| Capital Markets Adapt to New Pandemic Reality | <div>
The great unknown remains just that, as capital markets are adjusting
and assessing what long-term impacts the COVID-19 pandemic will have on
financing demand and the structure of loans and other funding
instruments for the long term and post-acute care (LT/PAC) sector. </div><div><br></div><div>Sources in the know say there is of course a lot of caution being
expressed on what lies ahead, but at the same time plenty of activity in
slices of the marketplace even now.</div><h2 class="ms-rteElement-H2">Demand for Capital</h2><div>Headline news is focused on the tremendous challenges skilled
nursing facilities (SNFs) and assisted living communities are facing in
what is a once-in-a-lifetime threat from the pandemic, but Erik Howard,
executive managing director, healthcare finance, Capital Funding Group
(CFG), tells Provider that his company has seen brisk business in recent
times.</div><div><br></div><div><img src="/Monthly-Issue/2020/September/PublishingImages/ErikHoward.jpg" class="ms-rtePosition-1" alt="" style="margin:5px;width:164px;height:210px;" />“We
had probably the best six months of bridge lending business we have
seen, and part of that comes from our continued support of the LT/PAC
industry; we have been doing this for 30 years,” he says. And, over that
period, there have been cycles of ups and downs, but nothing like the
pandemic to test one’s resolve, Howard says.</div><div><br></div><div>“It is interesting, but many other banks have taken to the
sidelines to sort of wait out the pandemic, taking what was a relatively
robust pool of lenders earlier this year and making it more challenging
for borrowers to find capital,” he notes. This has left companies like
CFG with a lot of demand for their financing services, and even though
he says there is a “bit of a capital crunch,” operators have kept
knocking on the door.</div><div><br></div><div>The bridge loans are mostly in the $10 to $15 million range, and a
lot of that variance is driven by location. The Northeast, Howard says,
typically has higher valuations per bed and a strong reimbursement
environment. Overall, CFG has a record financing tally of some $625
million in the first six months of 2020 of bridge financing, Housing and
Urban Development loans, and accounts receivable arrangements.</div><h2 class="ms-rteElement-H2">Operators Looking to Regroup</h2><div>Some of the brisk business at CFG has been in so-called
recapitalization loans, where an owner/operator has an existing loan
with X lender but wants to move the loan to another lender. This, Howard
says, can be for a number of reasons.</div><div><br></div><div>“It could be that the lender is no longer interested in the LTC space, or the borrower is looking for cash,” he says.</div><div><br></div><div>As for acquisitions, the marketplace is most predominantly focused
on regional providers picking up smaller portfolios, as the larger
organizations continue to divest assets in LT/PAC. <br></div><div><br></div><div>“This has been the thesis for the last 12 to 24 months, with
operators getting out of states that are not core to their platform and
landlords moving away from relationships that are not core. We have seen
a confluence of that in the last year and year and a half,” Howard
explains.</div><div><br></div><div>With COVID-19, they believe there will be a noticeable increase in
“mom-and-pop” providers looking for the door, as he says, with the
pandemic “the straw that broke the camel’s back.”</div><div><br></div><div>Overall, the reaction to the pandemic by the federal government,
states, and support by industry advocates like the American Health Care
Association have offered lifelines to providers, especially during the
earliest stages of the virus spreading, Howard says.</div><div><br></div><div>“Through all of this we have remained bullish and expect that the
sector will persevere. The question is will it be over in three months,
six, 12, or 18? We at CFG are supportive as we have been for 30+ years
and think providers will get through this because they provide such an
integral part of the health care system,” he says,</div><div><br></div><div>“Now that SNFs have been thrust into the spotlight, hopefully a lot
of policymakers, and the American people, see these facilities and how
important they are,” Howard adds.</div><h2 class="ms-rteElement-H2">REIT Assesses the Markets</h2><div><img src="/Monthly-Issue/2020/September/PublishingImages/VikasGupta.jpg" class="ms-rtePosition-2" alt="Vikas Gupta" style="margin:5px;width:164px;height:210px;" />Vikas
Gupta, senior vice president, acquisitions and development, Omega
Healthcare Investors, says the publicly traded Real Estate Investment
Trust (REIT) has witnessed a definite change in the long term care space
due to the pandemic. The question is whether the change is temporary or
