Financing the project

In today’s long-term care environment, administrators and other staff are usually too busy with the day-to-day adventures of caregiving to worry about much else. Capital investment financing is generally not given much thought until it moves to center stage. Even then, administrators and frontline staff might be unaware of important factors that gain or lose competitive advantage for them in the eyes of financiers. When potential investors scrutinize the operation, what are they looking for? What can administrators do to ensure a successful outcome? Nursing Homes/Long Term Care Management Assistant Editor Todd Hutlock spoke with three leading long-term care lenders to get a feel for what they look for when they evaluate a facility.

What is the principal facet of a new project that attracts you?

Raymond J. Lewis, Senior Vice-President and Chief Investment Officer, Ventas Healthcare Properties: When considering new investments at Ventas, we focus primarily on cash flow. Because we look to the cash flow to pay our rent, so to speak, we like to see properties that have exhibited stable and predictable cash-flow growth over a two- or three-year period. The key drivers of cash flow in nursing homes are census, quality mix, acuity, and expense management. Good operators will manage these items closely and have plenty of data available to help us evaluate these important attributes.

John Cobb, Managing Director, Long Term Care, GE Healthcare Financial Services: While the actual real estate project and location are very important, GE Healthcare Financial Services really looks to the owner/operator of the project. Basically, it is a philosophy of to whom you lend, not necessarily what you lend on.

Randy T. Abrahams, President and CEO, Bridge Healthcare Finance: We specialize in the differing capital needs of small to midsize healthcare providers in the long-term care industry. Our lending products are written around specific industry segments—home healthcare, acute care, skilled nursing, and diagnostic imaging. We see several factors common to successful facilities across industry segments:

  • clean and modern facilities

  • track record of quality care

  • operational efficiency

  • dedicated workforce

  • skilled management team

A principal, specific factor important to our evaluation process is the availability and type of common areas for patients. Long-term care patients like to aggregate, socialize, and have somewhere to go beyond their rooms. The newer, more successful properties emphasize common areas and specialized social activities for their patients.

What do you expect from a facility’s administration in terms of operational information, track record, etc.?

Lewis: At the facility level, we look for administrators and staff who have a good grasp of the details of their operations and the markets in which they compete. We visit each property and meet with the administrators and their key staff. As we speak with them, we look for a firm grasp of important operating and strategic information, such as census, competitive position, referral sources, staffing ratios, and extent of risk-management issues. We also like to see an administrative group that has been together for a number of years. Tenure not only shows experience but also indicates that the facility is a good work environment.

Cobb: GE Healthcare Financial Services typically looks for an operator who has direct experience in the specific market and product type in question—a very key factor. The information is generally received during the due diligence process and may include historical statements, detailed census data (rent rolls), survey history, and accounts-receivable agings.

Abrahams: We expect facility operators to focus primarily on a few key areas of their business: quality of care, operational excellence, and reputation. Providing the highest standard of care and service is at the core of the business. If a company has a documented history of poor care, poor compliance, or high management turnover, there is little hope for its maintaining value in the eyes of the financial community.

Strong financial and operational controls will therefore not only ensure that the business is run efficiently, but will also contribute to controlling risk-management and staffing issues. Retention of good management and nursing staff will demonstrate commitment on the part of the workforce. A committed workforce not only reduces costs but enhances the reputation of the facility. This, in turn, creates demand and increased occupancy rates—and attractiveness to investors. Improved quality of care—another result of a committed workforce—also contributes to a facility’s reputation in the most basic of ways.

What do you expect when personally visiting a facility whose project you’re financing?

Lewis: The facility should be clean and well maintained inside and out. There should be a friendly staff that greets us when we arrive. The hallways should be free of clutter, such as hospitality carts or empty wheelchairs. As we tour the facility, we try to see if the staff knows and greets residents by name. During the tours, I like administrators who ask us to wait while they attend to a resident’s need. Finally, to the extent possible, we like to see residents dressed and out of their rooms, interacting with staff and other residents or participating in activities.

Cobb: I expect the facility to be clean, well-staffed, and purpose-designed for its market. I always look to see whether the staff is engaged and interacting with the residents.

Abrahams: Again, we’re looking at quality of care, operational excellence, and reputation. We ask ourselves questions such as: Is the facility clean? Has there been noteworthy turnover in management or staff? Does the company have a history of poor care? We look at subtle (and not-so-subtle) signs. Is the facility brightly lit? Is the staff interfacing with the patient population? Is occupancy high? And what about those common areas that we consider to be so important?

What recommendations would you make to staff to prepare for a visit by your firm to their facility?

Lewis: Well, actually I prefer that they not script anything for our visit. I want to see the facility as it operates on a daily basis. Of course, I expect that the facility will want to put its best foot forward when we come to visit. So, to best prepare, the administrators should let staff know that we are coming, make sure that the facility is clean and presentable, and make sure that relevant staff have allocated sufficient time and resources to spend with us without interfering with their normal patient care responsibilities.

Cobb: I would recommend nothing, as we always want to see how the building operates on a day-to-day basis or get as close to that as we can on a visit. Lenders love honesty.

Abrahams: We expect nothing more than seeing them engaged in their average daily activities.

What are some “turnoffs” that would lead you to decline financing?

Lewis: It’s difficult to assess the quality of a facility in a half-day visit. