In this “Expert Opinion” interview, Doug Korey, Managing Director and Partner, Contemporary Healthcare Capital, discusses REITs, geography, independent living, cash flow lending, nursing facilities and more.
Watch the video Read the transcript
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.
Contact Information:
Douglas A. Korey, Managing Director/Partner
Contemporary Healthcare Capital, LLC
1040 Broad Street, Suite 3B Shrewsbury, NJ 07702
(732) 578-0533
dkorey@contemporarycapital.com
Watch the video of the interview:
Read the interview transcript:
Steve Monroe:
There has been a lot of financing going on in the senior housing industry. REITs have been dominating the news, but there’s nothing like the old-fashioned balance sheet lending to get transactions done. I’m sitting here with Doug Korey. He’s a managing director at Contemporary Healthcare Capital, which has a variety of funds specializing in senior housing and care.
Doug, it’s been a few years since we’ve sat down like this, it seems like your business has really expanded since we’ve last talked. Is your phone ringing off the hook these days?
Doug Korey
Absolutely. Particularly the last few years as certain finance companies and banks either started to restrict some lending to the sector or remove themselves from the sector. We’ve had a lot of opportunities present themselves.
Steve Monroe
Because you are using your own funds and not using other people’s money, does that give you much more flexibility with your customers to get transactions done?
Doug Korey
It’s important today more than ever that the customers know that they have a lender who can execute. I think there’s too many times where they’ve been down the road, particularly in the last few years, or in any cycle that has a reimbursement cut or any of these issues that make people pause in their lending programs to know that a team can execute. Particularly when an acquisition needs to happen right away or you need to get in the ground in a construction project, that’s when you need somebody with a balance sheet who knows what they’re doing.
Steve Monroe
When you guys started your funds, you were initially primarily a mezzanine lender—you know, fill in that gap. Then you add the senior loan part of it. Then you added working capital lines of credit. Now you basically can provide the entire financing transaction for someone. If you have a good operator, a good customer, but they’re just thinly capitalized, you’re doing it all for them? Does that help you with that kind of a customer?
Doug Korey
Absolutely. Again, we started out as our core as mezzanine financing and I think that’s been our differentiating factor to banks and other finance companies that are still doing what they do. But there are times when senior capital is either, has retracted from the market, particularly in this phase construction and turnaround financing, or perhaps banks are lowering LTVs [loan-to-value] and the like and a borrower needs to get a deal done. If you’re a good operator and you have a good background and you’re doing the right things, then there should be somebody there that steps up with the majority of the capital. That’s been our bread and butter. It gives it an alternative to REIT financing, so you do have choices in the marketplace. We’re not for everyone, but just like a REIT’s not for everyone, but there are different choices that they can have.
Steve Monroe
When you’re doing a loan package, do you prefer to do the working capital line of credit or do you not care if they take that part of it to a bank?
Doug Korey
Well, it depends on whether or not we’re doing the entire deal, in the sense, the senior and the mezz capital. If a bank is in, we still do a number of deals where the mezz is our only piece in the deal. A senior bank comes in and does that senior piece to it and then we’re more than happy for them to do the working capital financing. But, if we’re doing the senior capital and the mezz capital, it doesn’t make a whole lot of sense to get into inter-creditor issues and lien issues, just that it causes a greater expense to the transaction for the borrower and it’s just easier for us to do.
Steve Monroe
The loans and mezz investments and loan or investment, however you want to call it, they come from different funds. Is it easier for you all to raise money for one kind of a fund, like a mezz fund, as opposed to a senior loan fund?
Doug Korey
That used to be the case. I think more and more people see us as a blended finance company more than a group of funds or fund manager. So investors tend to see us as the hybrid and therefore creating that hybrid return. I think our next fund, which we’ll probably get going with next year, will be the hybrid product, so it’s a more seamless transaction to our borrowers. We can do senior, we can do just mezz or we can do that uni-tranche product from one fund.
Steve Monroe
It seems like, at least in 2012, there was a fair amount of construction or acquisition with substantial rehab. Is that something you’re targeting or are people who want to build or rehab coming to you for your flexibility of products?
Doug Korey
I think it’s both. We certainly are targeting. We see that as a niche that’s underserved. We see a very frothy part of the market for refinancing and cash flow lending. But for the industry, we have an older stock of certainly in nursing facilities and even on the assisted living side and memory care side, we went through a huge round in the mid-90s and not much lately, in the last five years or so. So there are a lot of opportunities for construction.
There are a lot of opportunities in the skilled sector that we’ve been dealing with where, if we’re going to create a new vision of what a skilled operator has to deal with, whether it’s an ACO model or it’s some other function within that marketplace to take on a higher acuity resident, that facility needs to be upgraded and that’s where I think that from a vision perspective, we want to work hand-in-hand with the operator. And there’s not capital, certainly not enough capital out there from lenders today to provide that.
Steve Monroe
What kind of borrower are you looking for in terms of size of operator, location, history of operations, that kind of thing?
Doug Korey
We’ve never been the 50-to-100 facility lender, to that type of group. We’ve been certainly on the small-to-mid-size, but our range has certainly increased from somebody who has a single facility all the way to somebody who has 30 or 40 buildings. Certainly I think a lot of that has been generated from the capital markets downturn. But I think that we’ll continue, even as banks come back, because people have learned that they need to have different sources of different types of capital. We see a lot of people who relied on certain equity partners that are no longer available. We fill that gap. We see people who don’t want to take on partners anymore, they like the pre-payability of a mezzanine tranche to the structure. So as people learn what different financing products are out there available to them, the consistency of that, I think our range of operators has really grown.
Steve Monroe
Are you pretty much east of the Mississippi or even further East than that?
Doug Korey
We have had facilities in over 35 states.
Steve Monroe
Oh, really?
Doug Korey
Yes. We’re in well over 20 states now.
Steve Monroe
I kind of always thought of you as being more in the eastern part. And then most of you or all of your business has been skilled nursing, assisted living. Do you have any interest on the independent living side or maybe CCRCs? Or are CCRCs too big for your funds?
Doug Korey
CCRCs are too big for the funds. I think certainly on the independent side, we turned away from that as a standalone product several years ago. We certainly do it as part of a retirement campus, but we like acuity, we like the need for somebody to have to care for someone. I think on the independent side, there are enough people on the lending side that can do that business. It’s more closely assimilated to multi-family and pure senior housing without service. We like to position ourselves as more of a knowledge-based healthcare lender who assists the borrower, not just in what we provide in terms of capital, but we help with their exits, we introduce them to different folks on all different components of that. I think that added value is more towards the knowledge base of skilled nursing, higher acuity assisted and certainly now memory care.
Steve Monroe
Well, I feel you do a great job in filling that niche market that you’re in and I hope you have a great 2013.
Doug Korey
Thank you, Steve.