permanent. <br></div><div><br></div><div>“The need for skilled nursing facilities is still there, but the
operating models have changed as operators are adapting to the new world
of COVID-19,” he says. “Accordingly, deal volume has slowed down where
smaller deals are trading, but larger transactions are mostly on hold as
everyone waits to see how things pan out in the long run for the SNF
space.”</div><div><br></div><div>Matthew Gourmand, senior vice president of investor relations at
Omega Healthcare Investors, says the REIT continues to like the skilled
nursing space for many reasons. “Firstly, we know the industry and have
deep relationships with established, quality operators.”</div><div><br></div><div>He says the second reason is the skilled sector is a hands-on,
needs-based business, with very little opportunity for technological
disruption. “Thirdly, the demand for skilled nursing beds is only going
to increase in the coming years with the aging baby boomers.”</div><div><br></div><div>On the assisted living front, Gourmand said his company has been
quite selective as a new supply of beds has created occupancy and
pricing headwinds in many markets in recent years.</div><div><br></div><div>“In the United States, we have chosen to focus primarily on
development in more densely populated markets with higher barriers to
entry. We have also invested in the United Kingdom care home market,
which has similar qualities to the U.S. skilled nursing industry,” he
says.</div><h2 class="ms-rteElement-H2"><span><span><img src="/Monthly-Issue/2020/September/PublishingImages/MatthewGourmand.jpg" alt=" Matthew Gourmand" class="ms-rtePosition-1" style="margin:5px;width:164px;height:210px;" /></span></span>Pandemic Puts Operators to the Test</h2><div>Overall, the challenges from the pandemic have a few key aspects,
Gupta says. “The major challenges fall with the operators where they are
learning how to adapt to the changes needed to deal with the andemic. </div><div><br></div><div>This involves new protocols at SNFs, including regularly testing
residents and staff, procuring proper PPE [personal protective
equipment], retaining staff, and creating a safe environment for
residents,” he says. </div><div><br></div><div>“From our perspective, we are regularly checking in with our
operators to understand how they are adapting, sharing best practices
from other operators, and asking how we can assist.” </div><div><br></div><div>Omega Healthcare Investors owns more than 950 health care
properties across 40 states within the United States, as well as in the
United Kingdom. About 850 of those are SNFs, with the majority of the
remaining facilities being assisted living communities in the United
States and care homes in the United Kingdom.</div><h2 class="ms-rteElement-H2">Reimbursement Also Challenged</h2><div>From a different perspective, the accounting and reimbursement side
of the LT/PAC trade, Mueller Prost partner Tiffany Karlin says the
pandemic is causing a lot of concern among her firm’s clients given the
uncertainties.</div><div></div><div><br></div><div></div><div>“It is causing stress on our industry overall from the
reimbursement and billing perspective. Clients are asking how do we get
paid for some of this cost tied to COVID. What are the codes? We have to
educate and train them and have been doing this on a constant basis,”
she says.</div><div></div><div><br></div><div></div><div>It is up to 70 to 80 hours a week of updating information that
comes from every aspect of the business, such as changing PPE costs,
compliance issues tied to new regulations on infection control and
reporting, and, of course, this is all while providers are working to
maintain high-quality care for their residents, Karlin says. <br></div><div></div><div><br></div><div></div><div>The hope for all stakeholders is for some normalcy to return and
that the positive trends that were emerging before COVID-19 will be able
to come to bear.</div><div><br></div><div></div><div>As Gourmand says, the biggest nonpandemic trend is clearly the
increased growth in demand stemming from the aging of baby boomers. </div><div><br></div><div></div><div>“The average birthrate between 1941 and 1964 was about 50 percent
higher than the preceding period. This cohort is just starting to reach
the age where utilization of skilled nursing facilities materially
increases. This is likely to represent a 20-year tailwind of demand for
this industry,” he says. </div><div> </div><p></p> | 2020-09-01T04:00:00Z | <img alt="" src="/Monthly-Issue/2020/September/PublishingImages/0920finance.jpg" style="BORDER:0px solid;" /> | Finance | Patrick Connole | The great unknown remains just that, as capital markets are adjusting and assessing what long-term impacts the COVID-19 pandemic will have on financing demand and the structure of loans and other funding instruments for the LT/PAC sector. |
