the end of it. It makes their lives easier when they’re bringing in equity or building upside value for themselves.
Well, I think they definitely want thing easier today, so that’ll certainly help. Are you able to go out into the market and get more capital now?
We are, but in the more nontraditional ways. Meaning that I need more equity to bring to the table than I can get on the senior debt side. I used to get tremendous leverage over the last couple of years. In fact, a couple of our funds have 100:1 leverage on their senior lines. That just is not available today. So we’re bringing more equity to the table. We’ve been very lucky in years gone by, and now, to have a very strong contingency of wealthy individuals to bring forward. So our flexibility bringing equity to our lines is there and we’re definitely utilizing them.
What’s your forecast for 2009 in terms of the dollar amount of loans from all types of loans and investments you’re going to make? What do you think you’re going to do this year?
Again, being a little bit unusual, we’ve been small in what we have put out. Generally, somewhere around $100 to $150 million has been our clip. I think we’re going to be in that range again this year, with the variety of products on the utilization. But it really depends on whether sellers and buyers and the like can come to terms. We’ve seen that over the last six months like everybody else. Sellers’ expectations are high, buyers are asking: “What do we have to pay for capital?” and “That’s what we’re going to pay for the facility.” I think that’s going to have to change radically over the next few months in order for volume to increase.
Okay, good. Well, I think with capital market situation, your $150 million may be gone by the end of June, given the availability from other sources, so good luck and I hope you have a good year.
Thank you, Steve.
Recorded January 12, 2009