Attitudes toward healthcare financing have been fairly conservative ever since the general economy collapsed with the stock market in 2008. New construction projects were typically put on hold in the aftermath and loans for just about any building activity were hard to get, even for proven entities.
Five years along, the investment community has gradually increased its interest in the sector and dollars are flowing steadily into healthcare projects of all kinds.
"Capital is definitely out there," said Dan Biron senior vice president at Chicago-based Berkadia Commercial Mortgage. "There are a number of active lenders out there."
Among them: real estate investment trusts, public lenders, private equity firms, commercial banks, life-term companies, pension funds and commercial-backed mortgage securities.
As the lending field gets more crowded, Biron says the rates are starting to get more competitive. "Everyone is starting to sharpen their pencils," he said.
Capital may be plentiful for strong, experienced operators, but that doesn't mean that dollars are flowing to everyone who comes hat in hand, Biron noted. Sound fundamentals are still a prerequisite for securing a loan in an environment that remains conservative toward unproven entities.
"Overall, the industry is still cautious about new development deals for what they consider risky projects," Biron said. "Compared to pre-decline, there is still a little reluctance, with no big leaps of faith. They don't want to recreate the overbuilding frenzy of the late '90s."
Newcomers, in particular, are continuing to struggle with attracting any takers, Biron said.
"I pass on those deals as well," he conceded. "The first question I ask is who will be managing the project and if it is XYZ who has two properties versus a major operator with many, I will partner with the major operator. They have skin in the game."
Drawing capital
Healthcare organizations looking to attract capital need to put together a presentation full of specifics that demonstrate a project's viability, said Robert Kramer, president and CEO of the National Investment Center for the Seniors Housing & Care Industry in Annapolis, Md.
"If competitors enter your market, why will you be successful in getting more than your share? What differentiates you? What is your value add? What is your brand? How do you demonstrate your value? Don't just talk about it – document it," he said.
"Every organization must be outcomes-focused. Prove you have outstanding outcomes. Show you have the innovation and technology that enables quality care delivery."
Finally Kramer advises organizations to invest in the workforce, because "this is a people-intensive business and human talent is a critical component."