1. There’s never been a better time to be fiscally mindful.
Social distancing and dismal economics have paused almost every renovation project, so seeking a “renovation loan” isn’t advisable, said Jeff Sands, managing principal, HJ Sims.
Other lenders, meanwhile, cautioned against scrapping every project.
“During the 2008-2009 financial crisis, it was common for senior living providers to defer routine maintenance to preserve cash,” Aaron Rulnick, managing principal, HJ Sims, observed. “The challenge is finding the right balance, but organizations need to reinvest to remain competitive once the current situation improves and providers are able to resume normal operations.”
Sands urged owner-operators to give priority to any capital project that avoids loss or enhances collateral -— things that improve marketability or attract staff.
In the end, any available cash should go toward keeping your operations whole, advised James Bodine, executive vice president, HJ Sims.
Nick Stahler, managing director, The Stahler Group of Marcus & Millichap, said he thinks the smart money right now is on hygiene. He sees successful investment in renovations that allow facilities to better handle viral outbreaks, provide overnight staff quarters, isolation rooms and beefier IT infrastructure.
2. On the other hand, there hasn’t been a better time to borrow.
“We are seeing a great deal of compassion on the lending side related to timely and impactful assistance to their borrowers, and bank regulatory agencies have issued guidance encouraging lenders to grant accommodations like payment deferrals and interest only periods,” observed Jeff Binder, managing director at Senior Living Investment Brokerage.
Anthony Luzzi, president of Sims Mortgage Funding , an HJ Sims subsidiary, suggested rate-favorable HUD-insured loans, “even if the debt service savings are modest.”
Also, don’t be shy when asking for a break. Now’s the time, as Binder reminded, to capitalize on the “depth and success of your lending relationship.”
But Sands added that any lender is going to want to see your financial plan and your best projections for dealing with COVID-19.
3. It bears repeating: Be brutally honest with your lenders.
“Go to your lender as the problem is materializing,” said Stahler. “Do not wait until it’s too late for them to help. In some cases, there may be available funds, such as the Paycheck Protection Plan (PPP), or a new or increased line of credit to help you through these tough times independent of your existing debt.”
4. Exhaust all government assistance you can.
At press time, the PPP, Economic Injury Disaster Loan Program and other financial stimuli were pouring forth from the Small Business Administration.
Mark Myers, managing director, Investment Sales at Walker & Dunlop, urged providers to tap into possible programs that cover things like sanitation costs and renovation projects targeted at infection control. “The beauty of [PPP] is that funds utilized for the allowed expenses over an eight-week period can be forgiven,” said Binder. “These loans are provided through SBA-approved lenders and chances are one of your lending partners fits into that category.”
Loan proceeds can be used for payroll costs, utilities, lease and mortgage interest.
HUD also is offering up to a quarter’s mortgage payment relief on insured loans, Luzzi added.
5. Be open to unconventional revenue sources.
“Depending on the ownership structure of the community, particularly for nonprofits, philanthropy may be a source of cash flow/capital support,” said Bodine. “Stakeholders are stepping up in this time of need to support causes important to them — senior living communities and staff members may have been there in a prior time of need and stakeholders now have an opportunity to do the same in this time of challenge.”
“Research how to obtain reimbursement from the feds for lost revenue resulting from the crisis,” added Myers. “Check with your insurance company to see if you can file a claim for lost revenue, under force majeure, which is an unforeseeable circumstance that prevents someone from fulfilling a contract.”
