The National Senior Housing Market: 2019 Midyear Review

The senior housing industry is a need-driven business. Divided into three major market segments: unlicensed facilities such as Independent Living (IL) sometimes referred to as Active Adult, and licensed facilities which would be Skilled Nursing Facilities (SNF) and Assisted Living Facilities (AL), nearly every family, regardless of their financial resources, will require the specialized care from one of these segments.  This fundamentally acts as a driving force for the senior housing industry no matter the overall climate of the economy. As investors are realizing the immense need for these facilities and services, Senior Housing transactions in 2019 are on track to achieve record levels, however several factors could affect the market performance moving forward.

REITs continue to divest assets that that no longer meet their operating criteria. Many have become active in the marketplace as buyers, believing it is stabilizing.  Private Equity also continues to be an active participant in the space.  Foreign investors continue to enter the marketplace. Insurance providers, a new player, are slowly entering the sector as they recognize its value.  There is more demand for multi-level campuses, most notably Active Adult with either an Assisted Living or Memory Care component. Skilled Nursing, while still actively trading, is considered the riskiest by most investors.

The most notable issue that continues to plague the entire industry is the labor shortage.  Given the robust economy, finding and keeping entry level workers remains a challenge.  In response, many operators are attacking the issue by finding new ways to retain staff using simple yet very effective ways to make staff feel “appreciated” like improving appearances of breakrooms and/or holding once a month special “Thank you” lunches. These efforts cost very little but go a long way toward improving team atmosphere.  Skilled Nursing Facilities continue to feel turbulence and anxiety as the new Patient-Driven Payment Model (PDPM) is becoming a reality, taking effect October 1, 2019.

Although high barrier to entry communities remain attractive to developers, the vigorous construction has slowed due, at least in part, to rising construction cost.  In response to the abundance of product that caters to the high end of the market, a number of operators and developers are shifting their focus to the middle market of the senior housing industry. This continues to be the largest underserved senior population needing residence.

According to the Seniors Housing Acquisition and Investment Report the average price of Assisted Living rose in the last quarter of 2018 with an average price of $204,000 per unit.  Independent Living rose to $251,800 per unit.   Skilled Nursing fell 2% to an average of $75,600 per bed.

As new product continues to come online, some markets continue to struggle with absorption rates. If this continues, it will cause some turbulence in Cap Rates and ultimately effect ALF pricing.  Still currently, overall valuations should remain strong through the balance of 2019.

Cindy Hazzard

Principle, JCH Senior Housing Investment Brokerage

Office: 714-463-1672

Email: [email protected]

Senior Housing – Middle Market Ignored?

Times they are a changing, JCH Senior Housing Investment Brokerage posted a blog back in 2017 talking about the current construction cycle ignoring the middle market.

Assisted Living, Memory Care and Independent Living facility operators and developers have finally begun to recognize that housing middle to low-income residents is going to be an issue in newly constructed facilities.  The senior housing industry is now in full swing in trying to find solutions to serve the middle market.  Smart senior housing investors are realizing that the middle market is a great opportunity just waiting to be filled.

Senior housing facilities, including assisted living and memory care, are typically considered a “private pay model”.  The average cost in assisted living facilities averages between $4,500 – $8,000 per month. Assisted living facilities serving the middle-class market typically charge $2,500-$3,500 per month.

Middle Market Residents – defined

Believe it or not, annual income for middle market senior housing residents is $60,000 per year.  Teachers, firefighters, government workers and nurses fall into this category.  The middle -class market in the senior housing industry tends to serve affordable and low-income residents.  Recent studies show that the average “baby boomer” entering assisted living, memory care or skilled nursing facilities in the next 15-20 years will fall into this category.

Seniors pay for care through lifelong investments, including 401K, real estate or traditional savings accounts. Both high-and middle-income seniors have lifelong investments that will be used to pay for care. The low-income senior typically receives Medicaid.  Seniors receiving federal aid have little to no net worth, these seniors are often placed in facilities that operate specifically on government subsidies.

