This past February, M&T Bank Corporation announced its intention to merge with People’s United Financial, Inc. with M&T Bank as the surviving entity. The merger—expected to close in October—brings together two powerhouse seniors housing and care lenders.
The combined company will include about $200 billion in assets, and a network of nearly 1,100 branches spanning 12 states from Maine to Virginia.
People’s United is meanwhile open for business, says Matthew Huber, Market Manager of Healthcare Financial Services at The Bank. His team continues to close loans on a timely basis and provide commercial banking services.
NIC Chief Economist Beth Mace recently talked with Huber about the merger, the benefits for borrowers, and the outlook for the sector. Here is a recap of their conversation.
Mace: What does the merger mean for existing seniors housing and skilled nursing clients of both organizations?
Huber: M&T has a big presence in the seniors housing space and has a long-term commitment to the industry. So, I think the merger will be really good for the seniors housing and care borrowers at People’s United. M&T has a robust platform with permanent agency financing from Freddie Mac and FHA/HUD. Borrowers will have more solutions. People’s United is about half the size of M&T. Given their size, we’ll have more room to grow and participate in larger seniors housing and care transactions.
Mace: Will the merger affect how you traditionally look at borrowers that seek debt funding for seniors housing and skilled nursing mergers? How about recaps and rehabs?
Huber: Between now and the actual closing of the merger, we are operating as two separate companies. At People’s United, we have continued to do exactly what we’ve been doing for the last number of years – focus on relationships, advice and tailored solutions. We’re winning new business on a consistent basis. In April, we closed on a refinance loan for Masonicare at Mystic, a life plan community in Connecticut. We recently won a term sheet to provide construction financing for a new project by RSF Partners in New York State. We’re also refinancing a Benchmark property in New England. We’re sticking close to our credit policy in terms of price and structure. Given the pandemic, we’re still winning business because of our relationships with our customers. We’re proud of that.
Mace: Are you open for business for new development?
Huber: Yes.
Mace: What about turnarounds?
Huber: Other than new construction, we only finance properties with in-place cash flows. If it’s a turnaround, we can only finance what current cash flows can support.
Mace: You’ve traditionally been a relationship bank, working with repeat clients that have proven track records with experience in either seniors housing or skilled nursing. What should potential new borrowers be prepared to provide you to become eligible for new debt?
Huber: Though it’s a big industry, it’s small in terms of the number of companies and banks that are fully engaged in seniors housing and care. It would be surprising if a known company with a portfolio did not have a banking relationship. If we don’t know the company, then we ask other industry stakeholders such as attorneys and accountants if they know the company. Mostly, new borrowers for us must be regional in scope and have multiple properties. If they’re one of our top 20 prospects, they have to provide the same type of information we would ask from anyone making a new request. That includes a real estate schedule of their existing properties to see how they’re doing. We conduct full due diligence. As much as we’re seeing green shoots of positivity in the industry, we’re not out of the woods yet. I need to know borrowers have the liquidity to get them through this time, however long that may be. We’re going with the tried-and-true companies that have been there and done that, whether they’ve banked with us or not.
Mace: You’ve significantly grown People’s United lending volume with the seniors housing and skilled nursing sector in the last few years. What is your secret to success?
Huber: When I joined People’s United about four years ago, our healthcare portfolio was about $400 million in balances, with about half in seniors housing and the other half to hospitals. Today we are at about $2.5 billion. We’ve grown by hiring the right people and consistently delivering solutions for our customers. I have an experienced staff of five relationship managers who’ve been in the industry for decades. They know commercial banking and they know the healthcare industry. We have consistent solutions and don’t waiver from them. Our process is very simple from term sheet to approval. Certainty of execution is so important to the client and they know what they’re getting from us because we don’t change our terms. We don’t come in the day before closing and ask for more equity or covenants. Our customers are important to us. We learn a lot from them, and we truly enjoy building relationships with them.
Mace: With the worst of the pandemic hopefully behind us, how will your lending practices change post-COVID?
Huber: I think we’ll go back to more of a limited recourse requirement once we see facilities have stabilized. Until then, we have increased our requirements to full recourse, though we give borrowers a path to release based on performance. Prior to the pandemic, we were asking for 25% -50% recourse, depending on the deal or borrower. We don’t do non-recourse construction loans.
Mace: Have you seen a slowdown in construction because of cost overruns?
Huber: We have seen minor slowdowns in construction, but nothing too concerning yet. The cost of materials and overruns are mind boggling. The projects are so big, $70 million to $80 million. So, having strong sponsors is key for construction projects currently underway should challenges arise that dictate the need for additional project funding.
Mace: Are you optimistic for the recovery of the sector in 2021? Beyond 2021?
Huber: I am optimistic. Seniors housing and care has done a good job of getting residents vaccinated. There is still some work to be done on the employee side. But I think it’s headed in the right direction. We’re starting to see some positivity on occupancy. I think it’s going to take a little longer than we hoped for properties to stabilize. The recovery will continue into the first half of 2022. But I’m optimistic. Baby boomers are 75 years old. The first ones turn 80 in five years and that’s when the usage of seniors housing really escalates. Skilled nursing will undergo some changes that have been accelerated by the pandemic. We’re not going back to the way skilled nursing was in 2019 with a lot of short stays. More rehab will be done at home and we’ll need fewer beds over time. Nursing homes will do more home care for their customers coming out of the hospital.
Mace: What gives you pause about the sector if anything?
Huber: I don’t have a crystal ball, but uncertainty gives me pause. Telehealth and Home Care will impact our customer base, and anything like that causes uncertainty in cash flows. Assisted living is still somewhat of a choice. Memory care is coming back quickly. But we need to keep our eye on assisted and independent living and how skilled nursing will mature as an industry. I see a positive future. But the question is: will occupancies be back in the high 80s by the end of the year, or not?
Mace: Is there anything else you would like our readers to know about People’s United?
Huber: We are still open for business. We have one of the most experienced teams in the industry. Our team includes: Walt Unangst, David Canestri, Claudia Gourdon, Ginger Stolzenthaler and Ryan Zyskowski. The upcoming merger is a plus for customers. M&T Bank is a well-known lender in this industry and we are confident the combined company will deliver much value to our clients. Borrowers will be in good hands regardless of the name over the door.