In the latest in a series of dialogues with key players regarding the current capital environment in the seniors housing and care industry, Michael Hargrave, vice president of NIC MAP®, recently interviewed Brad Vincent, Executive Vice President, Senior Manager, Corporate Banking at Bank of Oklahoma, a division of BOK Financial Corporation
NIC: Can you provide an overview of BOK Financial’s book of real estate business in seniors housing and long term care?
Vincent: BOK Financial Corporation, a publicly traded company with over $26 billion in total assets, has full service banking operations in 8 states, doing business as Bank of Oklahoma, Bank of Texas, Bank of Albuquerque, Bank of Arizona, Colorado State Bank & Trust, Bank of Kansas City, and Bank of Arkansas. BOKF initiated a focus on healthcare (including long term care and seniors housing) in 1997 at the time Medicare was moving from a cost plus to prospective payment reimbursement methodology. While we have historically originated and managed most of our seniors housing relationships out of our larger corporate banking locations in Oklahoma and Texas, we recognize the value of local relationships and market knowledge. Accordingly, we treat healthcare, including seniors housing, as a center of excellence rather than a centralized line of business, with all locations working collaboratively to share best practices. Currently we have dedicated healthcare bankers at Bank of Oklahoma and Bank of Texas.
Today, we have in excess of $600 million in outstanding seniors housing loans in our corporate banking portfolio. The portfolio includes skilled nursing, memory care and assisted living properties, with minor CCRC exposure accounting for the balance. We do finance some independent living properties, but primarily for borrowers who also own and operate SNF and/or AL and include IL in their product mix. The portfolio encompasses over 100 relationships with properties located in 15–20 states. Our focus has been on financing stabilized properties for borrowers who own and operate their properties. We underwrite more to the cash flow of the operating entity but with real estate as the primary collateral. Our market area is primarily our geographic footprint of states “plus one” but we will follow relationships into other markets.
NIC: Does BOK have a preference among the property types in seniors housing & care it lends to? Can you describe the thinking here, the rationale and has it changed?
Vincent: Within our corporate healthcare group, we are cash flow lenders looking to grow and retain long term relationships on our balance sheet. We underwrite SNFs and AL properties by understanding the cash flow of our collateral properties, global borrower cash flow, market conditions and the reimbursement risks in the states where we do business. While the SNFs have higher operating risk profiles, many states have CONs that create barriers to entry, which is important given that we like to hold our loans on the balance sheet. SNFs may be less prone to cyclical overbuilding than AL or IL, but they have unique operating risks and more dependence on Medicare and Medicaid reimbursement that is subject to federal and state budget cycles.
NIC: We are starting to see signs that construction lending may be picking up modestly, albeit at levels well below several years ago. During the past year, NIC MAP reports that 8,257 seniors housing units started construction which is up slightly from previous quarters. Can you comment on any changes from BOK’s perspective on the environment for construction lending?
Vincent: In January 2012 BOKF made the decision to enter ground up construction financing for seniors housing. There are a handful of national banks and regional banks providing seniors housing construction debt. We at BOKF have chosen to lend to very seasoned, well capitalized developers who are building in our immediate footprint, footprint plus 1 and the states of Georgia and Florida. We see this as a significant opportunity, as many lenders either lack the underwriting expertise and/or the balance sheet capacity due to existing CRE lending issues.
Thanks to the generous support of Prudential Real Estate Investors, NIC is pleased to present the Best Research Paper Award to Linda Hollinger-Smith, Kathryn Brod, Susan Brecht, and Mary Leary for their paper, Adult Children of CCRC Residents: Their Perceptions, Insights, and Implications for Shaping the Future CCRC. The authors present the results of an exploratory analysis of how adult children of current continuing care retirement community (CCRC) residents view CCRCs in light of their parents’ experiences. The study’s results show that a significant portion of respondents would recommend their family members’ CCRC to others and were very likely to consider a CCRC lifestyle for themselves.
A Special Commendation Award was given to David Smith and Alexandra Fisher for the article Measuring Success in Seniors Housing Sales: Prospect-Centered SellingSM with the ‘Stages of Change’ Model, which provides a data driven rationale, with analogies to the approach used by Oakland Athletics’ General Manager Billy Beane in major league baseball, for taking a person-centered, as opposed to transactional selling approach to seniors housing sales.
The Seniors Housing & Care Journal is published by NIC in collaboration with Mather LifeWays Institute on Aging. The Journal features research articles focusing on critical issues faced by seniors housing and care professionals ranging from sales approaches to physical design of senior residences.
New this year, the Journal is available free of charge for download, copy, print, or link to the full texts of the articles without asking prior permission from the publisher or the author. Click here for the Executive Summaries from the Journal or to download the full articles.
NIC is looking forward to an exciting and educational 22nd NIC National Conference and we can’t wait to see you in Chicago. NIC would like to extend our special thanks to all our speakers, sponsors and planning committee for their active participation and support in putting together this year’s conference.
