Small steps first? One editor's take on a national conference. (NIC on Financing).

Long-term care financing is in limbo. That was the overall impression I received from attending the 11th annual conference of the National Investment Center for the Seniors Housing and Care Industries (NIC) in December.

Not that there's no investment going on. Investment companies stand ready to put money into less care-intensive properties, such as CCRCs and active adult communities. They're also ready to do short-term recapitalization deals--restructuring debt and financing the purchase of distressed properties, for example. HUD's old standby 232 and other underwriting instruments remain available, too, although speakers cautioned that HUD's budget for the next fiscal year might not be large enough to keep up with the demand. And NIC Chairman of the Board Raymond Lewis noted that this year's conference hosted 10 pension funds, which are major players on the investment scene, as compared to none in attendance four years ago--a possibly hopeful sign.

In general, though, the outlook seemed flat. The nursing home industry might have "hit bottom" and is poised for a bit of a comeback, but the aforementioned HUD remains its best bet for financing. The assisted living field is still struggling to soak up all the overcapacity it built in the late '90s and is unlikely to draw serious investment attention for some time to come. Funding for new construction, at least from national lenders, is all but nonexistent, the speakers said.

In short, the senior care industries have many obstacles to surmount--and none more chilling than the liability insurance crisis that threatens to sink a goodly number of providers. Most of the highly sophisticated, well-informed and clear-eyed investors who discussed the issue agreed on one thing: They don't know much about liability insurance or why insurers are behaving the way they are. And when investors say that they're uncertain, that is not a good sign for would-be borrowers in any industry.

The NIC, though, has always specialized in pointing out positive directions for investors, not just danger signs, and this meeting proved to be no exception. The NIC released two new studies of the senior housing and long-term care industries. One was titled, "The Case for Investing in Seniors Housing and Long Term Care Properties." It is an update of a 1997 document of the same name, and this time PricewaterhouseCoopers, the study author, found much to be positive about over the next three years and, particularly, the next eight years. For example, even if today's occupancy shortfalls of 10 to 20% are taken into account, long-term care will require an additional $5 billion in capital by 2005 and $25 billion by 2010--and that's even before the massive baby-boom surge starts hitting age 65 in 2011.

Some further good news--well, lukewarm news-was provided by the second new study, titled the "NIC National Housing Survey of Adults Age 60+: Opinions, Attitudes, Perceptions and Behaviors (Volume III)." Among the principal findings was that much more than two-thirds of respondents are aware of all the senior housing types, and 9% of them--three times more than at any previous survey period--said they were thinking of moving into them. As Tony Mullen, chairman of the NIC Research Committee, pointed out, "Even if half of them actually did move in, that would be a tremendous impact on the field."

The not-so-good news was that while more respondents than ever before found senior housing to be "desirable," an even greater proportion found it to be "undesirable." Robert G. Kramer, NIC's executive director, suggested that this might be in part a result of bad press that segments of the industry have received over the past couple of years. "It also seems," he added, "that as people become more knowledgeable about the field, their opinions of it sharpen."

No matter what people's opinions might be, the study disclosed that the move-ins to senior housing are not keeping pace either with the supply available or the demographic growth of that age group. Older people are staying home longer. The study, conducted by The Promatura Group, LLC, offered no firm conclusions about this. It could be that older people are staying healthier, or are finding ways to make their homes more adaptable to aging. Or maybe the new properties are just too darned expensive for many elderly.

If anything was clear at this conference, it was that investors still have some time to sort all this out. And borrowers should use that time to get their houses (i.e., units, facilities, etc.) in order. Because long-term care investors have their own First Principle: When everything else is taken into account, it is the quality of management that carries the day.