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KeyBank Real Estate Capital Presents Financing Resources Now And In The Future CAHFS Independent Owners Symposium

La Costa Resort & Spa Carlsbad, CA May 1 & 2, 2012

Cary R. Tremper Senior Vice President KeyBank Real Estate Capital 8115 Preston Road, Suite 500 Dallas, TX 75225 (214) 540-9130 cary_r_tremper@keybank.com

Craig Gulley Vice President KeyBank Real Estate Capital 2301 Rosecrans Ave., Ste. 2155 El Segundo, CA 90245 (310) 744-2234 craig_gulley@keybank.com

KeyBank Real Estate Capital Financing Resources Now And In The Future

I.

Why HUD Benefits Of HUD Financing HUDs Commitment To The Skilled Nursing Industry

II. Overview of HUD Performance for the past three years and YTD III. Overview of HUD Loan Programs & How They Benefit CAHF Members IV. Cons Of HUD Financing V. Q & A

KeyBank Real Estate Capital Financing Resources Now And In The Future

Why HUD?
Benefits Include: Low fixed interest rates Current rates are sub 3.50% Long Term Fully Amortizing Mortgages Refinance terms up to 35 years. New construction & sub rehab terms up to 40 years. High Leverage Refinance & acquisition up to 80% LTV or 80% LTC. New construction up to 90% LTC or 80% LTV. Non recourse The ability to: Pay off existing short term, high interest rate debt Finance capital improvements Finance prepayment penalties, swap termination fees Finance replacement reserve deposits Finance third party cost and financing fees

KeyBank Real Estate Capital Financing Resources Now And In The Future
Why HUD?
HUDs Commitment To The Skilled Nursing Industry Nationally HUD is the #1 financing source for Nursing Homes. HUD has approximately 1,805 Nursing Homes in its servicing portfolio. HUD currently insures $12.6 Billion in Nursing Home Mortgages. There are currently 15,622* Nursing Homes In the US and 1,229* Nursing Homes in CA. One out of every 8.65 or 12% of Nursing Homes in the US has a HUD insured mortgage. One out of every 9.25 or 11% of Nursing Homes in CA has a HUD Insured Mortgage. Currently 133 Nursing Homes in the CA has a HUD Insured Mortgage. It is estimated that HUD will insure 2,057 Nursing Home mortgages or 13% of Nursing Homes by its FYE 2012. This will result in one out every 7.60 Nursing Homes in the US being financed by a HUD Insured Mortgages.
*Source: The Henry J. Kaiser Family Foundation.

KeyBank Real Estate Capital Financing Resources Now And In The Future

Why HUD?
HUDs Commitment To The Skilled Nursing Industry The great majority of Nursing Home loans in HUDs servicing portfolio are for owners of less than 10 facilities. The HUD Insured Mortgage Program for Healthcare Facilities was initially developed as a hybrid of the Multifamily Insured Mortgage Program to insure mortgages for smaller Mom & Pop type owners of Nursing Homes. Larger regional & national owners of Nursing Homes didnt start using the HUD Insured Mortgage Programs until the late 1990s to early 2000.

KeyBank Real Estate Capital Financing Resources Now And In The Future
SUMMARY OF SECTION 232 ACTIVITY FY 2012 YTD Info As Of 03.31.12 Applications Received 2009 2010 Refinance/Purchase 180 490 Refinance Existing HUD 16 138 New Construction 8 79 Other 0 1 Total 204 708 HUDs Annual Loan Volume Continues To Increase With The Closings 2009 88 2009 60 2010 309 2010 327 2011 2012 YTD (24 weeks) 347 119 301 159 139 72 1 3 788 353 Majority Being SNF Loans 2011 415 2011 303 2012 YTD (24 weeks) 335

Applications In Queue

2012 YTD (28 weeks) 37 Refinance 34 New Construction Total 60 327 303 71 HUD Continues To Improve Its Ability To Handle The High Volume Of Loans Being Submitted And Has Reduced The Loan Queue To The Lowest Its Been Since 2010!!! Current Average Time Queue, Underwriting, Closing Queue Time To Assignment To Underwriter 30 Days Underwriting To Issuance Of Firm Commitment 30 45 Days Firm Commitment To Loan Closing 30 45 Days Average Time From Submission To Closing 90 Days HUD Continues To Improve Its Average Time To Process Transactions!!!