Possible Solutions

More and more investors, and operators in the senior housing sector are beginning to see that it is possible to make profits while serving the middle market resident.  How you ask? Operators of assisted living, memory care and independent living should consider purchasing older existing facilities. Investing in minor renovations turn these senior housing investments into perfect options for the middle market.  Developers are purchasing affordable land away from cities while not compromising on population density and building assisted living and memory care facilities that are designed with the middle-income residents in mind.

Senior housing is a need driven industry that will always be required.  People are living longer than previous generations and will inevitably need assisted living, memory care or skilled nursing facilities at some point in their future.  Smart investors are recognizing that most of the senior population falls into the middle market segment and will provide independent, assisted living or memory care options that attract them to their facilities.

Navigate the Senior Housing Industry with the JCH Group

The JCH Senior Housing Investment Brokerage is the leading brokerage for healthcare properties. Developers and operators alike depend on our senior housing investment specialists to navigate the tough terrain of the senior housing industry.

To find your perfect opportunity in the middle market, contact one of our investment specialists Jim Hazzard , [email protected] 714-463-1677 or Cindy Hazzard, [email protected] 714-463-1672.

Choosing the Right Senior Housing Brokerage is Critical

Institutional players continue to purchase Assisted Living, Memory Care and Skilled Nursing Facilities from smaller operators with one or two senior housing assets. JCH Senior Housing Investment Brokerage is here to help owners navigate the process and protect their interests.

When it comes to keeping track of their financial performance, smaller operators in the Senior Housing Industry frequently have not kept pace with new operational reporting models commonly used by larger operators.  This lack of sophistication with their financial reporting may be an issue for smaller operators that are considering either expanding or divesting their portfolio of Assisted Living, Memory Care or Skilled Nursing facilities.  Even though financial reports may not contain errors, information organized incorrectly makes it difficult for buyers, sellers, appraisers or lenders to analyze and make decisions. JCH can help with this critical presentation to ensure you get every dollar of value that you have created.

The JCH Group makes the senior housing investment possible for operators by taking the time to analyze and assess all data in the financials provided.  Information is then reorganized into the format standard in the senior housing industry.  Any missing information is collected and added. There is often hidden value that we find, making your sale profitable.  The seller’s financials now follow industry standards making them easily analyzed by senior housing investors.

Senior Housing Investment Specialists Have a Proven Strategy

JCH is ahead of the curve as the senior housing industry continues to develop and change, to make the most of your senior housing investments, whether as a buyer or seller, you need investment advisors who offer more than one detailed plan but rather present your options to what works best for you. This provides you the flexibility to stay within the boundaries of your preferences while stepping into the competitive senior housing industry.

The JCH Group has multiple resources available to make your senior housing investments a complete success.

Our investments advisors have:

• Private lists of qualified and pre-approved buyers and sellers
• Both targeted and mass marketing campaign tactics
• An extended network of trusted vendors, attorneys and other service providers
• Complimentary facility valuations and in-depth broker opinion of values (BOV)
• Twenty plus years of experience as senior healthcare brokers.
• One of the few brokerages that have actual Operational experience in both assisted living and skilled nursing facilities
• A solid track record for senior housing investment success

The JCH Group investment specialists combine their entire know-how to create the best deal for you, whether you are selling or buying senior healthcare properties.

The JCH Group is the Right Senior Housing Brokerage

For the past 20 years, the JCH Group has proudly served the senior housing community with unwavering dedication. Our expertise has created opportunities, navigated storms and solidified transactions for both small and large-scale senior housing investments including CCRCs, skilled nursing facilities, assisted living facilities and memory care facilities as well as other healthcare properties.

Get every dollar your property is worth.  Discover what the JCH experts can do for you.  Contact one of our investment specialists for a no cost consultation. Jim Hazzard , [email protected] 714-463-1677 or Cindy Hazzard, [email protected] 714-463-1672

Senior Housing Opportunity Zones For Investors

A new investment opportunity is emerging in economically distressed communities, that could help middle- and lower-income seniors who need Assisted Living, Memory Care and Skilled Nursing facilities. There is a new tool that allows investors to reinvest their gains into low-income urban and rural communities designated as qualified opportunity zones. This program allows for substantial tax incentives to senior housing investors such as deferred taxes, decrease in tax on capital gains, and eventually permanent exclusion of tax on capital gains.

