Texas Real Estate Business

FEB 2018

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

Issue link: https://texasrealestatebusiness.epubxp.com/i/935994

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Page 19 of 32

www.REBusinessOnline.com Texas Real Estate Business • February 2018 • 19 largely a factor of where our clients need to deploy capital. At KeyBank, we generally focus our efforts on stabilized or existing assets versus ground-up construc- tion. While we have done and will continue to finance new construction in Texas, given the level of activity and what we're seeing, financing ex- isting product will continue to make up the majority of our work. TREB: As a follow-up to that question, what segment of the se- niors housing market, if any, does KeyBank consider to be its "sweet spot?" Randolph: KeyBank has been a consistent provider of capital in the seniors housing space for over three decades, so our experience stretches across the independent living, as- sisted living and skilled nursing seg- ments. Our approach to seniors hous- ing is to follow where our clients' needs are. Our fully integrated platform en- ables us to handle all seniors housing property types. We've had success in using our balance sheet for short- term needs, while at the same time refinancing bank debt into the per- manent market. Given the longer time frame of completing HUD transactions, we're able to provide both short- and long- term financing. For clients looking to execute through Fannie Mae or Fred- die Mac, we're also able to structure a backup credit facility that can be accessed in the event there are delays with the agency execution. TREB: Occupancy rates for skilled nursing facilities are at historic lows. How active is KeyBank in this space at present, and does the firm antici- pate major changes in its loan produc- tion for this segment of the market in 2018? Randolph: There's certainly been an impact on occupancy rates as the skilled nursing market is generally experienc- ing a shortening in the average length of stays. Additionally, and equally con- cerning, is the stress on project level net operating income (NOI), as some of these properties are facing labor short- ages and reimbursement pressures, to name a couple of challenges. From KeyBank's perspective, how- ever, we're not typically pricing or structuring our deals any differently; however, there may be a change in terms from other capital providers that had previously been more aggressive on proceeds and structure. Without question, the seniors space is an operator-driven business, so we spend a lot of time underwriting and understanding who the operator is, as well as the quality of care they provide and their reputation in the market- place. This allows us to better assess overall risk in any given opportunity and to be more relevant to our clients' needs. TREB: As a follow up, how have specific loan terms and structures for skilled nursing assets changed over the past few years? Randolph: For HUD in particular, because its terms and underwriting requirements are fairly programmatic, there's a risk in over-advancing on a bridge loan. If a borrower's goal is to ultimately obtain permanent HUD financing, and there's a decline in NOI while a loan is being processed, then there may not be enough value to pay off the exist- ing bridge debt to complete the HUD execution. What we may see is advance rates on interim bridge financings com- ing back to more reasonable levels. n www.cadencemcshane.com Each new project is an opportunity to apply and expand our decades of experience to deliver the best construction solution. Now more than ever, flexibility is essential, and we have the know-how to add value at any point during the process. We work with you to determine the right approach for your project, which ensures that our project structure fits your unique business requirements and organizational culture. DA L L A S | A U S T I N H O U S T O N | S A N A N T O N I O Amenity packages can be differentiators among seniors housing operators. Lenders take such operating strategies into consideration with their underwriting on seniors loans. Courtesy of Cadence McShane Construction

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