Inside information: two new lender and investor surveys give insight into the financing environment. (Finance).Providers can catch a glimpse Verb 1. catch a glimpse - see something for a brief time catch sight, get a look see - perceive by sight or have the power to perceive by sight; "You have to be a good observer to see all the details"; "Can you see the bird in that tree?"; "He is blind--he into the likely activity of lenders and investors by looking at the results of an annual survey report produced by the National Investment Center for the Seniors Housing & Care Industries (NIC (1) (Network Interface Card) See network adapter. See also InterNIC. (2) (New Internet Computer) An earlier Linux-based computer from The New Internet Computer Company (NICC), Palo Alto, CA. ). Conducted jointly with CBIZ CBIZ Century Business Services Inc. Valuation Group, the study tracks the accumulated perceptions, opinions and financing criteria of debt capital providers to the industry. The 2002 Lender Survey shows that capital is available to the senior living industry, although from fewer sources. The survey also offers other types of information of interest to providers. By the Numbers First, the Lender survey showed that the number of loan providers to the seniors housing and care industry was down by one-quarter compared to 2001. It was down one-third from the number of active lenders in the late 1990s. The good news is that the amount of debt capital provided is increasing. This is likely due to larger amounts of capital being provided per lender (and per loan) than to a greater quantity of deals. Lenders are expected to provide more than $7 billion to the industry before the end of 2002. That compares to $6.5 billion placed last year. Most of the money provided to the industry (through the summer of 2002, when the surveys were filled out), went to assisted living as·sist·ed living n. A living arrangement in which people with special needs, especially older people with disabilities, reside in a facility that provides help with everyday tasks such as bathing, dressing, and taking medication. . Almost one-third of the lenders (29.3 percent) said they were looking to increase the amount of money they lent to this sector. Only 13.4 percent said they would decrease it. Also significant, the required capitalization rates Capitalization Rate According to the Appraisal Institute, it is a method used to convert an estimate of a single year's income expectancy into an indication of value in one direct step, by dividing the income estimate by an appropriate rate. have declined--meaning that lenders are placing more value on seniors housing and care properties to size their loans. Interest rates and yields have also gone down. One likely explanation for some of the lower capitalization rates, consistent with what has been found in other NIC research, is that lenders are starting to recognize the difference--and assign more favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. terms to--"investment grade" properties that are stabilized and run by management with a good track record versus struggling properties that are in transition. Also, evidence found in the NIC Key Financial Indicators--a quarterly tracking of financial and operational benchmarks found on www.NIC.org--suggests that the majority of this capital is being provided by local banks and in secondary or tertiary markets, as opposed to large metropolitan areas or provided by national lenders. This emphasizes the importance of building relationships with local lenders. Consistent with the investment trends over the last couple of years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time most favored product types were those with a larger real estate component and a smaller healthcare component, such as independent living and continuing care continuing care a professional convention that a veterinarian who is treating an animal is obliged to continue treating that case unless an arrangement is made with its custodian to transfer the care to another practitioner or to a specialist. retirement communities. Lenders also listed skilled nursing facilities skilled nursing facility n. Abbr. SNF An establishment that houses chronically ill, usually elderly patients, and provides long-term nursing care, rehabilitation, and other services. among their favored investments. This means these lenders are more sophisticated in their understanding of the risks and potential returns associated with this asset class. However, only about 1 in 4 lenders thought that skilled nursing or assisted living was better from a reward-versus-risk standpoint than traditional real estate, such as hotel, office, industrial and retail properties. Equity investor tallies TALLIES, evidence. The parts of a piece of wood out in two, which persons use to denote the quantity of goods supplied by one to the other. Poth. Obl. pt. 4, c. 1, art. 2, Sec. 7. For the first time, the 2002 Lender Survey included the results of a separate Equity Investor Survey. The latter investigated the valuation criteria and investment appetite of the industry's equity suppliers. This survey showed that those who provide equity financing Equity Financing The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. had increased confidence in the industry. Sixty-two percent predicted that they would increase their investment activity in seniors housing and care during the next 12 months. In addition, 80 percent of the equity investors expected to acquire one or more properties in the next year. Thirty-six percent expected torecapitalize (refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. and/or restructure) properties. And 37 percent expected to develop new properties, compared to only one-quarter of the lenders who said they intended to finance new construction. The survey also showed that the range of cost per bed to build new facilities is ranging up to $200,000 a unit for assisted living, though costs of $100,000 or slightly higher are more typical. But nursing home performance issues were a concern for equity investors. They felt that skilled nursing offered the least opportunity to realize increased revenue or contribution to profit. That is because they believed even though private pay revenue would increase, Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. revenue would not rise enough to offset inflation, and expenses would also go up. As with the Lender Survey, required capitalization rates for equity investors have also declined. The two surveys provide timely insights into how the financial community underwrites and views seniors housing investments. Other results include how projects are valued (including projects without earnings): how capitalization rates are derived; reasonable management fees; required reserves Required reserves The dollar amounts, based on reserve ratios, that banks are required to keep on deposit at a Federal Reserve Bank. required reserves ; important factors in underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. decisions; and outlook for revenues, expenses and risk/return dring the next 12 months.
Types of Projects Investors Prefer as First Choice
Active Adult Projects 5.8
Seniors Apartments With No Services 13
Rental Congregate, No Healthcare 11.6
CCRCs 24.6
Freestanding ALP 11.6
Freestanding Alzhaimer's 1.4
Nursing Homes 27.5
Other 4.3
Percentages presented are of respondents who answered the question. 15.8
percent of respondents did not answer the question.
Note: Table made from bar graph
Capitalization Rates
(based on EBITDAR after deducting reserves)
2001 2002
Seniors Apartments With No Services 9.8 9.6
Rental Congregate, Projects 10.3 10.1
Assisted Living 11.1 11.1
Nursing Homes 12.8 12.75
Freestanding Alzhaimer's 11.8 11.5
CCRCs 11.1 10.9
Note: Table made from bar graph
Harvey N. Singer is research director of the National Investment Center for the Seniors Housing & Care Industries (NIC). Founded in 1991, this nonprofit organization Nonprofit Organization An association that is given tax-free status. Donations to a non-profit organization are often tax deductible as well. Notes: Examples of non-profit organizations are charities, hospitals and schools. uses proceeds from its annual conference to fund original research, particularly dealing with business strategy and capital formation for the industry. Visit www.NIC.org for more information |
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