Created by the 2017 Tax Cuts and Jobs Act, Qualified Opportunity Zones are designated for 10 years. During this time investors can defer tax on any prior gains until no later than December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund. These funds can only be used if the property is an operating business. This allows the investor to be eligible for an increase in its basis equal to the fair market value of the investment when it’s sold.

Opportunity Zones Qualifications

Note that in order to qualify, investors must only reinvest 100 percent of the value of the building— not the land. This means that investors can redevelop preexisting buildings in metropolitan areas into Assisted Living, Memory Care facilities.  Opportunity Zones can substantially influence senior housing and assisted living industries for developers and operators trying to tap into the underserved middle income market.

These tax incentives will allow for investors in senior housing to build and develop in the lower and middle markets that are often overlooked by developers building Assisted Living, Memory Care or Skilled Nursing facilities. With the baby boomer generation aging, it is estimated that about 14 million seniors will not be able to afford the current senior housing models. The need for low income senior housing options for seniors on fixed incomes is growing. Also, with many of these opportunity zones in urban areas, proximity to shopping, dining and public transportation are a valuable asset to seniors with limited transportation options. The stimulation of job growth due to new businesses in the area will likely spur development as well.

The JCH Group Can Help You Identify Opportunity Zones

How can JCH help? JCH has listed properties in opportunity zones and our inventory is constantly changing. Our 20-year track record of handling transactions in Assisted Living, Independent Living, Memory Care and Skilled Nursing, can help you navigate the acquisition, or re-investment process. Call JCH to ask about listings in these opportunity zones and how we can help.

For more information on Opportunity Zones visit https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions or for a visual map of the census tracts designated as Qualified Opportunity Zones may also be found at Opportunity Zones Resources at https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx

The Patient-Driven Payment Model (PDPM)

PDPM is the biggest change in reimbursement to take place in decades and skilled nursing facility operators must be prepared when it takes effect October 1, 2019. Patient-Driven Payment Model is a new classification system for skilled nursing facility patients who are in a Medicare Part A covered stay into different payment groups under the SNF Prospective Payment System. This payment model will replace the Resource Utilization Group, Version IV (RUG-IV).  The RUG-IV system incentivized skilled nursing facility providers to furnish therapy to patients regardless of their unique needs; by classifying patients into a therapy payment group with a fixed per diem payment rate over the course of their stay regardless of the cost or resource utilization required to look after the patient. PDPM will eliminate the flat per diem rate and classify patients into payment groups based on specific, data-driven patient characteristics. 

What are the case-mix adjusted components of the PDPM?

There are five case-mix adjusted components, Physical Therapy (PT), occupational therapy (OT), speech-language pathology (SLP), a non-therapy ancillary (NTA) service and a nursing component.

What are the advantages of Patient-Driven Payment Model?

Among other advantages, the program establishes a separate case-mix adjusted component for non-therapy ancillary (NTA) services. NTA costs are high at the beginning of a SNF stay but they decrease and remain constant over the rest of a patient’s stay. These variable per diem adjustments improve targeting of those resources to medically complex patients and increases payment accuracy for services. Patient-Driven Payment Model also provides additional resources to facilities for treating potentially vulnerable populations, including patients with the following characteristics: high NTA utilization, extensive services, such as a ventilator, respirator, or for infection isolation, dual enrollment in Medicare and Medicaid, end-stage renal disease, longer prior inpatient stays, diabetes, wound infection, IV medication, bleeding disorders, behavioral issues, chronic neurological conditions, and bariatric care.

How is CMS transitioning from RUG-IV to PDPM?

The transition from RUG-IV to PDPM will be a “hard” transition, meaning that they will not run concurrently. Billing prior to September 30^th will be billed under RUG-IV system and beginning October 1^st will be billed under Patient-Driven Payment Model. All SNF residents who were admitted prior to the PDPM effective date are to receive a new Interim Payment Assessment (IPA) under the PDPM, even if they have been assessed already under the previous RUG-IV model

For more information regarding Patient-Driven Payment Model visit https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/PDPM.html

Work with The JCH Group

Through our extensive network in the senior housing space, JCH not only sources buyers and sellers in the market place, we are able to help place debt, fund equity, locate and select operating partners, work through license applications and compliance issues, bring competent professionals and consultants to the table (attorneys, CPA’s, operation consultants, etc.…whatever is needed to meet your needs and facilitate a smooth and fair transaction). Because of these skillsets, JCH is one of the leading brokerages in the Senior Housing space, specifically well equipped to help new players enter the space.

