A Discussion with Kathryn Burton Gray, Senior Managing Director at Red Mortgage Capital, LLC
In the latest in a series of dialogues with key players regarding the current capital environment in the seniors housing and care industry, Michael Hargrave, NIC’s Chief Market and Data Strategist, recently interviewed Kathryn Burton Gray, Senior Managing Director at Red Mortgage Capital, LLC.
NIC: You joined Red Mortgage Capital, LLC last year as Senior Managing Director. Red Capital has a long history in our sector, particularly on the Fannie Mae side. Can you give us a sense of the capabilities (and resulting focus) your team has going forward?
BURTON GRAY: Since Red’s platform historically has been favorably regarded in the industry as a major contributor in the healthcare lending space, we wanted to preserve that successful heritage even through the unplanned vacancy of some of the origination staff coupled with the fluctuating lending environment.
One of my first objectives with respect to Red Capital’s seniors housing team was to recruit tactical, visionary, talented individuals who could contribute critical skills, experience, wisdom and results to the organization in accompaniment to the existing successful origination staff.
Then in the climate of mutual trust and respect between the new and existing origination staff, we all collaborated on a healthcare originations group initiatives and business plan. We all want to complement our legacy financial products (Fannie Mae and FHA) with a competitive and reliable proprietary lending known as a “bridge financing” product.
We as a group want to position Red for future agency opportunities through more innovative lending capabilities and a more diverse origination staff. Red wants a distinction in our financial lending capabilities beyond just the proprietary bridge and permanent agency financing. We also focus on advisory /ancillary business proficiencies to provide clients with a full spectrum of financial solutions to include private placement of mezzanine debt to institutional investors and Red Capital partners.
NIC: You recently attended the NIC Regional Conference in San Diego. Did you notice the increasing presence of bank and other lenders? Can you please tell us a couple of things that really caught your eye at the conference?
BURTON GRAY: The one universal truth in the seniors housing industry is that we all must operate in an environment of objectivity. We as lenders must guarantee a resilient organization to support the mission of lending to the seniors housing industry. We as a lending group must create an efficient foundation of people and processes for success. We as a lending group must assist in the development of future leaders. We must evolve the mission in our seniors housing community; therefore, we welcome new bank and financial services lending partners and competitors.
We noticed more entrants of lenders than in years past. We noticed some private equity companies sticking their toes in the waters of conventional lending. We noticed a demand for additional construction lenders due to increasing construction requests for ground up build to repositioning obsolete facilities. We noticed historically multi-family lenders creating new seniors housing divisions. We noticed more regional and smaller operators and real estate owners attending the conference, which supports the theory that we will have a picture of success for this seniors housing industry in the years to come.
NIC: On March, 4, the FHFA released housing goals for the GSEs which included a goal to reduce the unpaid principal balance of new multifamily business relative to 2012 by 10% in 2013. Can you comment on what impact this may have on the GSEs’ seniors housing business in 2013?
BURTON GRAY: On March 4, the Federal Housing Finance Agency (FHFA) released the 2013 Strategic Plan and related “Scorecard” for Fannie Mae and Freddie Mac (the “Enterprises”), for which it acts as conservator. The Plan outlines the agency’s latest efforts to encourage greater participation of private capital in the mortgage markets and build a new common securitization platform in anticipation of future Congressional housing finance reform legislation.
The critical elements of the Plan and the Scorecard include the following:
- Establish a joint-venture business between Fannie Mae and Freddie Mac under independent leadership tasked with responsibility to design a common securitization utility to be used by the Enterprises and private issuers of mortgage securities;
- Accelerate reduction of single-family credit risk exposure by way of primary mortgage insurance and credit derivative and subordinated interest sales;
- Sell five percent of Enterprise non-securitized portfolio assets; and
- Reduce the multifamily book of business 10% relative to 2012 in order to provide opportunities for private capital to return to the multifamily lending space.
