Seniors Housing Business

AUG-SEP 2015

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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14 Seniors Housing Business n August-September 2015 Capital Corner By Jef Shaw Berkadia Commercial Mortgage's seniors housing loan portfolio has expanded dramatically in the last few months. Acquired in 2009 as a 50/50 joint venture between Leucadia National Corp. and Berkshire Hathaway, Berkadia currently services nearly $7 billion in seniors housing assets. In May, the lender provided a $648.2 million Fannie Mae loan to a NorthStar Healthcare Income joint venture to help fund the acquisition of a 32-location portfolio of independent living communities. In June, Berkadia acted as broker in the $84 million acquisition of 14 seniors housing communities by ROC Seniors Housing. Berkadia contributed $20 million of the capital while BBVA Compass Bank pro- vided the remainder. The seller in the deal was not disclosed. The company as a whole focuses strongly on Fannie Mae, Freddie Mac and HUD lending, and the seniors housing division is no excep- tion. Although Berkadia has a bridge lending program, the vast majority of loans are made through Fannie, Freddie and HUD. Dan Biron joined Berkadia in 2011, and now operates out of the New York City offce as managing director of the company's Seniors Housing & Healthcare Group. Seniors Housing Business recently spoke with Biron about Berkadia's history and the state of the seniors housing sector. Seniors Housing Business: Within your seniors housing business last year, what percentage was Fannie vs. Freddie vs. HUD vs. direct loans? Dan Biron: Across our 70 offces, loan originations totaled over $13 billion in 2014. Within that total, seniors housing loan closings totaled $1.1 billion. So we had a fantastic year. Year-to-date through the end of June we closed $922 million, so I think we're going to beat our 2014 number. We anticipate this year we will close between $1.3 billion and $1.4 billion in loans. In 2014, we closed $490 million of HUD-insured loans, $291 million in Fannie Mae fnancing, $146 million of Freddie Mac fnancing, and approximately $100 million in bridge loans. The bridge loans are a mix- ture of assisted living and independent living. The HUD business was skilled nursing and assisted living. SHB: How have those totals changed in recent years? Biron: In 2013, our total in seniors housing was $866 million. In 2012 we were a little over $500 million. So, we've more than doubled our annual loan total in just two years. Fannie and Freddie were still lending during the recession, but they defnitely slowed down. They're back in business now, which is one of the reasons our totals have gone up so dramatically in recent years. It's a strong source of debt for seniors housing that will stay for many years. SHB: Is Berkadia exclusively a lender, or does it act as a fnancial inter- mediary as well? Biron: We are exclusively a lender, but there are times where we will guide a borrower if the products we offer don't solve their needs. The goal is to work with our clients in fnding capital for them. If I can help them solve a problem, I know they will remember that in years to come. SHB: The seniors housing market has been exceptionally frothy over the last 18 months, both in new construction and acquisitions. Can the market keep this pace up? Biron: The seniors housing market has been quite active on the con- struction side. We're very selective in deals we take to HUD. (Fannie Mae and Freddie Mac do not make construction loans.) During the last recession, HUD became extremely particular, espe- cially in seniors housing. HUD offcials sharpened their pencil and put in some specifc requirements for developers regarding equity, service reserves, market demand and working with builders and operators with proven track records in seniors housing. That's how we base our deals as well. We really examine potential construction deals. There are deals that just don't make sense. There was a recent one we saw, 260 units of assisted living and the developer didn't have any experience in seniors housing. Those are the deals you worry about and hope construction lenders don't just start fowing money to the industry, that they are smart about deals. SHB: Some of your recent transactions go beyond your typical loan size, historically, including the $648.2 million loan to a NorthStar Healthcare Income joint venture to purchase 32 independent living communities. Are these exceptions, or are you moving toward larger loans? Biron: We've done numerous portfolios, and there's really no limit to how high we'll go if the deal is right. The minimum we like is $5 million. We feel like we burn as many brain cells on a $450 million deal as a $5 million deal, but really small deals just don't make sense for us. On bridge loans, we'd probably team up with two to three banks so we don't take the whole risk ourselves. SHB: Berkadia markets itself as the largest combined Fannie Mae, Freddie Mac and HUD lender. What advantages does the company fnd in being so deeply involved with the agencies? Biron: The agencies don't do us favors, but when you're doing a lot of volume they realize we're in front of the right clients and getting some very large transactions done. It gains you respect within the agency. Fannie, Freddie and HUD are the primary sources for fxed-rate, long-term debt available to the seniors housing industry. The CMBS market has done a few transactions, but that's not a readily available debt structure for seniors housing. SHB: What has been the effect on your business and the industry as a whole from recent changes to the HUD 232 LEAN program, such as improvements to the new construction program and stronger report- ing requirements for operators? Biron: The goal for both HUD and borrowers is to not require inter- vention by REAC (Real Estate Assessment Center), HUD's inspection program. We're seeing the reporting as a positive change, and borrowers are as well. HUD is asking for operating fnancial statements, internally generated, which is something developers already have for themselves. In construction, HUD is being cautious and only choosing stable bor- rowers and stable projects. HUD wants deals that don't default. They want good relationships with borrowers. So it's all been positive. n Berkadia Commercial Mortgage doubles its seniors housing lending volume in just two years Dan Biron is senior managing director of the Seniors Housing & Healthcare Group at Berkadia. He is responsible for overseeing all loan originations and underwriting for the healthcare and seniors housing industry utilizing Fannie Mae, Freddie Mac, HUD and Berkadia's proprietary bridge loan program. Berkadia Commercial Mortgage Founded: 1994 Parent company: Berkshire Hathaway/ Leucadia National Corp. Seniors housing loan originations 2014: $1.1 billion Specialty: Fannie Mae, Freddie Mac and HUD loans Recent major loan: $648.2 million to NorthStar Healthcare Income for acquisition of a 32-location IL portfolio

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