If you are contemplating buying or selling assets in the senior housing industry, please make one of your first calls to the senior housing investment specialist at JCH.

Spring NIC Conference 2019 Recap

The spring regional senior housing investors NIC conference was held this year from February 20^th-22^nd, 2019 in beautiful San Diego, CA. This location is one of our favorites for The JCH Group, as it’s just a short 2-hour drive from our corporate headquarters in Orange County, CA. Unfortunately, the conference attendees were not able to enjoy the typical southern California weather, it rained nearly the entire conference.

The JCH Group Sets A New Conference Record

The conference appeared to be well attended, but it was not the jammed packed attendance the Fall NIC typically attracts. This may be due to location and timing of the event. Regardless of attendance, it was a magnificent event for all those that attended. The JCH team was able to set a new company record by completing nearly 60 one on one meetings in just two days’ time. We had the opportunity to meet with various senior housing and assisted living investors interested in either buying or selling assisted living facilities and skilled nursing facilities. There is no other conference in the industry where you can complete this number of meetings in a short amount of time. Some of the hot topics discussed at NIC were mirrored by those of the ASHA conference, however there were a few additional key takeaways from this event.

Reoccurring Issues in The Senior Housing Industry

The most pressing and critical topic of discussion continues to center around labor shortages. Assuming there are no major economic issues in the next couple of years, this will be the single largest issue facing the senior housing industry. What makes this such a problem? There are very few viable solutions being contemplated by the industry and it doesn’t look like operators will be able to pass the wage inflationary pressures on to the residents and their rental rates. This is due to the large amount of new supply entering the market on a national basis. Many operators struggled with sagging census in 2018, which makes it very difficult to raise rental rates when your facility is not at stabilization.

It is generally agreed that the Skilled Nursing sector is rebounding from decade low census and will likely complete a full rebound sooner than the Assisted Living and Memory Care sectors. This is primarily due to the lack of new supply in the Skilled market. With fewer new beds coming on line, it allows existing assets to capture new patients entering the market. The Assisted Living and Memory Care markets have a much longer road ahead to recovery, due to the significant new supply across the country.

Oversupply of Equity in The Senior Housing Market

Lastly, some good news for deal junkies. There is still an oversupply of equity in the market place and this is equity that must be deployed to earn a return. A surplus of equity and plenty of debt available has kept pricing high, even while some of the fundamentals of the asset class have struggled over the past 12-18 months. Call us today to learn more about what this means to you.

The JCH Group Can Answer Any Senior Housing Question

Overall it was a very robust and productive NIC conference for the JCH team. If you need an advisor in the senior housing space, look no further. The JCH Group offers unmatched expertise and experience in the Senior Housing industry. Call us today to answer any senior housing questions you may have.

ASHA 2019 Annual Conference Recap

The 2019 American Senior Housing Association (ASHA) held their annual meeting January 30 – February 1, 2019 at the Terranea Resort in Rancho Palos Verdes, CA. The Southern California, coastal location for the meeting couldn’t have come at a better time for those traveling from the Midwest and East Coast, there was literally a 100-degree difference in the temperatures between California and certain parts of the country. As a result, this was a very well attended conference.

Two Issues Operators Face in the Senior Housing Industry

The senior housing sector, specifically independent living, assisted living and memory care, are the primary focus for ASHA. The overall mood of the conference was upbeat and bullish on the sector. With that being said, many of the same headwinds discussed in previous blogs are still at play, and even the “best of the best” operators were not insulated from them in 2018. The two key issues operators are facing in the senior housing space are labor shortages and occupancy issues.

Labor Shortages – How Operators Can Attract Higher Quality Labor

With the amount of new supply hitting the marketplace on a national basis, labor shortages in senior housing seem to persist with little end in sight.  This will be an issue the industry needs to confront on a unified basis. A campaign to highlight the joys of working in a facility could be helpful, but in reality, operators will likely have to open up their wallets and pay higher wages to attract a larger, high quality labor pool.  This may result in higher rental rates for residents, but in our opinion, a higher quality labor force in the space will be worth every penny to the operators and residents alike.

