Expectations for Senior-Housing Finance

SAN DIEGO—While we may not be able to predict how much runway is left in the current cycle, judicious development and financing trends bode well for the senior-housing sector for the long term, KeyBank Real Estate Capital SVP Brian Heagler tells GlobeSt.com. The firm provides a broad range of financing solutions on both a corporate and project basis in a variety of product sectors and recently secured a total of $103 million in non-recourse, first mortgage loans for Mira Mesa Marketplace, a San Diego retail center. While an executive was not available to discuss the San Diego retail sector with GlobeSt.com, we sat down with Heagler for an exclusive chat about another West Coast property sector for which the company has been active in securing financing: the senior-housing sector.

GlobeSt.com: What trends are you noticing within the senior-housing sector in the Western region?

Heagler: When I say Western region, I'm focusing on what we're seeing in Washington, Oregon and California—those are the most active markets in the West. There's certainly been activity in Utah, Arizona and Colorado, but from a senior-housing perspective, there's been far more volume and activity in those primary markets.

Generally speaking, the activity in senior housing, whether it be acquisitions or development, continues to be quite strong on the West Coast. Overall, one trend that continues to be underway, which we've seen over the past couple of years, is new people coming into the market—new developers and investors, including private equity. As prices in other real estate assets, such as multifamily, have gotten quite high, we've seen new developers come into the West Coast markets, particularly California. Also, this asset class was a very strong performer through the recession, and as investors look ahead and see a strong seniors demographic trend coming, a lot of people are looking to get their foot in the door in anticipation of that kind of growth.

GlobeSt.com: Which types of loans (e.g., refinancing, development, redevelopment, acquisition) are most likely to be approved for senior housing in this region?

Heagler: All forms of capital are really quite abundant for senior housing, and I expect that to continue. You've had more regional and local lenders start to get involved, particularly on the development side. If you're a developer with only one or two properties, you will likely appeal to regional and local banks. Construction lending is tightening up a little bit; banks like KeyBank and others who have been active in the market for a number of years are starting to bump up against capacity constraints. Most banks limit the amount of construction financing they do as a percentage of their overall real estate portfolio, and some of the lenders that are bumping up against these constraints are big banks who have been active for a while. There is concern of oversupply given the amount of development going on, and lenders are certainly aware of that, but the oversupply concern is not as prevalent on the West Coast as it would be in certain areas like Texas, where it's easier and less expensive to develop. In particular, California, with its high cost of land and long entitlement process creating barriers to entry, is not seeing as much development as we see in Texas or other areas where those barriers don't exist. Lenders are paying attention to the supply levels brought on by new development, but it's not as much of a concern in the Western states.

GlobeSt.com: How will the lending community's view on this market sector change as we move further into the real estate cycle?

Heagler: We talk about this a lot internally. Everyone realizes we are getting deep into a very long cycle, but how much time is left? We don't really know. We're paying attention to that, but broadly speaking, I see the growth and opportunities continuing to be robust and investors continuing to have access to capital for an extended period of time. Certainly, for banks like KeyBank and others who have specialized in providing capital to seniors activity for a long time, we're focused on who's the sponsor and operator? How strong is the market? Do they have experience? Do they have access to capital? Are they a long-term player? For investors that fit that profile, access to capital should be quite strong even through the next cycle. Johnny-come-latelys or those who are not as experienced may experience bumps in the road or hurdles as we get further along. I don't anticipate an environment like 2008 or 2009, where capital wasn't available except from the GSAs. We will be cautious as we get deeper into the cycle, but we'll still be quite active. The headwinds people are talking about—oversupply concern and interest rates—are front and center now on everybody's minds, and the expectation is that rates will go up in December, so how that impacts acquisitions, cap rates and prices is still to be determined. It's something people are focused on.

The other issue, which is true throughout the industry but might be a little more prevalent on the West Coast, is wage and labor pressures—both the cost of labor and the availability of qualified labor. That's something that everybody is still digesting, and how that impacts the industry is an unknown at the moment. It's not just cost, but availability. The West Coast economy is stronger than other places, so people have a choice in where to work, so developers will have to pay for skilled labor.

GlobeSt.com: What else should our readers know about senior-housing lending?

Heagler: The stoplight is still green and will continue to be that way for a period of time. I think the industry and lending environment is healthy. I have been in banking for 25-plus years and in senior-housing finance for 10 years. Lenders are paying attention to cautionary things popping up, and hopefully this means we won't overextend ourselves so when we're deeper into the cycle, we will continue to have capital available. It's positive for everybody.

In order to meet the needs and demands of the changing healthcare industry, real estate professionals need to adapt their strategies to new circumstances. Join us at RealShare Healthcare Real Estate on Dec. 7 and 8 for insights on succeeding in both the right markets and product types as well as navigating and finding opportunities in the more challenging ones. Learn more.