KeyBank Real Estate Capital Financing Resources Now And In The Future Summary of Section 232 Activity Applications Received
500
490

450 400 350


347

Refinance/Purchase

Refinance/Existing HUD New Construction


301

300 250 200 150 100 50 0


16 8 79 180

159 138 139 119 72

2009 204 Applications Received 2010 708 Applications Received 2011 788 Applications Received 2012 YTD 353 Applications Received

2009

2010

2011

2012 (YTD)
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KeyBank Real Estate Capital Financing Resources Now And In The Future Summary of Section 232 Activity Closings
450 400 350 300 250 200 150 100 50 0 2009 2010 2011 2012 (YTD) 88 309 335
2012 Estimate Of Closings 622 Loans

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KeyBank Real Estate Capital Financing Resources Now And In The Future Summary of Section 232 Activity Total HC Loans & Total SNF Loans By $$$s
600
Total Loans

500 400 300 200


195

544 468 415 335 309 311

Total Nursing Home Loans


2010 SNF Loan Volume 195 Loans $1,1715,072,400 2011 SNF Loan Volume 311 Loans $2,516,901,400 2012 (YTD) SNF Volume 216 Loans $1,736,016,300 2012 Estimated SNF Volume 468 Loans $3,761,368,650

216

$2.52B

$1.72B

$1.74B

2010

2011

2012 (YTD)

2012 (Est.)

10

$3.76B

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Targeted Owner/Operator & Property Type

Owner / Operator Type Single Site Owner/Operator Multiple Site Owner/Operator Owners & Operators with proven track record Private or Publicly Owned with Related Operator (Identity of Interest) Private or Publicly Owned with Unrelated Operator(Third Party Operator) Property Type Licensed SNF/ALF/ALZ IL units cant exceed 25% of total licensed units Cant be newly completed or substantially rehabilitated for at least 3 years prior to submission to HUD. Built mid 1970s or later. Well maintained/good physical plant/minimum deferred maintenance Stabilized properties with strong historical occupancy history ADA Compliant UFAS Compliant

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Targeted Owner/Operator & Property Type
Location Primary & secondary markets with historically strong occupancy rates. Tertiary markets exhibiting strong operational performance or growth potential Located within PMA and States with flat or increasing reimbursements rate profiles Located near strong referral sources; i.e. hospitals, medical centers, other referral IL/AL/MC/SNF properties. Facilities with a historically solid quality of care history as it relates to: State Health Surveys CMS Regulatory / 5 Star Ratings

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare Refinance / Acquisition 232/223(f)
Eligible Property Type: Licensed SNF/ALF/ALZ IL units cant exceed 25% of total licensed units Cant be newly completed or substantially rehabilitated for at least 3 years prior to submission to HUD. Maximum loan amount based upon the lesser of: 100% of Transaction Cost 80% LTV (Refinance) or 80% LTC (Acquisition) 1.45 DSC Maximum term based upon the lesser of: 35 Years or; 75% of Remaining Economic Life Interest Rates: Low fixed rates; spread over 10-year Treasury. Other Program Features: Non Recourse Fully Assumable Secondary Debt Permitted Subject To FHA Requirements.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare Refinance / Acquisition 232/223(f)
Prepayment: Negotiable; typically 2 year lockout with 8,7,6 ... 3, 2, 1 prepayment penalty. Mortgage Insurance Premium (MIP) 1% first year; .50% annually Eligible Mortgagor: Single Asset Entity; Profit & Non-Profit Entities Principals with owner/operator experience and no adverse credit history or defaulted HUD loans.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare Refinance / Acquisition 232/223(f)
CAHF Members Can Benefit From Using This Program By Replacing Existing Short Term / High Interest Rate Debt With A New 35 Year Fully Amortizing, Low Fixed Interest Rate Loan. Financing Up To 100% Of Existing Debt, Prepayment Penalties, Capital Improvements & Closing Cost; Not To Exceed 80% LTV. Financing Up to 80% Of Purchase Price, Capital Improvements & Closing Cost; Not To Exceed 80% LTV. Using In Conjunction With Bank Bridge To HUD Financing For Acquisitions Where Timing Is An Issue. Using In Conjunction With Bank Bridge Financing For Equity Take-Out Or Additional Leverage Prior To Refinancing With HUD. ** **HUDs Two Year Debt Seasoning Rule Applies To Any Newly Placed Debt Less Than Two Years Old.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare Refinance Of Existing HUD Loan 232 (a7)
Maximum loan amount based upon the lesser of: Original Loan Amount 1.11 DSC 100% of Cost Targeted Loan Size: Not to exceed original outstanding principal balance Maximum Loan Term: Existing term can be extended up to 12 years; not to exceed term of original mortgage. Interest Rates: Low fixed rates; spread over 10-year Treasury. Prepayment: Negotiable; typically 2 year lockout with 8,7,6 ... 3, 2, 1 prepayment penalty. 3rd Party Reports: Subject to PCNA report if existing PCNA is 10 years old or greater.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare Refinance Of Existing HUD Loan 232 (a7)
Mortgage Insurance Premium (MIP) 1% first year; .50% annually Other Items Eligible For Financing: Capital Improvements Prepayment Penalty Other Program Features: Non Recourse Fully Assumable Secondary Debt Permitted Subject To FHA Requirements.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare Refinance Of Existing HUD Loan 232 (a7)