When Will the Occupancy Shortage Stabilize?

Occupancy issues seemed to peak in early to mid-2018, many operators began to see a slight rebound in late 2018. Some regions in the US experienced decade low occupancy rates, which was quite alarming for many operators and investors. Most of the occupancy issues can and should be attributed to oversupply of new product in specific markets. Senior Housing has long experienced a rather low penetration rate into their target market, this is definitely an area for improvement for the industry as a whole. The recent and current construction cycle has been one of the most robust cycles senior housing has seen in nearly 15 years, and unfortunately, we are a little ahead of the curve as most baby boomers will not start consuming the senior housing product until 2025. As the new supply is absorbed, we will see a stabilization of occupancy nation-wide, especially if we can see an increase in the penetration rate, bringing a higher volume of potential residents to the market place.

The JCH Group is Always Informed of All Industry Changes

The JCH Consulting Group enjoyed a very prosperous ASHA conference and we look forward to the next event held by ASHA. For all of your senior housing needs, whether you are looking to invest or need consultation in general, please reach out to your investment specialist at JCH today!

Assisted Living Waiver Program in California

Assisted Living waiver programs, which bring Medicaid reimbursement to the Assisted Living model, are common place in the majority of the states in the US.  Over the last ten years, California has been working towards implementing their own Medicaid program for Assisted Living facilities.

What Is an Assisted Living Waiver?

The Assisted Living Waiver (ALW) is a Home and Community-Based Services (HCBS) waiver that was created by legislation that directed the California Department of Health Care Services (DHCS) to develop and implement the project to test the efficacy of Assisted Living facilities as a Medi-Cal benefit.

The pilot program was determined to be successful during the first three years in a limited trial in three counties.  In March 2009, the Centers for Medicare and Medicaid Services approved a waiver renewal for an additional five years and expanded the program into additional counties.  A five-year waiver renewal was effective March 1, 2014.

Who Is Eligible for An Assisted Living Waiver?

To be eligibleto receive services as an ALW Participant, an individual must meet all of the following ALW eligibility criteria:

• Age 21 or older;
• Have full-scope Medi-Cal eligibility with zero share of cost;
• Have care needs equal to those of Medi-Cal-funded residents living and receiving care in Nursing Facilities;
• Willing to live in an Assisted Living setting as an alternative to a Nursing Facility;
• Able to reside safely in an Assisted Living facility or public subsidized housing;
• Willing to live in an Assisted Living setting located in one of the following counties providing ALW services: Alameda, Contra Costa, Fresno, Kern, Los Angeles, Orange, Riverside, Sacramento, San Bernardino, San Diego, San Francisco, San Joaquin, San Mateo, Santa Clara, and Sonoma counties.

What Is the Goal of The Assisted Living Waiver?

1) Facilitate a safe and timely transition of Medi-Cal eligible seniors and persons with disabilities from a Skilled Nursing Facility (SNF) to a community home-like setting in a Residential Care Facility for the Elderly (RCFE), an Adult Residential Care Facility (ARF), or public subsidized housing, utilizing ALW services; and

2) Offer eligible seniors and persons with disabilities, who reside in the community, but are at risk of being institutionalized, the option of utilizing ALW services to develop a program that will safely meet his/her care needs while continuing to reside in a RCFE, ARF, or public subsidized housing.

Under the California ALWP, residents are able to combine their supplement security income with the Medi-Cal benefits creating the rates sited below. The CA system has a 4-tier system depending on the residents’ acuity level.

Here is an example of the 2017-tiered system in California:

Tier Level         Monthly ALWP Rate     Monthly SSI Rate           Total Monthly Reimbursement

1                                  $1,673                         $1,102                         $2,775

2                                  $2,008                         $1,102                         $3,009

3                                  $2,281                         $1,102                         $3,383

4                                  $2,646                         $1,102                         $3,748

In general Medicaid waiver programs represent a large savings for the state, given the same care provided in a Skilled Nursing setting will likely be twice as much as that provided in an Assisted Living setting. While the majority of Assisted Living operators will remain in the private pay model, this program is an excellent source of residents and income for facilities in less affluent areas and those with older physical plants. Overall this is a great program for Assisted Living Facilities in California.