With a record high of over 1900 attendees and more than a dozen breakout sessions, this is sure to be our best conference yet. Here is what you can expect:
LEARN from renowned experts including Robert J. Shiller, co-creator of the S&P/Case-Shiller Housing Index, and Tom Scully, former CMS Administrator and current health care lobbyist and general partner with private equity investor with Welsh, Carson, Anderson and Stowe (WCAS).
LISTEN to top industry CEOs discuss how they are creating value for their residents and their investors on our Friday CEO panel.
PARTICIPATE in breakout sessions that will examine evolving subjects like:
- The Case for Seniors Housing Investments
- What Will the Growing Role of Managed Care in Medicaid and Medicare Mean for SNFs?
- How Private-Pay Seniors Housing Plays in the Post-Acute Care Continuum
- Life After Medicare Cuts: Delivering Value and Maintaining Profitability
- Partnerships Across the Continuum of Care: Changing the Face of Skilled Nursing
- Private Equity – Current Capital Deployment Strategies for Seniors Housing
- Financing New Construction and Redevelopment
- Pricing Variables Today – and Tomorrow
NETWORK throughout the conference with peers and industry experts, and build valuable business contacts. NIC has two areas designated for networking, the lower level lounge for quiet, more private deal making. If you like being central to the action, visit the Java Bar where you can enjoy a more open atmosphere. Also, take advantage of the Networking Receptions to be held Wednesday and Thursday evening and meet top industry financiers
DURING THE CONFERENCE:
- Follow us on with hashtag #NICNational
- NIC will have a Press briefing for editors and reporters who cover seniors housing and care.
Location: Ballroom Office in the Ballroom Level.
Time: Thursday September 20, 9:30am to 10:30am
- Terminals will be available to access and test the MAP Local V2 database. Attendees can run searches on inventory, construction and sales transactions and view the Property Advisor Report – a targeted localized report with three year trend data.
For last minute details and information, please visit us at http://www.nic.org/events/conference/.
We look forward to seeing you Wednesday, September 19th, at the Opening Reception.
The following is an excerpt from the NIC Investment Guide: Investing in Seniors Housing & Care Properties, Second Edition, which will be released September 20, 2012 during the 22nd NIC National Conference. The Investment Guide’s second edition not only includes updated data and trends, but also features expanded information, especially pertaining to trends in both nursing care and the sales transaction market.
Seniors housing has proven to be a more stable asset class, in terms of operating fundamentals, than other traditional forms of commercial real estate, especially regarding asking rent growth. Seniors housing is the only recognized real estate class that did not experience declining asking rents during the recent economic recession. Asking rent growth for seniors housing reached a cyclical low of 0.8 percent in the fourth quarter of 2010, which was well above the cyclical lows of the core commercial real estate types of apartments and offices, of -2.3 percent and -4.8 percent, respectively. As of the first quarter of 2012, asking rent growth in seniors housing properties was slightly slower than that of apartments, although seniors housing has shown more stability during the current market cycle.>
Seniors housing has performed in line with core commercial estate in terms of occupancy during the current market cycle. Seniors housing occupancy declined 480 basis points from its cyclical high in 2006 to its cyclical low in 2010, which is comparable to the declines that were seen in office and retail. The apartment sector performed the best among the core commercial real estate property types, declining only 250 basis points from its cyclical high to its cyclical low. The apartment sector has also recovered the most through the first quarter of 2012, with occupancy increasing 310 basis points from its cyclical low. Some of the strength in the recovery for apartments is due to the continuing struggles in the residential housing market and the declining homeownership rate. Seniors housing occupancy has risen 130 basis points through the first quarter of 2012 since establishing its cyclical low in the first quarter of 2010, which outpaces office and retail, both of which have yet to show material recovery in their respective occupancy rates.
While overall seniors housing occupancy rates are clearly in recovery mode, CCRCs are still struggling to move from their cyclical bottoms established in 2010. In MAP31, the occupancy rate for entrance fee CCRCs was 89.1% in 2Q12. The occupancy rate has been at 89.1% for the past four quarters and is up just 25 basis points from one year ago. The occupancy rate for rental CCRCs was 88.6% in 2Q12 which is up 10 bps from 1Q12 but essentially flat from one year ago.
When looking across the MAP100 markets, CCRC occupancy trends exhibit significant variation. In fact, of the 68 markets within MAP100 with 5 or more CCRCS, just 2 (Miami, FL and Columbia, SC) had the same occupancy value in both 2Q12 and 2Q11. Of the remaining 68 markets, 38 registered an annual gain in occupancy while 28 saw occupancy decline. The largest market movers are displayed in the table below.
CCRC occupancy has been in recovery in Grand Rapids since it established a cyclical low of 83.8% in 4Q09. At 91.4%, the occupancy rate is at a high since MAP began reporting data in 2Q08 and up 519 bps from one year ago.
Unlike Grand Rapids, Dayton OH CCRC occupancy is currently at its cyclical low. At 84.4% Dayton CCRCs are down 548 basis points from one year ago. Occupancy had been trending above 90% in Dayton through the end of 2011 but has recently declined.
Market Movers; 3 largest occupancy gains and 3 largest occupancy declines (from 2Q11 to 2Q12; CCRCs)