| Landscape for Financing Remains on Firm Ground, Demand Robust | <div></div>
<div><div style="text-align:center;">
<img src="/Monthly-Issue/2019/September/PublishingImages/finance.jpg" class="ms-rtePosition-4" alt="" style="margin:5px;width:490px;height:216px;" /> </div>
<div> </div>
<div>A leading player serving the financing and capital market needs of long term and post-acute care (LT/PAC) providers and investors tells Provider that financing programs and the markets remain robust in the broader LT/PAC industry and in the seniors housing market. </div></div>
<div> </div>
<div>Large, national provider brands and REITs (real estate investment trusts) have driven mergers and acquisitions (M&A) volume in recent months as both entities have looked to restructure their portfolios, divest non-core assets and non-strategic tenants, and rebalance their holdings through diversification into other parts of the continuum of care, according to Erik Howard, executive managing director, healthcare finance, Capital Funding Group (CFG).</div>
<div>
</div>
<div><br></div>
<div>
</div>
<div>He says the increase in M&A activity over the past couple of years, which has continued into this year, has created highly liquid debt markets and driven competition among lenders, making financing solutions readily available to potential borrowers. </div>
<div>
</div>
<div><br></div>
<div>
</div>
<div>Baltimore-based CFG, which bills itself as a one-stop shop dedicated to providing “full-service” financing and advisory solutions to the health care and multi-family industries, expects demand for LT/PAC to continue to grow as the broader industry sees increasing demand in the coming years from the influx of residents hailing from the baby boom generation.</div>
<div>
</div>
<h2 class="ms-rteElement-H2">Popular Loan Programs</h2>
<div>When asked which of the many financing tools available to LT/PAC stakeholders and those in seniors housing is most popular these days, Howard says the answer largely depends on the specific needs of the borrower. But, Howard notes that one program typically popular for most borrowers is so-called “Bridge-to-HUD (Department of Housing and Urban Development)” financing. </div>
<div><br></div>
<div>By definition, such Bridge-to-HUD loans are for borrowers who require a more timely and rapid financing option for acquisition; refinancing of existing loans; and/or repairs, renovations, additions, or conversions to properties. CFG provides bridge loans starting at $3 million, with no dollar limit on financings of larger transactions.</div>
<div><br></div>
<div>“A bridge loan allows for flexible, timely financing and is a good alternative for straight-to-HUD loans,” Howard says. “Bridge loans allow for creative structuring solutions tailored to each unique situation and provide the ability to execute turnaround acquisitions, short-fuse transactions, and cash-out deals while arranging for an ultimate exit through HUD refinancing,” he says.</div>
<div><br></div>
<div>HUD financing in general, either through a refinancing event following a successful end to the terms of a bridge loan, or a straight-to-HUD financing event, remains in favor for many borrowers because of the attractive terms HUD provides that endure in all interest rate environments. </div>
<div><br></div>
<div>“Owners with portfolios of any size find the non-recourse, long-term, fully amortizing, and fixed-rate terms very attractive,” Howard says.</div>
<h2 class="ms-rteElement-H2">All Care Settings Active</h2>
<div>Within LT/PAC and seniors housing, he says M&A activity across the assisted living, independent living, and skilled nursing sectors has remained strong.</div>
<div><br></div>
<div>Looking at what pressures there are on the capital markets and financing worlds, Howard says there are several macro issues that will continue to influence debt and equity markets. </div>
<div><br></div>
<div>Clearly global financial market participants and borrowers alike are focused on the Federal Reserve, as well as the overall health of the economy. The Fed’s decision to reduce short-term interest rates, coupled with recent events in the currency market, have created a flight to quality for investors seeking stability in <br></div>
<div>U.S. Treasuries. </div>
<div><br></div>
<div>This has been, at least temporarily, a great opportunity for borrowers to lock in long-term rates and has helped to keep cost of debt capital relatively cheap, with rates for HUD-insured mortgages approaching 3 percent. </div>
<div><br></div>
<div>The yield curve is suggesting there is minimal inflation expected on the horizon, which could provide a near-term window to take advantage of historically low HUD rates for those companies that have traditionally utilized bank financing.</div>
<h2 class="ms-rteElement-H2">Consolidation Continues</h2>