Only item four will have a material impact on the multifamily and seniors housing lines of business. As regards Fannie Mae, the company will target an approximate $3.4 billion reduction in lending activity in 2013, reducing total lending capacity to $30.4 billion from last year’s $33.8 billion book of business. By way of perspective, the 2012 production standard was the company’s third largest to date and its 2013 target would rank as its fourth most active year. Freddie Mac’s volume target for 2013 is lower at $25.9 billion, as they did $28.8 billion last year. The 2013 target would still rank as Freddie’s second largest.
We believe both GSEs will economize by being more prudent with respect to credit at the margin. The two companies will most likely tighten credit standards moderately and refrain from diluting underwriting standards to compete. They will continue to bid aggressively for high-quality opportunities. These production cuts will evolve organically as conduits, banks, and life insurance companies recover lost market share. Down the road, we believe the agencies may introduce lending authority allocations to business lines (multifamily market rent, seniors, affordable, manufactured housing, student, etc.), a common practice among private institutional lenders. RED expects the lending caps to have negligible impact on 2013 loan production.
2013 NIC Regional Conference Attracts Record Crowd
The need for seniors housing and care providers to plan strategically to meet the needs of future residents was a key focus of discussion during the three day NIC Regional Conference in San Diego.
This was another year of increased interest and attendance with more than 1,100 attendees: 23% were first time attendees to a NIC event, and 32% of the first time attendees were operators, which may be indicative of the level of interest in and growth of the seniors housing and care sector. Attendees took full advantage of the many networking opportunities, through the online community and in person, to schedule meetings, connect with peers, and work on deals.
| Highlights from General Sessions |
The Opening General Session featured senior level industry executives and Washington Insiders discussing short- and long-term risks as well as opportunities for the seniors housing and skilled nursing sectors as a result of sequestration, reimbursement pressures, impact of the Affordable Care Act on employer and employees’ health insurance, and Medicaid coverage expansion.
The Wednesday Luncheon keynote speaker, Robert Richman, culture architect who launched and built Zappos Insights, gave his perspective on the importance of building an environment where residents and staff feel empowered and provided specific examples of innovative ways that employers can strengthen employee retention and give residents a better quality of life.
The Thursday Opening General Session featured Gary Zimmerman, senior economist with the Federal Reserve Bank of San Francisco, who provided his perspective on economic trends, both national and in the western US, and gave an overview of the residential housing market and the status of the labor market.
Thursday’s Networking Luncheon featured Senator Tom Daschle, former Senate Majority Leader and one of the key architects of the Affordable Care Act. From a policy perspective, he highlighted three key observations widely accepted about the transformation of health care policy:
- There are cost, access, and quality challenges to be overcome. Over the next 10 years, $35 trillion will be committed to healthcare. 70% of 65 year olds will need an average of three years of long-term care in their future years.
- Causes of these challenges include a volume driven system with a fee for service payment mechanism; market driven care through advertising; administrative costs; chronic illness management; and a lack of transparency, “you can’t fix what you can’t see.”
- Creating a high performance, high value healthcare sector with greater access, better quality, and lower cost is a must.
He outlined five key areas for survival and success:
- Resiliency
- Innovation
- Collaboration to break down silos
- Engagement between health policy and health business
- Leadership with innovators and motivators demonstrating best practices
| Highlights from Breakout Sessions |
Measuring Performance: How to Improve your NOI
Providing quality care to residents while minimizing cost and driving NOI is a difficult balance, and this session offered varying perspectives on how this may be achieved. The session panel was led by Bre Grubbs, New Business Director, Leisure Care with featured speakers, Sophia Lukas, Executive Director at Redwood Terrace, Dale Boyles, Vice President, Emeritus Senior Living and Tana Gall, President, Leisure Care. The key areas emphasized were:
- Maximizing NOI by controlling expense in the three primary expense drivers: labor, food and utilities. Implementing tracking tools.
- Impact of incremental changes: small changes in day to day operations can yield savings and impact NOI.
- Employee turnover is expensive: take time and hire right.
