Insider Newsletter

September 2013

The Seniors Housing Capital Environment: A Discussion with Christopher Callaghan, Group Vice President, Healthcare Banking, M&T Bank

Image of Christopher Callaghan

The seniors housing and care asset class is poised to continue to out-perform other real estate sectors, according to Christopher Callaghan, group vice president, healthcare banking with M&T Bank. He discusses his positive outlook as well as M&T’s take on construction lending and skilled nursing properties in the latest in a series of dialogues with key players regarding the current capital environment in the seniors housing and care industry. Bill Kauffman, NIC’s senior research analyst, recently interviewed Callaghan.

NIC:  Can you provide an overview of M&T’s book of real estate business in seniors housing and long term care?

Christopher Callagahn:  M&T takes a fairly balanced approach to healthcare lending in general.  Seniors housing and skilled nursing is about 65% of our $5 billion healthcare portfolio, with a fairly even split between the property types.  In senior living we are somewhat weighted to the traditional entry fee CCRC model, but are seeing rapid growth in the development of independent and assisted living properties as the rental model gains popularity and demand for memory care grows.

NIC:  Does M&T have a preference among the property types in seniors housing and care to which it lends? Can you describe the thinking here, the rationale and has it changed? Has reimbursement risk as of late had any impact on your preference?

Callaghan:  M&T has a positive view on senior living and long-term care.  Demographic changes, the housing rebound, and healthcare reform create different opportunities for the property types, and they are poised to continue to out-perform other real estate sectors. We’ve had a long successful track record with skilled nursing and CCRCs and these sectors generally performed well for us throughout the downturn.  We tend to focus on strong multi-site operators who have provided better consistency in operating performance and valuations. We are building on these core sectors with increased activity in the assisted living and rental IL markets, as market demand is increasing for these product lines.  In the IL sector, for example, we’ve been very comfortable with the use of entrance fees as a means to right size the permanent debt which we hold, and we have a similar level of comfort with the lease streams on rental properties, which often use a GSE or conduit for long term financing.

NIC:  Construction seems to be picking up over the past year, especially in memory care.  Can you comment on any changes from M&T’s perspective in the environment for construction lending as of late? Have credit/underwriting standards loosened recently?

Callaghan: We financed our first exclusively memory care facility in 2012 and are seeing larger components of memory care in construction and renovation projects for both AL facilities and in the skilled nursing space. Rapid development of AL continues throughout our footprint.  There are a number of examples where nearby projects are competing to get the shovel in the ground first. The construction lending market has rebounded. Credit standards and underwriting have certainly loosened in the last twelve to eighteen months. We’ve seen watered down equity requirements, guarantee structures, and thinning pricing amidst increased competition to finance these projects.   M&T likes the AL/memory care space, but we’re cautious around the potential for development to overheat.

NIC:  Historically, after a financial crisis, it can take many years for lenders to ramp up aggressive lending due to their recent negative past experience, although some say memories are short, but eventually the credit cycle loosens before another contraction. Where would you say we are in the current cycle? 

Callaghan: The healthcare sector has been an attractive market for the past few years, so the down cycle seems to be a distant memory.  M&T grew its book of business during the downturn and benefited from past market disruptions. There’s no doubt some lenders that left the healthcare space are now returning, and we’re seeing new entrants.   In our portfolio, the property types performed differently through the cycle.  CCRC development generally remains sluggish. There are some projects that are still working through over-leverage and occupancy issues following the downturn.  Despite a rebound in the residential housing market, turnover seems to have stabilized at a slower pace and may not rebound to pre-2008 levels.  The assisted living market is strong with increasing occupancy, cash flow, and valuations. We’re active with AL development and look to balance the obvious market demand with the potential for over-build.  But, since we take a consistent approach with a focus on regions and strong operators that we know well, we’re not as concerned with the market cycles.  That being said, we are alert for signs of softness which we are not seeing.

At M&T, we talk about the low rate environment that seems to drive some of the recent activity.  So we’re spending more time to model out increased interest rates to analyze longer term risks, especially so with facilities that have exposure to reimbursement risk.

NIC:  Switching gears to skilled nursing properties, specifically, how do you see operators/investors planning ahead to mitigate risks given the current reimbursement environment and the transformation within the skilled nursing industry? Are you seeing plans or renovations to build or expand specialty units to increase care capabilities and increase quality of care?  How about more units focused on rehab to increase the Medicare census?

Callaghan:  I’ve met with a number of skilled nursing operators that are ahead of the curve in addressing future reimbursement concerns.  It’s more than just adding new space or building out Medicare capacity; some are working closely with physician groups, hospitals and private insurers to document the delivery of high quality care and outcomes, in order to improve both the quality of their admissions and the outcomes for those residents. External relationships are increasingly important to maintain appropriate census, margins, and cash flow, in some ways, they are as important as physical plant issues. A lot of our new money transactions are based on reimbursement changes, with replacement facilities focused on fewer beds but with better ability to provide quality care. We’re also seeing renovation to provide for enhanced rehabilitation services and to meet the growing need for memory care.