<div>Much talk has occurred of late on bankruptcy developments among some providers, but Howard sees the worst as being nearing its end even as the topic continues to attract attention.</div>
<div><br></div>
<div>“I feel the industry is moving in a direction that will reduce the number of these bankruptcies going forward,” he says. </div>
<div><br></div>
<div>“As the industry becomes more complex, we are seeing a trend of regional companies acquiring assets from smaller operators while large, nationally focused operators also look to concentrate efforts in specific markets.” </div>
<div><br></div>
<div>The operational nuances within the LT/PAC industry have become more complex as a result of changes to reimbursement models and local and state regulations, which has left the smaller operators in a lurch. </div>
<div>“We are seeing a trend of regional companies acquiring more of these assets within their geographic footprint,” Howard says. </div>
<div><br></div>
<div>“These operators are large enough to have the economies of scale and organizational backing to run these facilities efficiently, while still being small enough to focus on the micro-operational aspects that can oftentimes be overlooked at some of the larger operators—health care is a local business.”</div>
<div><br></div>
<div>At the same time, larger and nationally prolific operators have in many cases become overleveraged and may have met capital financing and lease payment challenges by breaking up their portfolios through sales of properties. </div>
<div><br></div>
<div>“The acquiring operators have predominantly been more geographically hyper-focused [on staying within a certain region] and can be more nimble than larger operators,” Howard says.</div>
<h2 class="ms-rteElement-H2">PDPM Lurks This Autumn</h2>
<div>There is another priority issue lurking in the LT/PAC community and its interested investors, and that is the new payment model for skilled nursing centers coming online in October, Howard says. </div>
<div><br></div>
<div>“I would say one of the primary subjects on everyone’s radar right now is PDPM, Patient-Driven Payment Model reimbursement,” he says. “We believe that PDPM represents an opportunity for the well-established operators to outperform their peers.”</div>
<div><br></div>
<div>Howard says CFG also expects PDPM to enable market opportunities whereby operators that will not be able to successfully adapt to the changing reimbursement environment will divest assets, increasing the M&A activity.</div>
<div><br></div>
<div>As for CFG and its results of late, he says the company has continued to be a top competitor in the market, resulting in closing nearly three-quarters of a billion dollars in combined bridge and HUD loans in 2018, a number that should be surpassed in 2019. “We have already closed over half a billion of combined bridge and HUD loans through July [2019],” Howard says. </div>
| 2019-09-01T04:00:00Z | <img alt="" src="/Monthly-Issue/2019/September/PublishingImages/finance_t.jpg" style="BORDER:0px solid;" /> | Finance | Patrick Connole | Large, national provider brands and REITs have driven mergers and acquisitions volume in recent months as both entities have looked to restructure their portfolios, divest non-core assets and non-strategic tenants, and rebalance their holdings through diversification into other parts of the continuum of care. |
| Meeting Challenges Head-on in Today’s Revenue Environment | <div> </div>
<p class="MsoNormal">The past few years have seen a record level of health care
facility bankruptcy filings, and if the first half of the year has shown anything,
it is that this trend is far from over. Ever-evolving challenges around
demographics, reimbursement, staffing, and operating costs present enormous
challenges for nursing centers and assisted living communities. </p>
<div>
</div>
<p class="MsoNormal">With pressures mounting, both distressed and currently
operational facilities need to consider tactics to improve revenue and
efficiency. Having worked with dozens of health care businesses facing these
common pressures, there are clear avenues for facilities big and small. </p>
<div>
</div>
<h2 class="ms-rteElement-H2B">Renegotiate Real Estate and Operational Costs</h2>
<p class="MsoNormal">Rent is a significant cost for many nursing facility operators,
and it is often set at a point in time when the organization enjoyed a higher
valuation. This makes it ripe for renegotiation and represents what is perhaps
the most immediate way to relieve financial stress on a nursing center. </p>
<div>
</div>
<p class="MsoNormal">While it is true that no landlord will want to lower costs
off the bat, often times <span> </span>most are
amenable, understanding that reduced rent is still income. Even within the
larger operating company/property company financial structures, most of the time