ACOs Part II: Building Partnerships with Managed Care and Health Systems that Stand the Test of Time and Technology
This session addressed why tracking clinical outcomes and reducing readmission rates are key to becoming a preferred partner in the world of post-acute care. The panel was represented by three industry executives: a medical director of a managed care system, a SNF post-acute provider currently using IT software to track clinical outcomes and share data, and an IT software provider that focuses on outcomes and reducing readmissions.
Ken Lund, President and CEO, Shea Family Care, shared how his company drove down Return To Hospital rates through:
- Transitions program
- Continuum of care
- Physicians on site
- IT software to track clinical outcomes, cut costs and drive revenue
Jim Riemenschneider, Co-Founder and Principal, COMS Interactive, LLC, discussed why connecting clinical and financial outcomes is key to a successful strategy. He outlined the importance of technology and how having an integrated system of care will help providers build relationships with managed care and health systems.
Dr. Nora Faine, MPH, Medical Director, Molina Healthcare of CA, outlined the Molina Model of Care and levels of risk stratification, proposed measures for monitoring quality outcomes and their dual eligible/coordinated care initiatives.
Building Your Benchmarks for Seniors Housing Development
While seniors housing construction activity remains tempered, there is a sense the industry is nearing a new development cycle. Stephanie Anderson, Meridian Realty Advisors, moderated an informative discussion surrounding development with industry veterans Beth Mace, Director, AEW Capital Management, Margaret Scott, Executive Vice President, Belmont Village Senior Living, David Ronck, Principal/Chief Operating Officer, Meridian Realty Advisors, and Jeffrey Kraus, Spectrum Retirement Communities. The panelists addressed how they examine market fundamentals and demographics (i.e., is the market strong now and will it be strong in the future?), how they determine site selection and property design, as well as lessons learned.
| Data Center |
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The NIC MAP Data Center and Demo Room saw lots of traffic, answered lots of questions, and provided valuable actionable data. Attendees had the opportunity to test the latest versions of NIC MAP Local and the NIC MAP Portfolios Program, both with notable upgrades.MAP Portfolio Program new features:
MAP Local enhancement:
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If you are interested in learning more about NIC MAP Data Subscriptions and Services, please contact John Blumer, NIC’s National Sales Director at 443-837-2406 or jblumer@nic.org.
| Conference Survey: Who Attended? |
- 32% Operators
- 30% Lender/ Financial Intermediary
- 20% Industry Services
- 13% Investor/Private Equity
- 4% Developer
What people are saying?
The survey for the 2013 NIC Regional Conference closes April 5, 2013, and below are snippets from the survey so far:
- 98 percent of attendees said that the 2013 NIC Regional Conference met their objectives (survey results so far)
- 98 percent of attendees say they would recommend the 2013 NIC Regional Conference to a Colleague (survey results so far)
- “Great job! Thanks for the Kosher amenities and minyan rooms.”
- “Connectivity is what I like more than anything. Being able to sit with others and talk about people and deals was powerful. The networking was great.”
The survey is still open and closes April 5, 2013. As a registered attendee, if you have not received a link to participate in the survey, please contact trawlings@nic.org for assistance. –
2013 NIC Regional Conference Inaugural Online Community a Great Success!
We are pleased to report on the success of the 2013 NIC Regional Conference Online Community. This was a new initiative by NIC to help our attendees connect and network more easily before, during and after the conference. Many attendees took advantage of the online community, using it to create their personal conference itinerary, participate in session discussions and to connect with other attendees well in advance of the conference.
Below are a few of the usage statistics you might find interesting:
- Nearly 7,000 private messages were exchanged
- 37% of meetings requested were accepted
- 60% of attendees downloaded session presentations
- Additionally, 160 attendees requested a digital copy of “The Culture Blueprint” by Robert Richman through the online community
The 2013 NIC Regional Conference Online Community will be open to registered attendees until April 30, 2013.
Thank you for your amazing response to this initiative, and we will continue to find more ways for you to better connect and network at NIC Conferences.