How to do it ... Financing
1 - Take advantage of a positive lending environment in 2013. Imran Javaid, managing director, healthcare and specialty finance for Capital One, believes financing likely will be readily available for memory care and freestanding assisted living facilities.
“Asset-backed revolver loans in conjunction with cash flow-backed term loans should provide SNF borrowers with greater flexibility and a lower cash flow burden than a traditional term loan structure,” adds Claudia Stone Gourdon, national marketing manager for Healthcare Finance Group.
Notes Jason Stroiman, president of Evans Senior Investments, “Regional and local lenders have finally begun to lend in the LTC space again. The only caveat is that these types of institutions are still relationship-driven and they expect deposits in return for their loan and a level of loyalty.”
2 - Infrastructure and renovation are good bets.
“Renovating older LTC facilities to decompress the number of three- and four-bed rooms pays significant dividends and is money well spent,” advises Stroiman. “Those with nice physical plants, private and semi-private rooms, large therapy rooms and, most importantly, a good relationship with referral sources, will win the game.”
Jeff Binder, principal and managing director at Senior Living Investment Brokerage, believes a great financing pursuit could be the “addition of an acuity level, most likely memory care, to an existing assisted living facility.”
Adds Bill Wilson, senior vice president, regional manager, Lancaster Pollard: “The smartest investments continue to be renovation of nursing beds to serve Medicare Part A residents.”
3 - Experts advise to borrow from a position of strength.
“Properties with experienced owner/operators and developers who have a proven track record are the types of investments that are obtaining financing,” says Dan Biron, senior vice president at Berkadia.
“Properties need to have a stabilized operating history to obtain attractive permanent financing,” cautions Michael Vaughn, senior vice president, FHA Finance, Walker Dunlop. “And lenders, including HUD, are seeking an equity cushion, at least in terms of value.”
4 - Veteran stakeholders also remind to keep a sense of realism and honesty.
“In today's world of increased lender and third-party scrutiny, it is important to provide immediate notice to the lender if any problems surface,” says Binder. “Trying to hide, or perhaps fix, a survey problem or sharp drop in census will lead to diminished trust and expanded due diligence when the issue is ultimately discovered.”
Many financing pursuits are doomed when borrowers over-value projects, and contribute little equity and under-sized escrows for working capital, says Steve
Kennedy, senior vice president, Lancaster Pollard. Loan applications need to include the good, as well as the ugly, adds Javaid.
“Lenders want to know what your re-admission rates are and what kinds of wounds residents have or come to the facility with,” he adds.
5 - Providers must be prepared to supply thorough loan documentation.
“Clearly state what your capital needs are upfront,” Javaid says. “Surprisingly, many applicants don't address those questions very clearly.”
Financial data, including at least three years of year-end financials, a trailing 12-month income statement, occupancy and payor mix, year-to-date balance sheet and outstanding long-term debt summary, should be readily available and presented clearly.
“To strategically put themselves in an optimum position, owner/operators need to maintain an internal audit process that keeps their records, both financial and clinical, in a format that is thorough, consistent from period to period, and easy to understand,” adds Binder.
Mistakes to avoid
- Failing to present a thorough and concise loan application
- Leaving out critical quantitative and qualitative data
- Hiding potentially negative information - lenders will eventually find it anyway