rental or property leasing costs can be amended relatively quickly. </p>
<div>
</div>
<p class="MsoNormal">Besides property costs, it is important to seek out other
areas where savings can be realized without compromising quality, such as food
vendor, pharmacy, or service contracts. This effort can positively impact the
bottom line. Perform assessments of the business to identify areas of
operations that could be improved, evaluate the return on overhead expenses, and
collect overdue accounts receivable in a disciplined way. </p>
<div>
</div>
<h2 class="ms-rteElement-H2B">Code for Revenue Enhancement</h2>
<div>
</div>
<p class="MsoNormal">Regulatory scrutiny of nursing centers has increased
dramatically both to ensure proper billing as well as satisfactory patient
care. Facilities are exposed to multiple audits of their patient care techniques
and billing procedures, and when issues are uncovered, the penalties and required
remedies can be taxing and expensive to implement.</p>
<div>
</div>
<p class="MsoNormal">Staffing levels and direct patient care hours are among the
most highly scrutinized details, so some nursing center operators who cut
corners here do so at their peril—it is an expense that must be borne.</p>
<div>
</div>
<p class="MsoNormal">Regulation around the minimum direct hours for patient care,
including certified nurse assistant (CNA) hours, places additional pressure on
the cost model by removing some of the decision-making autonomy management
staff would otherwise have on labor costs. This aspect is particularly
challenging because clinical staff in nursing centers—and in particular CNAs—typically
have high turnover due to low pay for the performance of a very difficult job,
both mentally and physically. </p>
<div>
</div>
<p class="MsoNormal">One way to alleviate these pressures is to place emphasis on
recording and billing for all services rendered, and to implement best
practices in doing so. Develop proper coding protocols to maximize realizable
reimbursement rates so that that the facility is paid for all provided services,
even when operating in a reduced rate environment. </p>
<div>
</div>
<p class="MsoNormal">When rising labor costs are already a concern, it might seem
counterintuitive to add extra coders to drill down into the details of
recording and billing. However, in the long run, effectively managing the
nitty-gritty details will make audits a much less stressful time for all
involved. </p>
<div>
</div>
<h2 class="ms-rteElement-H2B">Market to the Right Audiences</h2>
<div>
</div>
<p class="MsoNormal">Compared to residents that previously entered nursing centers
in moderate to good health, the average entrant today is older and sicker. At
the same time, hospital systems are increasingly referring patients within
their own networks, and preferred provider networks are referring to fewer
nursing centers. This all adds up to higher cost of care per resident.<span>  </span></p>
<div>
</div>
<p class="MsoNormal">As the center faces these increased costs, it can be tempting to focus
all energy on private payers, who are attractive admissions due to their higher
reimbursement rates. However, today’s high deductibles and heavy patient
responsibility have decreased the market presence of private payers. The
Centers for Medicare & Medicaid Services (CMS), on the other hand, may have
lower rates of reimbursement but offer a growing pool of potential patients
backed by a payer that is guaranteed to pay its bills. As long as a reasonable
payer mix among residents can be maintained, accepting more Medicaid patients
can be a sustainable way to fill beds.</p>
<p class="MsoNormal">With both types of patients in mind, operators need to focus
proactively on referrals from hospital systems, assisted living facilities, and
preferred provider networks. Mandates vary from state to state, but most
assisted living facilities are required to discharge patients when their care
requires more than a one to one patient to professional ratio. </p>
<div>
</div>
<p class="MsoNormal">At the same time, it is important to examine how to cost-effectively
reach and educate discharge planners at other health care facilities and
agencies, as well as families and other decision influencers. It can be hard to
consider investments in marketing when facing financial strains, but spending
smartly on radio, newspaper, or digital advertising can pay dividends in driving
new inquiries. Examine the competition’s pain points and market the facility as
an alternative solution. </p>
<div>
</div>
<p class="MsoNormal">In addition to referral-focused outreach, it is important to
reach the wider community to raise awareness of services with a positive
message about the facility. Patients today have access to extensive research
and reviews when making choices about long term care, so it is imperative to
