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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
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Cary R. Tremper Craig GulleySenior Vice President Vice President
KeyBank Real Estate Capital KeyBank Real Estate Capital
8115 Preston Road, Suite 500 2301 Rosecrans Ave., Ste. 2155
Dallas, TX 75225 El Segundo, CA 90245(214) 540-9130 (310) 744-2234
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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
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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 improvementsFinance prepayment penalties, swap termination fees
Finance replacement reserve deposits
Finance third party cost and financing fees
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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 FYE2012.
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.
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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 ofthe 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.
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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 2011 2012 YTD (24 weeks)
Refinance/Purchase 180 490 347 119
Refinance Existing HUD 16 138 301 159
New Construction 8 79 139 72
Other 0 1 1 3
Total 204 708 788 353HUDs Annual Loan Volume Continues To Increase With The Majority Being SNF Loans
Closings 2009 2010 2011 2012 YTD (24 weeks)
88 309 415 335
Applications In Queue 2009 2010 2011 2012 YTD (28 weeks)
60 327 303 37 Refinance34 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 DaysUnderwriting 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!!!
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KeyBank Real Estate Capital Financing Resources Now And In The Future
Summary of Section232 Activity Applications Received
180
16 8
490
138
79
347
301
139
119
159
72
0
50
100
150
200
250
300
350
400
450
500
2009 2010 2011 2012
(YTD)
Refinance/Purchase
Refinance/ExistingHUD
New Construction
2009204 Applications Received
2010
708 Applications Received
2011
788 Applications Received
2012 YTD353 Applications Received
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KeyBank Real Estate Capital Financing Resources Now And In The Future
Summary of Section232 Activity Closings
88
309
415
335
0
50
100
150
200
250
300
350
400
450
2009 2010 2011 2012 (YTD)
2012 Estimate Of Closings
622 Loans
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KeyBank Real Estate Capital Financing Resources Now And In The Future
Summary of Section232 Activity Total HC Loans & Total SNF Loans By $$$s
309
195
415
311
335
216
544
468
0
100
200
300
400
500
600
2010 2011 2012
(YTD)
2012
(Est.)
Total Loans
Total Nursing HomeLoans
2010 SNF Loan Volume
195 Loans
$1,1715,072,400
2011 SNF Loan Volume311 Loans
$2,516,901,400
2012 (YTD) SNF Volume
216 Loans
$1,736,016,300
2012 Estimated SNF Volume468 Loans
$3,761,368,650
$
2.5
2B
$1
.72B
$1.7
4B
$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 noadverse credit history or defaulted HUD loans.
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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 orhigher.
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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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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