Experience Pays Off for Reputable Seniors Housing Operators
Mark Gould, national production manager of M&T Realty Capital Corporation, believes the seniors housing continuum of care may hold vast opportunities for those with the know-how and discipline to weather any short-term storms.
Where do lending opportunities – and challenges – lie in 2019?
Gould: We have been active in the seniors housing sector for a very long time. We see this asset class continuing to grow in 2019 as the U.S. aging population will drive growth.
Challenges will lie with inexperienced parties trying to capitalize on the favorable demographic trends who do not fully understand the complexity of operating in the healthcare space. Wage pressures and nurse staffing shortages will further heighten the operating challenges in this space.
I also think dollar volumes will stay steady. Rising rates have placed some DSC [debt service coverage] limitations and have required more equity into deals. There didn’t seem to be as many large portfolio deals in fiscal year 2018, which we believe resulted in a heightened number of transactions. This is an indication of a healthy market.
Does the seniors housing market have room to grow beyond its 2018 activity?
Gould: We are seeing some very innovative solutions from our customers that are helping with operating efficiencies and lease-ups. Buildings are being thoughtfully designed to cater to the needs of tomorrow’s senior generation. Seniors housing is a need-driven product and, as such, it’s proven to be a steadier performer during economic downturns. The industry is still in its infancy, but we believe it will really evolve and continue to expand its market penetration rates over the next two decades.
What are you bullish on in terms of seniors housing?
Gould: We are bullish on the entire continuum and believe each housing asset class serves a critical service to our society. We believe that the health of the senior population benefits greatly by taking advantage of the socialization that living in a seniors housing community provides. This is opposed to a more isolated home setting that utilizes home health services.
As more services are able to be brought into the independent-living environment, this will continue to allow seniors to get the services they need in the lowest-cost setting, outside of home health. Skilled nursing has been through significant challenges as payment reform continues to evolve and their resident’s acuity increases, while margin pressures continue to compress. Operators that are able to exhibit the best healthcare results will be able to do well in the sector. Providers with poor care outcomes, however, will see significant challenges.
What advice would you give to a potential borrower who may be uneasy with all uncertainty 2019 may bring?
Gould: There are always uncertainties in the market, so we advise our customers not to stretch on deals. We’ve had some pretty good years. If we wind up having a flat year, it keeps leverage and cash flows at steady, sustainable levels. We don’t see that as a terrible thing.
Can you talk about M&T’s latest growth initiatives?
Gould: We will continue to leverage our decades of experience in seniors housing. We are one of only a few lenders that can provide Fannie, Freddie and FHA/HUD seniors/healthcare financing. We’ve got a great balance sheet program that really understands the business, and we have partnered with best-in-class providers on new developments that will continue to lease-up and stabilize in fiscal year 2019.
We have expanded our footprint and given some very long-tenured employees more ability to follow their customers across the U.S. So, we’ll leverage all of our tools and continue to support our customers. We like to work with prospects who have a desire to work with a team that has the experience and capabilities that we boast.
Interview by Nellie Day, editor of Western Real Estate Business magazine.