SAN DIEGO—While we may not be able to predict how much runway is left in the current cycle, judicious development and financing trends bode well for the senior-housing sector for the long term, KeyBank Real Estate Capital SVP Brian Heagler tells GlobeSt.com. The firm provides a broad range of financing solutions on both a corporate and project basis in a variety of product sectors and recently secured a total of $103 million in non-recourse, first mortgage loans for Mira Mesa Marketplace, a San Diego retail center. While an executive was not available to discuss the San Diego retail sector with GlobeSt.com, we sat down with Heagler for an exclusive chat about another West Coast property sector for which the company has been active in securing financing: the senior-housing sector.

GlobeSt.com: What trends are you noticing within the senior-housing sector in the Western region?

Heagler: When I say Western region, I'm focusing on what we're seeing in Washington, Oregon and California—those are the most active markets in the West. There's certainly been activity in Utah, Arizona and Colorado, but from a senior-housing perspective, there's been far more volume and activity in those primary markets.

Generally speaking, the activity in senior housing, whether it be acquisitions or development, continues to be quite strong on the West Coast. Overall, one trend that continues to be underway, which we've seen over the past couple of years, is new people coming into the market—new developers and investors, including private equity. As prices in other real estate assets, such as multifamily, have gotten quite high, we've seen new developers come into the West Coast markets, particularly California. Also, this asset class was a very strong performer through the recession, and as investors look ahead and see a strong seniors demographic trend coming, a lot of people are looking to get their foot in the door in anticipation of that kind of growth.

GlobeSt.com: Which types of loans (e.g., refinancing, development, redevelopment, acquisition) are most likely to be approved for senior housing in this region?

Heagler: All forms of capital are really quite abundant for senior housing, and I expect that to continue. You've had more regional and local lenders start to get involved, particularly on the development side. If you're a developer with only one or two properties, you will likely appeal to regional and local banks. Construction lending is tightening up a little bit; banks like KeyBank and others who have been active in the market for a number of years are starting to bump up against capacity constraints. Most banks limit the amount of construction financing they do as a percentage of their overall real estate portfolio, and some of the lenders that are bumping up against these constraints are big banks who have been active for a while. There is concern of oversupply given the amount of development going on, and lenders are certainly aware of that, but the oversupply concern is not as prevalent on the West Coast as it would be in certain areas like Texas, where it's easier and less expensive to develop. In particular, California, with its high cost of land and long entitlement process creating barriers to entry, is not seeing as much development as we see in Texas or other areas where those barriers don't exist. Lenders are paying attention to the supply levels brought on by new development, but it's not as much of a concern in the Western states.

GlobeSt.com: How will the lending community's view on this market sector change as we move further into the real estate cycle?

Heagler: We talk about this a lot internally. Everyone realizes we are getting deep into a very long cycle, but how much time is left? We don't really know. We're paying attention to that, but broadly speaking, I see the growth and opportunities continuing to be robust and investors continuing to have access to capital for an extended period of time. Certainly, for banks like KeyBank and others who have specialized in providing capital to seniors activity for a long time, we're focused on who's the sponsor and operator? How strong is the market? Do they have experience? Do they have access to capital? Are they a long-term player? For investors that fit that profile, access to capital should be quite strong even through the next cycle. Johnny-come-latelys or those who are not as experienced may experience bumps in the road or hurdles as we get further along. I don't anticipate an environment like 2008 or 2009, where capital wasn't available except from the GSAs. We will be cautious as we get deeper into the cycle, but we'll still be quite active. The headwinds people are talking about—oversupply concern and interest rates—are front and center now on everybody's minds, and the expectation is that rates will go up in December, so how that impacts acquisitions, cap rates and prices is still to be determined. It's something people are focused on.

The other issue, which is true throughout the industry but might be a little more prevalent on the West Coast, is wage and labor pressures—both the cost of labor and the availability of qualified labor. That's something that everybody is still digesting, and how that impacts the industry is an unknown at the moment. It's not just cost, but availability. The West Coast economy is stronger than other places, so people have a choice in where to work, so developers will have to pay for skilled labor.

GlobeSt.com: What else should our readers know about senior-housing lending?

Heagler: The stoplight is still green and will continue to be that way for a period of time. I think the industry and lending environment is healthy. I have been in banking for 25-plus years and in senior-housing finance for 10 years. Lenders are paying attention to cautionary things popping up, and hopefully this means we won't overextend ourselves so when we're deeper into the cycle, we will continue to have capital available. It's positive for everybody.

In order to meet the needs and demands of the changing healthcare industry, real estate professionals need to adapt their strategies to new circumstances. Join us at RealShare Healthcare Real Estate on Dec. 7 and 8 for insights on succeeding in both the right markets and product types as well as navigating and finding opportunities in the more challenging ones. Learn more.