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NIC Insider Newsletter
April 2008
Strategic Information for Seniors Housing & Care Executives
The NIC Insider is a free, monthly, electronic newsletter from NIC — your source for research, publications and business information on the seniors housing & care industry. To subscribe or add other addresses, click here.
In this Issue:
- The Seniors Housing Lending Environment — A Discussion with Deborah Laycock
- NIC Releases Q4, 2007 Key Financial Indicators
- NIC Events - Tom Brokaw to Speak at 18th Annual Conference
- 2008 Senior Housing & Care Journal - Call for Papers
- Q4, 2007 NIC MAP Reports Available
- Seniors Housing & Care Industry Calendar
 | The Seniors Housing Lending Environment A Discussion with Deborah Laycock |
In the fourth in a series of continuing dialogue with key players regarding the current lending environment in the seniors housing and care industry, Michael Hargrave, Vice President - NIC MAP, recently interviewed Deborah Laycock, Managing Director, Healthcare Finance, at Guaranty Bank.
How does the volume of construction deals in process this year compare to the same period last year?
Ms. Laycock: The overall number of new developments is down slightly, but for Guaranty Bank, specifically, the number of transactions we are reviewing is the same as (or higher than) last year, as financing is so much more difficult to find. Well capitalized developers/operators are moving forward on new projects despite the slowdown in the economy and capital markets. Select markets (FL, certain areas of CA, Midwest, Las Vegas, etc.) are definitely slowing down.
Do you have specifics?
Ms. Laycock: Guaranty Bank’s production last year was approximately $550MM, with about 60% of that being construction. This year I anticipate a similar volume with the percentage of construction financing being slightly higher.
Is Guaranty more competitive in this environment?
Ms. Laycock: Guaranty Bank is certainly less aggressive compared to twelve months ago in our loan structuring (requiring more equity, pricing and recourse) as are all lenders in the current credit environment. We are facing less competition on the transactions as many institutions seem to be on the sidelines when it comes to construction lending. Guaranty Bank remains committed to the industry and has tremendous support from senior management.
What types of lenders do you normally compete against and are they as active in today’s environment?
Ms. Laycock: Guaranty Bank has traditionally provided financing on a project and small portfolio basis so we didn’t compete directly on the larger portfolio transactions where the lenders have been most impacted by the current credit market situation. Our primary competitors, commercial banks and finance companies, have definitely tightened their lending parameters as much as or more than Guaranty Bank. I think we will begin to see some fallout among the smaller regional banks that competed on single asset transactions as they start to recognize issues in their portfolios associated with homebuilder loans and some commercial real estate.
What are you seeing in terms of the types of construction requests you are getting (property types, etc.) and what is Guaranty most interested in/willing to fund?
Ms. Laycock: Guaranty Bank is a relationship lender and we will continue to evaluate requests that have strong sponsorship and experienced operators with a track record in development and leasing. We carefully evaluate individual market fundamentals relative to the type of units in the proposed project. We finance CCRCs (rental and entrance-fee), IL, AL and ALZ (no SNF or condo projects).
For projects you have funded that have recently opened, how are they performing (filling) thus far?
Ms. Laycock: While IL performance is receiving a lot of attention due to the housing market crisis, the general economic conditions will inevitably have a negative impact on leasing in all product types. We are seeing slower lease up, even for the more “need-based” AL projects. We saw a slow down in leasing as a result of the economic uncertainty associated with 9/11 and I think that decisions to move are being deferred now as well. Our borrowers are focusing on pre-marketing, implementing programs to assist seniors with staging their home to be sold, and employing creative marketing techniques. Even though lease up has slowed, conservative underwriting parameters and lower all-in interest costs provide a cushion in the loan’s operating deficit reserves for a longer fill time.
Can you talk about any changes in underwriting; how are spreads different?
Ms. Laycock: As everyone is well aware, lenders’ tolerance for risk is much lower and comes at a higher price. Lenders are looking at even the basics with more scrutiny. More equity (25% minimum), higher recourse, more stringent covenant structures, closer scrutiny of proformas and conservative estimates for reserves can be expected. Spreads have definitely increased (50-75 bps) and continue to move higher. Where there wasn’t a big pricing differential for the quality of a transaction twelve months ago, the premium for riskier deals today has increased substantially.
Have LTV’s changed?
Ms. Laycock: LTVs (70%) have changed as a result of higher equity requirements for new transactions. The stabilized appraised values that we are seeing have not been significantly impacted although cap rates have increased 25-50 bps.
Look for an interview with Dan Hermann, Managing Director & Group Head, Ziegler Capital Markets in the May edition of the NIC Insider.
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NIC Releases Q4, 2007 Key Financial Indicators |
Seniors housing and care “held its own” in the fourth quarter of 2007, despite the slowing economy.
“The percentage of performing loans during the fourth quarter continued to be very strong at 99.5 percent,” said Robert G. Kramer, president of NIC. “So far, we’re not seeing any impact in our sector in terms of troubled loan performance. In fact, other seniors housing and care industry metrics would suggest that the performance of loans during the first half of 2008 will be similar to that from the fourth quarter of 2007.”