Stay Informed with The JCH Group

The JCH Senior Housing Investment Brokerage serves as a premiere brokerage in the senior housing industry. We have designed, negotiated and closed hundreds of transactions. From independent living facilities to skilled nursing facilities, we are your experts for the perfect senior housing investment.

For your free valuation or for more information, speak to a JCH investment specialist today!

The Senior Housing space experienced a very interesting year in 2018. While some product types within the asset class experienced some growing pains, the overall long-term outlook is very bullish. Senior Housing is divided into three major market segments: Independent Living (IL), Skilled Nursing Facilities (SNF), and Assisted Living Facilities (ALF). We will focus on licensed healthcare facilities, SNF and ALF, in this analysis.

Across the country in the first half of the year, SNF assets experienced decade-low occupancy rates, although occupancy did begin to stabilize in the third quarter. As a result, we saw a considerable number of distressed SNF dispositions, particularly from the industry’s REITs. For stable-performing SNF assets, however, the capitalization rates held consistent between 10% and 13%, but the average price per bed dropped due to the disproportional number of distressed assets sold.  The consensus is that SNFs will likely enjoy a stable 2019. With occupancies leveling off, operators should be able to budget appropriately for the year. In budgeting, keep in mind that there will be a new payment system employed by CMS in October 2019, the Patient-Driven Payment Model (PDPM). Many operators are welcoming this change; the only negative response appears to come from therapy companies that may see decreased income under the new system.

The ALF sector of the industry also faced unique challenges, including a new international presence. Major oversupply issues vexed some markets, as their robust construction cycle was based upon a “gray wave” that will not actually hit at the asset level until 2025. Because of this, some markets are struggling with absorption rates, but they should reach equilibrium as demand levels off supply.

Two international transactions were announced in 2018 that may have significant impact. Singapore-based Keppel Capital arranged to acquire a 50% stake in the operating platform of Watermark Retirement Communities, Inc. Additionally, Sino-Ocean, a Chinese real estate development company, acquired a 40% stake in Meridian Senior Living’s operating platform. It should be noted that these two transactions point to a genuine need for this type of care in China and other Asian countries.

JCH anticipates that some ALF markets will experience a turbulent 2019 as new product is absorbed – or potentially not absorbed – at a rate acceptable for investors. Capitalization rates for stable ALF assets experienced some downward pressure in 2018, which was illustrated in the MBK and West Living transaction, reportedly near a 5.2% blended cap rate at closing in July 2018. Overall the valuations and operations in the segment will remain strong throughout 2019 even with anticipated interest rate increases. We believe quality operators with cash on the books to acquire assets in 2019 will have a very fruitful, opportunistic year ahead.

Overall, 2019 will be a very exciting year for Senior Housing. Despite changes coming to the SNF market and some potential turbulence in the ALF market, we expect decent transaction volume with a wide range of assets types available to the marketplace. The takeaway? Operators need to stay diligent on their marketing and operations as new product is absorbed and remain focused on employee retention as labor shortages continue to have an impact in the space.

Nick Stahler

Senior Vice President, JCH Senior Housing Investment Brokerage

Office: 714.463.1663
Email: [email protected]


Nick Stahler has 13 years of experience in the Senior Housing Investment industry with over 1 billion dollars in closed sales.

JCH was pleased to participate in a recent Q&A session with a well-known publication in the assisted living and skilled nursing sector. Here are the results of the session.

What are the most basic, yet most essential financing terms and concepts most managers and other non-finance specialists should know, and why?

In my opinion LTV, LTC, Financial Covenants, DCR,BPS, Origination/Exit Fee, Term/Maturity Date, Recourse/Non-recourse,Inter creditor, Collateral, Impounds are the most basic and most essential financing terms every borrower should know. I’ll explain each below

LTV: Loan to Value,this is the loan amount a lender is willing to lend versus the value of the asset. It’s usually presented as a percentage, for example if you have an asset valued at $10M a lender will lend $7M, that equates to 7/10 or 70% Loan to Value.

