While the release of the Provider Relief Funds has been recently celebrated in the sector, Cambridge Realty Capital Companies CEO and Founder Jeffrey Davis thinks the skilled nursing industry still needs a lot of help as it rebounds from the COVID-19 pandemic.
Department of Housing and Urban Development (HUD) funding has remained a lifeline for nursing homes throughout the pandemic, mostly through refinance loans, he said, as Davis and his team have a portfolio of around 150 of such loans. But with staffing remaining the critical issue for the long-term care industry, he doesn’t expect every operator to make it to “when the apex of the baby boomers are coming into the market.”
Though HUD loans have helped keep businesses alive, they don’t help solve the huge cost increases that have come from staffing and vacancies, and with a growing reliance on expensive staffing agencies, Davis felt that even with the increased backing from the PRF, it’s still a long road ahead for operators.
He sat down with Skilled Nursing News during the RETHINK conference on September 1, prior to last week’s PRF announcement, to discuss where the sector goes from here in an interview that has been edited for length and clarity.
SNN: Can you tell me where Cambridge is most focused right now?
Davis: Since the pandemic started, the first couple months was sort of sizing up what the opportunities might be for us to do and how we can create things. When the federal government dropped interest rates to zero it created a unique situation to refinance all these [Department of Housing and Urban Development] loans that we did and we have a portfolio of about 150 of them. That’s kept us extremely busy.
Some of them we’ve actually refinanced twice in the last year.
Have refinance loans been used by operators to keep them afloat?
Yes. Every refinance loan we do on an existing operating building generates additional cash flow. That’s why they do it. There’s no real time expended and the costs are marginal.
What are you hearing most from operators right now?
What we’re hearing is that the fundamental businesses are challenged. A lot of them are in their fourth round of potential stimulus. I don’t think it’s funded yet but I do know they really need the money. The money that they are getting they are spending.
What are they spending it on?
Staffing. Mostly staffing. Some of these reimbursement rates have really increased [but they haven’t kept up with staffing]. We were in Ohio last week and one of the things that was apparent was that when operators lose a staff member they might go to a staffing agency and rehire the same person for double the salary. And it’s happened on numerous occasions. In Ohio, their Medicaid rate is somewhere between $240 and $270 a day. So their rates have increased marginally, but the staffing rates have increased more.
That’s one of the big challenges.
How has HUD been a good partner for SNFs?
It’s been a good partner with these recast loans and they are still committed to doing deals.
Right now everything is, I don’t want to say it’s a band-aid, but it’s addressing short-term issues. There are a lot of senior housing buildings that are running their buildings based on forbearance and there’s going to come a point in time that the forbearance has to be addressed. If they can’t fund it they are going to have to give it back to the lender or maybe sell the building.
Where do you think the industry is heading?
We’re like two or three years away from when the apex of the baby boomers are coming into the market and so I think as long as people can hold out until then to hit that population it’s going to work.
Do you think that’s HUD’s thinking with some of the refinance loans — that they know that population is coming?
Yes and no. HUD views life more like a traditional lender. They look at the future but they really rely on 12-month trailing.
Going with the future is dicier, but it can work.
Is it your expectation that consolidation is coming for the nursing home industry?
Well it already started. A lot of the older operators have been selling their buildings. I think it’s probably a good idea. One of the things that’s hard to figure out has been the pricing for some of these buildings which has been astronomical in the skilled nursing space.
How that is going to turn out is another story.
When you’re basing off of pro forma pricing, even if it’s a great portfolio, it’s still pro forma pricing.
That’s basically the opposite of HUD deals because those deals are based on past performance?
It’s totally the opposite of what HUD does. You couldn’t be more right. HUD is going to right size the building as if there is no stimulus money.
What has been picking up for you guys recently?
There’s a lot of interest in different types of capital structures. Last year, the deals we did were pretty much no brainers.
Are you finding that operators are going to HUD for new construction and renovation projects.
They do. HUD is very receptive to it but new construction with HUD is like a year-long process.
They are still encouraging new construction because [HUD] realizes that a lot of the skilled nursing homes are very dated — let’s face it.
Within the last three or four months all sorts of different commodities, lumber, all these basic commodities have skyrocketed in price.
Is HUD a good place to go for operators looking to do renovation or construction?
If their numbers work, I think it’s a great pathway. We have clients that have done 30 HUD new construction deals. You just have to be patient. What HUD is all about is patience.
How have you guys done with deals this year compared to last year?
We did somewhere over $400 million last year. I don’t know if we’ll hit that number, it just depends on what closes at what time, but we’re doing well.
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