DALLAS-KeyBank Real Estate Capital recently hired Cary Tremper to lead its expanded Seniors Housing Agency Lending Group, which is part of the organization’s larger Healthcare Lending Group. For KeyBank, seniors housing encompasses independent living, assisted living, Alzheimer’s care and skilled nursing (nursing homes).

In his role of senior vice president and national sales manager, Tremper is based in Dallas and supervises a national team. The group has increased Key’s originations and underwriting capabilities for Freddie Mac, Fannie Mae and Federal Housing Authority financing for seniors housing.

Here, GlobeSt.com’s Jennifer Duell Popovec chats with Tremper about the seniors housing industry, as well as KeyBank’s goals for its Seniors Housing Agency Lending Group.

GlobeSt.com: What trends have you noticed in the seniors housing sector over the past 12 months?

Tremper: There hasn’t been a lot of new construction over the past 24 months, so occupancies have increased to 87% industry wide. We’ve seen four straight quarters of occupancy increases, which is very positive. Overbuilding will always be a concern because it’s happened once – in the late ‘90s into early 2000’s, and people have the mindset that it could happen again. I don’t think it will happen anytime soon because construction lending is still conservative. As long as you keep that supply and demand in check, I think the industry will be fine because the demographics overall are very compelling. In fact, the sector has one of the strongest demographics, the Baby Boomers, driving it.

GlobeSt.com: In addition to demographics, consumer attitudes about seniors housing are also shifting, which is also positive for the industry, right?

Tremper: Yes, that’s true. The industry as a whole is working on increasing that acceptance. More people today are considering moving to seniors housing facilities. They’re more educated and they’re talking about it. More people today are open to doing something and making a change, and usually what you hear is that once someone makes the decision, they wish they had done it earlier. It has a profound effect on the quality of life they lead, and it provides peace of mind for adult children. And the quality of the facilities… it’s a night and day difference from the way it used to be. The amenities have changed to where the facilities offer a mini-country club setting.

GlobeSt.com: How has senior housing lending changed over the last 12 months?

Tremper: Agencies provide the majority of the long-term capital in this space. The appetite from the agency side for seniors housing has always been there, whether or not people realize that. The agencies understand the sector, and their appetite is still huge for new product. But they have not comprised underwriting. In fact, default rates are well less than multifamily for both agencies, and during this time when it has taken projects longer to get filled and stabilized, production has come down because that credit quality hasn’t been compromised.

GlobeSt.com: Why is Key expanding its capabilities in seniors housing agency lending now?

Tremper: The healthcare franchise at Key has been committed to seniors housing space for 20 years, we’re just adding to it. Key has a fairly prominent healthcare lending group, and we dabbled on the agency side and had some success. We have healthcare bankers across the country that make loans and put on the banks balance sheet. We also had this agency business, had this huge pipeline to put on our balance sheet, and we weren’t fully taking advantage of placing loans with agencies. We’ve always had the relationships with the agencies, but we didn’t have someone focused on growing the platform dedicated to senior housing. We’ve brought in new people because senior management saw an opportunity to leverage our success in healthcare overall, but on agency side in particular.

GlobeSt.com: Who is looking for financing?

Tremper: Seniors housing lending is competitive, and as a bank we do have multiple products other than just agency lending. We’re trying to use depth and breadth of products to differentiate from the brokers that only do agency deals. For example, we can refinance and put on balance sheet and then take to an agency later, we can provide construction financing and we can get investment banking involved to raise some equity. We’re bringing on more people, and we obviously want to increase volume. Overall, though, we want our sales folks to be more financial consultants, and we want Key to be the go to place when people think about seniors housing borrowing and lending. In the past, the REITs made up a bigger percentage of our overall business. Because they are less interested in project-based financing and relying more on revolving lines of credit, we’re finding alternate ways to work with them. We try to get somewhat creative because everybody wants to do business with an investment-grade REIT. We also have had to be creative to replace revenue stream that used to be attributed to REITs. We’re involved in construction, acquisition and refinance, but the bulk of it is refinancing. We have allocated money for construction, but that is for top tier clients that are utilizing other KeyBank services. The majority of our borrowers are regional owner/operators – the guys who have 10 to 30 communities in their portfolios. Between the public and regional operators, they make up 80% of our lending business.

GlobeSt.com: The healthcare REITs have been particularly active in the seniors housing space with some very large mergers and acquisitions recently. How has this impacted the entire sector?

Tremper: REITs have played a part in keeping seniors housing values stable. In fact, valuations for seniors housing asserts have not gone down. The price REITs are paying today – its sub 7% caps for some of the senior housing portfolios, and that pricing goes back to 2005 and 2006 time frame. Cap rates have stayed at or below what they were four or five years ago.