improve the facility’s CMS Five-Star Rating. The evaluation process is a bit
long—one year—but investing in care levels to enhance quality of care and
quality of life for all patients and residents will also help ensure a good Five-Star
Rating, which is a must to secure future organic inbound traction. <span> </span></p>
<div>
</div>
<p class="MsoNormal">Some of these tactics can be led by operations, marketing, finance,
or legal teams. Those providers that are more complex and are further along in
the distress cycle may require outside expertise to lay out options and viable paths
forward. In the end, doing what is best for the health and well-being of
residents and patients often proves to be the most beneficial for the facility in
the long run as well. </p>
<div>
</div>
<div>
</div>
<p class="ms-rteElement-P"><a href="https://www.carlmarksadvisors.com/team/marc-pfefferle/" target="_blank"><img src="/Topics/Guest-Columns/PublishingImages/MarcPfefferle.jpg" alt="Marc Pfefferle" class="ms-rtePosition-1" style="margin:5px 10px;width:70px;height:70px;" />Marc Pfefferle</a>,
partner at Carl Marks Advisors, has more than 30 years of financial and
operational restructuring experience. He serves in roles as senior advisor or
interim executive to companies in transition or in need of substantial
performance improvement or debt restructuring. He has served as CEO, CRO, or
equivalent leadership positions at 15+ companies, competing in a variety of
industrial, service, consumer, health care, and retail market segmen<span><span>ts. He can be reached at </span></span><a href="mailto:mpfefferle@carlmarks.com" target="_blank">mpfefferle@carlmarks.com</a>. <a href="https://www.carlmarksadvisors.com/team/jeffrey-pielusko/" target="_blank"><img src="/Topics/Guest-Columns/PublishingImages/JeffPielusko.jpg" alt="Jeff Pielusko" class="ms-rtePosition-1" style="margin:35px 10px;width:70px;height:70px;" /><br><br>Jeffrey
Pielusko</a>, director at Carl Marks Advisors, has over 10 years of financial
and operational restructuring and investment banking experience. He serves as
both company and lender advisor in evaluating and executing financial and
operational restructurings. He can be reached at <a href="mailto:jpielusko@carlmarks.com" target="_blank">jpielusko@carlmarks.com</a>.</p>
<div>
</div> | 2019-07-29T04:00:00Z | <img alt="" src="/Topics/Guest-Columns/PublishingImages/carlmarks.jpg" style="BORDER:0px solid;" /> | Management;Finance | Marc Pfefferle and Jeffrey Pielusko | Ever-evolving challenges around demographics, reimbursement, staffing, and operating costs present enormous challenges for nursing centers and assisted living communities. |
| HUD Lending Program Paves Way for Refinancing | <div></div>
<div>
A leader in the field of capital financing for seniors housing points to the Department of Housing and Urban Development (HUD) and its HUD 232 program offerings as an attractive option for long term and post-acute care (LT/PAC) providers in need of refinancing or other capital funding needs.</div>
<h2 class="ms-rteElement-H2">Businesses Refinancing</h2>
<div>Despite the economic pressures on owners and operators in today’s tight-margin, occupancy-challenged environment, Jeffrey Davis, chairman and president of Chicago-based Cambridge Realty Capital Companies, says his company is seeing a brisk business, notably in refinancing deals utilizing HUD’s low-interest, long-repayment terms, which are among the program’s most attractive features.</div>
<div><br></div>
<div>“The trick here is at the end of the day, there are lots of ways to acquire a nursing home or build a nursing home or refinance a nursing home, and there is different funding for that,” he says. “But, in terms of a long-term permanent mortgage loan, there is really no other viable option besides HUD.”</div>
<div><br></div>
<div><img src="/Monthly-Issue/2019/April/PublishingImages/finance_JeffreyDavis.jpg" alt="Jeffrey Davis" class="ms-rtePosition-1" style="margin:5px 15px;" />Davis says the great thing about HUD from a strategic and operator point of view is that HUD has the equivalent pricing and underwriting that is similar to the agency’s multi-family pricing and underwriting. Also, HUD program loans have performed well and are cash-flow positive.</div>
<div><br></div>
<div>“The whole dynamic revolves around the fact if the nursing home operator is looking for the best combination loan on cost, term and amortization, personal recourse, no balloon or call, etc., then HUD is the best option,” he says. “Really, every operator and everyone who works with SNFs [skilled nursing facilities] on an ownership basis needs to at the very least explore HUD and see how it fits within their dynamics.”</div>
<h2 class="ms-rteElement-H2">HUD Process Not Lengthy</h2>
