Financing for Private Pay Seniors Housing Operators
NIC 2015 Forum Session Recap
Tom Stanley, Founder & Principal, Cascade Living Group
Ron Hastie, President, RJ Development
James D. Scribner, Managing Director, RED Capital Markets LLC
Chris Urban, Managing Director, Ambrose Capital Group
Overview of Session: Operators of private pay seniors housing have a multitude of capital options to finance their business’ growth and development. During this break-out session small/mid-cap operators learned about available financing options, beyond those traditionally provided by local or community banks. Conventional bank and agency debt, equity structures, REIT, construction and bridge financing, as well as mezzanine debt were all discussed.
By: Andrew Brainard, Health Care REIT
This session covered the wide array of options available to private pay seniors housing operators as viewed through the unique lenses of the session’s panelists—comprised of an operator, developer, lender and an advisory firm. Consensus among the group was that there are significant levels of capital, from a broad spectrum of providers, in every layer of the capital stack, flowing into the seniors housing space. Despite this abundance of capital and a robust development pipeline, from a macroeconomic perspective, the industry’s fundamentals remain strong, and we are not seeing oversupply in the sector.
Continuing on the macroeconomic theme, the looming Federal Reserve decision to raise interest rates was discussed, including when it would happen, and how it would impact the industry. While there were no prognosticators as it relates to exact timing and magnitude, all agreed that it was only a matter of time before the Fed raises rates. None of the panelists foresees headwinds for the pace at which capital would continue to flow into the sector nor for the ability for operators and developers to transact. The impact of an interest rate increase was anticipated to be minimal due in some part to an increasing amount of international buyers viewing seniors housing as a safe haven and also the attractive spreads afforded in relation to other commercial property types like multifamily housing.
The discussion later pivoted to the host of considerations that an operator needs to make when selecting their ultimate borrowing structure. These considerations include the investment horizon, the eventual exit, and the overall goals of the corporation. In addition, a lender has to consider the collateral underlying the investment, focusing more acutely on the operator’s track record and facility business plan than on the property’s location and improvements.
There are also several considerations to be made by the operator when it comes to leverage and equity, including the weighted average cost of capital, control, and the proper alignment of interests. Financing through a REIT, for instance, allows quick access to capital, horsepower, and scalability, while traditional bank financing allows for greater operator control following a project’s completion. Overall, an operator will be in a more advantageous borrowing position when they seek to obtain financing in conjunction with a real estate deal rather than a stand-alone corporate loan, given that there is significant collateral backing the loan, whereas the credit of a leasehold operator generally is not valued as greatly.