CAHF Member Benefit From Using This Program By Refinance Current HUD Loan, Lower Interest Rate And Extend Loan Term. Finance Up To 100% Of Existing Debt, Prepayment Penalties, Additional Capital Improvements & Closing Cost.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare New Construction & Sub Rehab 232 NC/SR
Eligible Property Type: Licensed SNF/ALF/ALZ IL units cant exceed 25% of total licensed units Maximum loan amount based upon the lesser of: 90% of Transaction Cost 80% LTV (SNF) or 75% LTV (ALF) 1.45 DSC Maximum term based upon the lesser of: 40 Years For New Construction or; 75% of Remaining Economic Life If Rehab Interest Rates: Low fixed rates; spread over 10-year Treasury

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare New Construction & Sub Rehab 232 NC/SR
Other Program Features: Non Recourse Fully Assumable Secondary Debt Permitted Subject To FHA Requirements Prepayment: Negotiable; typically 2 year lockout with 8,7,6 ... 3, 2, 1 prepayment penalty. Mortgage Insurance Premium (MIP) 1% first year; .50% annually Eligible Mortgagor: Single Asset Entity; Profit & Non-Profit Entities Principals with owner/operator experience and no adverse credit history or defaulted HUD loans.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Healthcare New Construction & Sub Rehab 232 NC/SR
CAHF Members Can Benefit From Using This Program By Building A New Or Replacement Skilled Nursing Facility. Adding Additional Units Or A New Wing To An Existing Skilled Nursing Facility. Financing A Major Renovation And Pay-Off Existing Debt On An Existing Facility. Financing Up To 90% Of The New Construction Cost Or 100% Of The Major Renovation Cost. On New Construction Transactions The Total Mortgage Amount Cant Exceed 80% LTV For SNFs Or 75% LTV For ALFs.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Cons
HUD Regulatory Agreement Restrictions Requires annual audited financial statements on the mortgagor entity. Semi-Annual cash distributions. Usually not an issue in an Opco/Propco structure. Insurance Notice Requirements Minimum Professional Liability Coverage of $1MM per occurrence and $3MM aggregate. Maximum $100M deductible. Operators of > 50 facilities may request a lower deductible Provide a six-year loss history of claims filed against the operator & manager for all facilities of the operator & manager. Policy must carry a AM Best B++ Carrier Rating or Demotech Financial Stability Rating of A or higher. Captives & RRG are acceptable Minimum Fidelity Bond coverage required and must be equal to two times gross receipts Must Escrow The Following Through Mortgagor Taxes Insurance Property Insurance Only Replacement Reserves

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Cons
Operator AR Loan Restrictions Subject to HUD Intercreditor Agreement. AR Loan is limited for use only for FHA projects and to only bridge timing delays between governmental reimbursements and operators obligated payment to lenders, vendors, accounts payables, etc. Properties with HUD Insured Mortgages must have their own separate AR Line. Existing lines must be bifurcated to satisfy this requirement. Deposit Accounts Facility deposit accounts shall be subject to HUD Deposit Account Instruction Service Agreement (DAISA) & Depository Account Control Agreement (DACA). The rationale for this requirement is to protect HUD and the FHA lender against potential risks, such as the borrower moving bank accounts immediately following closing without the notice or consent of the FHA Lender. With a DACA/DAISA, the FHA lender must be notified and must approve any such move before it occurs. In the instance of an assignment of a loan to HUD, which is later assigned or sold to another lender, without a DACA/DAISA already in place, a DACA/DAISA would likely be difficult to obtain.

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KeyBank Real Estate Capital Financing Resources Now And In The Future
Cons
Master Lease Requirements A master lease will be required on any group of facilities under common control numbering three or more facilities and/or with an aggregate mortgage amount of $15,000,000 or more. Minimum lease payment must equal 1.05 x DSC, plus applicable HUD required escrows (taxes, property insurance, replacement reserves). Two Year Debt Seasoning All refinance debt must be two years or older. The two year debt seasoning rule does not apply acquisition debt funded by a bridge loan. New Construction Davis Bacon / Prevailing Wage Rates Required Timing 6+ months for a refinance or acquisition transaction. 12+ months for a new construction transaction. Others No cash out financing No early rate lock Standard HUD documents are non-negotiable.

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KeyBank Real Estate Capital Financing Resources Now And In The Future

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