<div>Cambridge, which has completed $5.5 billion of seniors housing/health care financing deals for more than 500 properties, provides capital using HUD, but also facilitates conventional financing on an investment banking basis, and performs seniors housing principal acquisition via joint ventures, debt structuring, and by creating operating leases for SNF owner/operators.</div>
<div><br></div>
<div>For HUD 232 financing, the process works as follows:</div>
<div><br></div>
<div>1. The borrower submits the data necessary to underwrite the loan.</div>
<div><br></div>
<div>2. Cambridge (or a like company) issues a preliminary term sheet/loan proposal.</div>
<div><br></div>
<div>3. The borrower submits additional diligence information as needed to further qualify the transaction for HUD and answer any questions posed by the lender.</div>
<div><br></div>
<div>4. The lender issues a formal term sheet and engagement agreement.</div>
<div>These first four steps above take an estimated 30 days. Next:</div>
<div><br></div>
<div>5. The lender engages third-party vendors and completes project level underwriting.</div>
<div><br></div>
<div>■ An appraisal with an experienced appraiser who understands the HUD 232 Lean requirements is engaged.</div>
<div><br></div>
<div>■ A Property Condition Assessment Report from a vendor who understands HUD 232 Lean requirements is engaged.</div>
<div><br></div>
<div>■ A Phase I environmental report (and Phase 2, if applicable) and radon report is ordered from a knowledgeable vendor who is familiar with the HUD 232 Lean requirements.</div>
<div><br></div>
<div>■ A formal application is submitted to HUD, along with a narrative of loan and opportunity from the lender’s chief underwriter.</div>
<div><br></div>
<div>This fifth step and its provisions take an estimated 60 to 90 days.</div>
<h2 class="ms-rteElement-H2">Committing the Loan</h2>
<div>The next steps involve submitting the application to HUD and waiting for an agency underwriter to pick up the paperwork. The time frame for this to happen depends on the queue of applications in holding, Davis says. Once reviewed, the process can take around 30 to 60 days, and a further period for a loan committee to decide on the loan application and HUD to issue a firm commitment to ensure the lender’s mortgage.</div>
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<div>The final step is for all of the parties—the lender, HUD, and the borrower—to move toward closing, lock the interest rate, finalize loan documentation, and fund the loan. All of this takes an additional 60 to 90 days in length. </div>
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<div>Davis says the HUD business has been robust in recent years, and he expects this year to be no different. <br></div>
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<div>“More and more the operators are getting comfortable with the program and understanding the process and time frame. Part of that is a function of some pull-back by conventional lenders,” he says. </div>
<h2 class="ms-rteElement-H2">Refinancing Is King</h2>
<div>On what types of financing are most popular with SNFs, he points to refinancing as far and away the most popular type of lending. Most of the HUD business for Cambridge comes in the skilled space, along with some assisted living and memory care.</div>
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<div>“It is really more of a what’s on the need-based  higher level of care versus the higher level of care,” Davis says.</div>
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<div>There are also drawbacks with conventional lenders, who generally offer challenges to operators in the form of higher interest rates and balloon payments down the road, along with personal recourse. “There are also variable interest rates lots of times with conventional loans,” he says.</div>
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<div>Also speaking on the value of HUD’s financing programs, Mark Parkinson, president and chief executive officer, American Health Care Association/National Center for Assisted Living, says from his previous experience as an owner/operator in the LT/PAC space there definitely is value in the government’s offering.</div>
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<div>“Our long-term financing strategy as an owner was always to get to HUD,” he says. “HUD financing combines long repayment, low rates, and, most important, no recourse. If you’re in the profession for the long run, it’s a tremendous financing option.” </div> | 2019-04-01T04:00:00Z | <img alt="" src="/Monthly-Issue/2019/April/PublishingImages/finance_t.jpg" style="BORDER:0px solid;" /> | Finance;Management | Patrick Connole | A leader in the field of capital financing for seniors housing points to HUD and its HUD 232 program offerings as an attractive option for LT/PAC providers in need of refinancing or other capital funding needs. |