NIC:  What changes do you see occurring in other healthcare property types given the current healthcare transformation, e.g. medical office space?

Callaghan:  The development of other healthcare property types is driven by consolidation, a shift to outpatient services, and improvement in certain reimbursement under the PPACA.   Medical Office Space and Ambulatory Surgical space needs to be expanded and improved and we are seeing development in that sector. We’re also seeing growing activity in behavioral health with new facility development and consolidation.

Learn How to Utilize NIC MAP’s Data on Seniors Housing at the 23rd NIC National Conference

NIC MAP® staff members will be available at the 23rd NIC National Conference to assist conference attendees with real time data and information needs. In addition to providing data support, staff will be on hand to demonstrate how NIC MAP subscribers utilize the research and analysis in the execution of their business plans. 

NIC MAP® is NIC’s web-based research and analysis solutions used by seniors housing deal makers to stay informed of market trends. The data helps support strategic investment decisions and helps them gain and maintain a competitive edge.

Information on 1,670,000 seniors housing units in the top 100 metropolitan markets in the United States can be found in NIC MAP®.  Key features that NIC MAP® provides include verified, quarterly information on all seniors housing property and campus types, property inventory at the unit level, property characteristics and those properties that are currently under construction and those in the planning stages.

Additionally, NIC MAP® data offers its users information on sales transactions, absorption trends, aggregated rent and occupancy comps, demographics and much more. Subscribers can quickly assess markets and competitive properties, print professional grade reports and export data to Excel for analysis and modeling.

For support with NIC MAP® research and analysis solutions, look for the NIC MAP® team at the Data Center on the Level 4 – Ballroom. Or feel free to contact, John Blumer, National Sales Director, to set a time slot for a free demonstration and a free one time market report.

John Blumer
National Sales Director
443-934-4820 (mobile)

New Skilled Nursing Investor Presentation Debut

As NIC continues to enhance its data and research in the skilled nursing sector, there will be a special session at the 23rd National Conference highlighting this segment of the seniors housing market. The newly developed NIC skilled nursing investor presentation, Skilled Nursing Investing: Opportunities and Challenges, is designed to provide a broad perspective of the trends, opportunities and risks for investment in skilled nursing. A panel of industry experts will explain how skilled nursing’s product offerings and clientele are evolving—and what that means in terms of risks and rewards for investors.

After describing the challenges facing the rapidly changing sector, speakers will address the opportunities that the current transformation provides for operators and investors including a shift to short-stay post-acute care, property renovation, and skilled nursing offering a lower-cost solution.

The panel will include:

  • Jerry Doctrow, Senior Advisor, Investment Banking, Stifel, Nicolaus & Company, Inc.,
  • George V. Hager, Jr. , Chief Executive Officer, Genesis HealthCare LLC
  • Paul Nevala, Senior Vice President, Investment Research Group, GE Capital, Healthcare Financial Services
  • Taylor Pickett, CEO, Omega Healthcare Investors, Inc.
  • Kurt Read, Partner, RSF Partners

See below for a “sneak peek”:

Medicare/Medicaid Payments Have Increased Fairly Steadily


Skilled Nursing Properties Among Lower Cost Alternatives for Post Acute Care


Counting Down to the 23rd NIC National Conference Oct. 9-11

While the conference is just a week away, the buzz and energy has been growing online. Registered attendees are already networking through the conference online community. One half of of registered attendees are active online and have sent more than 12,000 messages so far.  If you’re attending the conference, feel free to take advantage of the dedicated conference online community and:

  • start engaging with other attendees
  • view the attendee listing and profiles
  • schedule private meetings with prospects/contacts
  • participate in online discussions and access session presentations

Conference Highlights

  • Registration will open early this year at 10:00 a.m. on Wednesday, October 9
  • Three general sessions, 12 break-out sessions with 60 speakers
  • Featured speakers include former Treasury Secretary Timothy Geithner, Governor Howard Dean and Debra Cafaro, Ventas Chair and CEO

Additionally, new to the conference this year is a live simulcast release of the 3Q13 NIC MAP® Data with an analysis of current trends in the seniors housing and care industry and an outlook for 2013 and beyond.

Attention Registered Conference Attendees:

If you’d like to pose a question to our Networking Luncheon Keynote Speaker–former Treasury Secretary, Timothy Geithner, you can send a question via email to through Wednesday, October 9. If you prefer, you can submit your question onsite at the NIC Data Center where NIC staff will be available to assist you. Please include your full name and company.

Thanks to all of our partners and sponsors. We are looking forward to seeing everyone in Chicago for a great 23rd NIC National Conference.

Premier Partners

Official Partners

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