LTC: Loan to Cost,this is similar to the LTV equation but instead of value the loan percentage is in comparison to the amount paid for the asset or the cost of an asset. This can be different than the LTV. For example, if you are paying $10M for an asset, and a lender will lend $7M, your Loan to Cost is 7/10 or 70%. This is important to track as you might get a good deal and pay $10M for an asset that is worth $11M with a lender providing $7M in debt. Under this scenario your LTCis 70% (7/10) and your LTV is 64% (7/11).

Financial Covenants: These are covenants that a borrower’s operations must adhere to in order for the loan to comply. AN example of this is the Debt Coverage Ratio (DCR). This is a covenant to measure the operations ability to pay the monthly loan payment or debt service. It is derived by dividing the Net Operating Income by the debt service amount. For example, if your current monthly NOI for an asset is $45,000/month and your debt service is$30,000 per month, your DCR ($45,000/$30,000) is 1.5X.

BPS: This stands for Basis Points. Basis points are 1/100^th or .01%. You will see this language in reference to your interest rate, especially on floating rate debt.You might see LIBOR plus 300 BPS which would mean the London Inter Bank Offer Rate plus 3% or 300 BPS.

Origination/Exit Fee: these are fees charged by lenders on the funding of the loan and on the retiring or maturity of the loan. They are typically 1-2% depending on the loan type and what is negotiated.

Term/Maturity Date: This is the length of the loan and the date the full balance is due to be paid off. A fully amortized loan will be paid in monthly increments and will be paid in full at the end of the term or maturity date. For example, a 25-year amortization due in 25 years will have monthly payments that pay down the loan in full by the end of year 25. You may see a loan with a balloon payment. This is when the amortization of the loan and the term or maturity date are not the same. For example, a loan could be amortized over 25 years but due in 10 years which would mean whatever balance is left on the loan at year 10 is due in full. This allows for a lower monthly payment,but a shorter term.

Recourse/Non-Recourse: this is the description of the remedies the lender has in the event of default. A recourse loan allows the lender to go after the principals of a corporation for the money owed in the event of default. While a Non-recourse loan only allows the lender to foreclose on the asset and not go after the principals for money owed. Non-recourse is always preferred if possible.

Inter creditor: This is an agreement between multiple lenders using the same asset(s)for collateral. This agreement details the relationship between the lenders and how things are handled between the lenders and the borrower in the event of default.

Collateral: This is the asset pledged as security for repayment of the loan, the collateral is to be forfeited in the event of a default. Sometimes you will see multiple assets used as collateral for one loan, this is known as “cross collateralizing” or crossing for short. This is typical in portfolios where some assets may not qualify for a loan on their own, but when other, better performing, assets are cross collateralized it allows the borrower to obtain the loan by spreading the risk among multiple assets.

Impounds: These are monthly payments received by the lender or debt servicer in addition to the debt service amount. These are typically done for real estate taxes and insurance. This allows the lender to be in control of the taxes and insurance, which creates a greater level of comfort for them knowing the asset is current on taxes and properly insured.

What are some of the most misunderstood terms and concepts that lenders would like their potential LTC partners to know before coming to the table?

I think LTC vs LTV is a common argument between the borrower and lenders as well as the interest rate calculations and financial covenants or default provisions.

1. In your experience, ignorance of what terms would tip you off a borrower is seriously in need of homework?

Not having a firm grasp of the basic terms outlined in the first question.

What loans get confused for one another? What terms get misused or wrongly used interchangeably?

I think Agency/Fannie Mae, Freddie Mac vs HUD debt is often confused, while both are insured loans,they are insured by various sources. LTV and LTC can get confused for each other as well as amortization and maturity date, these can be two different dates.

What advice can you provide readers about the best, most reliable ways to better understand the lexicon of lending?

The NIC (National Investment Center for Senior Housing) conference is an excellent resource, in fact they have an entire evening devoted to “meet the lenders” at each and every conference. A good lender will take the time to educate their borrowers on what they are entering into. A well-educated borrower is much more likely to succeed with the loan, which is what every lender wants.

1. Are there resources specific to long-term care that would be most suitable?

NIC.org

Bankrate.com is anexcellent resource for loans in general, there are multiple calculators anddefinitions on the site for all types of loans.