The loan data collected by NIC represents the quarterly lending activity of major national lenders (non-REITs) that make permanent and short-term debt investments in seniors housing and care. This includes data provided by Fannie Mae, Freddie Mac, and several of the larger credit companies and banks.
Loan volume placed during the quarter also continued to be strong at $1.64 billion. However, it was down both quarter-over-quarter (from $2.15 billion) and year-over-year (from $2.22 billion).
Occupancy rate percentages basically held steady, particularly quarter-over-quarter. But year-over-year, average independent living occupancy rates were down 200 basis points from 92.5 percent in the fourth quarter of 2006 to 90.5 percent in the fourth quarter of 2007. Also year-over year, average skilled nursing occupancy rates fell 250 basis points from 88 percent to 85.5 percent. More than 3,100 properties reported their occupancy data to NIC during the fourth quarter of 2007, representing about 365,000 units.
Capitalization rates also remained stable compared to the previous quarter. Only continuing care retirement communities showed a major downtick – of about 130 basis points – but that was from a relatively small sample of 13 transactions. Overall, about 220 transactions were reported to NIC for the fourth quarter of 2007, which came from a survey of all the major appraisal firms that do seniors housing appraisals.
Click here to view the Q4, 2007 NIC Key Financial Indicators discussed above.
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NIC Conference & Events Update |
Tom Brokaw to Speak at 18th Annual Conference
THE 18th ANNUAL NIC CONFERENCE:
Opportunity Amid Economic Uncertainty:
In this Market You Must be Well-Informed.
September 10-12, 2008
Sheraton Chicago Hotel & Towers
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On September 11, 2008, one of the most trusted and respected figures in broadcast journalism, Tom Brokaw, will address attendees at the 18th Annual NIC Conference during the plenary luncheon. "We are delighted to have Tom Brokaw as a keynote speaker at our Conference in Chicago this September, " said Kathryn A. Sweeney, Managing Director - US Senior Housing, The GPT Group, and NIC Board Chair. "Not only is Mr. Brokaw known for anchoring NBC Nightly News with Tom Brokaw for more than two decades, but perhaps more importantly to our conference attendees, he is renowned for having authored The Greatest Generation and The Greatest Generation Speaks, two books highlighting the unique lives and awesome sacrifices of the men and women who lived in the Great Depression and fought in World War II. The majority of seniors residing in retirement communities today are representative of this generation. How appropriate to have Mr. Brokaw address us on the lives of those who affect NIC attendees each and every day." Tom Brokaw not only set the standard for broadcast news, but also renewed America’s pride in its own history and bridged the generation gap with his best-selling books. NIC is proud to welcome one of the most iconic figures in television news history to speak at the industry’s premier dealmaking event. |
To encourage more efficient networking opportunities for our conference attendees, registration will again be capped at 1600 individuals. Register early to secure your spot! A limited number of sponsorships are still available. For information contact Elisa Infante Freeman at 410-267-0504. Click here to register for the 18th Annual NIC Conference. |
| 2008 Senior Housing & Care Journal - Call for Papers |
Click here to find out how to submit your paper!
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Share your best practices and applied research with others in the industry. The peer-reviewed Seniors Housing & Care Journal publishes evidence-based papers for professionals in the aging field and for researchers conducting applied studies. Is Your Paper Right for the Journal? Areas of research submissions include, but aren’t limited to:
Scott King Associate Managing Editor Mather LifeWays Institute on Aging (847) 492-6707 sking@matherlifeways.com Final deadline: Friday, May 16, 2008
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Q4, 2007 NIC MAP Reports Available |
NIC MAP recently released all Q4, 2007 data and reports covering America’s Top 100 Metro Markets. NIC MAP is the leading provider of seniors housing real estate information in the United States. For just $299 you can begin your local market analysis with the purchase of a Metro Market Report. Purchase Your Q4, 2007 Metro Market Report Today.
For more information on NIC MAP and to view sample reports or purchase any of the reports currently available, please visit our website, www.nicmap.org, or contact Amber Zirnhelt at (410) 267-0504 for more details.
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Seniors Housing & Care Industry Calendar |
- 22-25 Erickson School - “Sales and Marketing of Seniors Housing & Care,” Baltimore, MD
April 2008:
- 3-6 LTC 100 Conference, Amelia Island, FL
- 13-16 Erickson School - “Managing Services for Persons with Alzheimer's Disease and Related Disorders,” Baltimore, MD
- 19-21 NAHB 50+ Housing Symposium 2007, New Orleans, LA
- 29-31 ALFA Annual Conference, Orlando, FL--Gaylord Palms
May 2008:
- 2 NIC MAP Quarterly Subscriber Conference Call
- 4-8 NAHB Spring Board Meeting, Washington, DC
- 10-13 Erickson School - “Understanding and Managing the Risks of Seniors Housing & Care,” Baltimore, MD
- 22-24 NIC Strategic Planning Committee Meeting, Cape Cod, MA
- 23-26 Erickson School - “Creating Value Through Service Excellence,” Baltimore, MD
June 2008:
- 1 NIC Executive Circle Conference Call
July 2008:
(denotes NIC Events)