Not in the current market for a loan? So what! Owner-operators should be in a constant state of readiness to borrow money — whether it’s needed for short-term cash or long-term capital projects. Those who aren’t could find themselves wrestling more with chaos than negotiating terms when the big time comes. Lending experts offer advice here on how good habits year-round can go far toward ensuring a successful transaction when the need finally arises.
1. A disciplined approach to fundamentals can set a strong foundation to rely on months or even years later.
Sound recordkeeping practices are important. “Clean, organized and consistent” monthly financial statements are essential, bolstered by monthly meetings to address fluctuations.
“Lenders want to know what positive and negative factors impact cash flow,” says Brett Murphy, vice president of Lancaster Pollard, adding “lenders find comfort knowing management is analyzing expenses.”
As every lender asserts, keeping a constant eye on a facility’s operations is paramount.
This includes enhancing the top line with the right mix of referral sources, ancillary businesses, staffing and expense control — regardless of when capital is needed, adds Laca Wong-Hammond, managing director, mergers and acquisitions, for OREC Securities LLC.
“When a facility can generate this type of information quickly, whether for five years or trailing 12 months, it speaks to a level of professionalism that lenders will take seriously,” adds Bill Wilson, senior vice president of Lancaster Pollard.
Neal Raburn, managing director of senior housing lending at Greystone, also advises borrowers to regularly check their credit status.
2. Stay focused on the “big picture.” Lenders caution to not miss the forest for the trees. Long-term plans can easily fail from poor preparation.
As Wong-Hammond observes, “the best time to execute a transaction is when there’s no pressure for one. Lenders and investors alike focus on current but also historical financials, so keep focused and engaged in the business.”
Never forget that a sound relationship with the bank is something that needs tending in the off-years between transactions.
“Developing a strong, trusting relationship with an independent financier specializing in SNF financing is key,” says Steve Kennedy, senior managing director of Lancaster Pollard. “This enables the owner-operator to receive unbiased and proactive updates regarding unique financing opportunities that may unexpectedly arise.”
Matthew Huber, senior vice president, market manager healthcare at People’s United Bank, believes a well-tended relationship could even result in more favorable, lower-cost financing.
“A financially viable project is not the only factor to consider,” he says. “The character and integrity of the borrower is paramount above all else.”
3. The end game is clear: Set the stage for a quick and painless approval.
“The ‘story’ of how a SNF has performed over the past several years is instrumental to the financing process,” says Anthony Luzzi, president of Sims Mortgage Funding. “Administrators are crucial participants in the development of that story, which can have a significant impact on how well — or how poorly — a financing several years out is executed.”
How an owner-operator behaves in a prior loan transaction also can impact their success on the next, as Huber describes.
Communicating about and handling thorny issues or problems could color a bank’s thinking on the SNF’s risk profile. Once any challenges are put behind the borrower from a prior transaction, “the bank will have a good picture of exactly who they lent the money to,” he adds.
Erik Howard, managing director, real estate finance for Capital Funding Group, says choosing the right lender remains ssential.
“Finding a lender that can service the life of the loan and provide a holistic strategy will help you build long-term relationships in the industry and keep your information in one place,” Howard says.
4. Be mindful of tempting potential pitfalls. Borrowers can easily fall prey to gimmicks and short-term fixes between transactions.
One of them is a “dry run” to test the market without serious intent, according to Huber. “If you waste a bank’s time, they will be cautious about looking at your next deal, and it may cause a trust issue,” he says.
Other mistakes include failing to check if investors have skeletons in their closets and giving the appearance that you’re “bribing your bankers with gifts.”
Luzzi urges all borrowers to stick to the current loan’s script, and avoid “instituting program changes that might take long to implement and skewer the financial and operational performance of the property.”
Huber also cautions against midstream accounting method changes. Providers should wait until after the fiscal year to alter anything, he said.
Mistakes to avoid
—Taking one’s eye off the ball when it comes to basics. Sound financial statements, routine credit checks and sound operational acumen will go far in assuring a constant state of readiness.
—Getting mired in a “transactional” mindset. Sticking to long-term goals and maintaining regular contact with lenders in the years between transactions is sound advice.
—Falling prey to gimmicks and short-term fixes. Stay away from accounting method changes at lending time and avoid loan test runs in the market.
From the May 1, 2019 Issue of McKnight's Long-Term Care News
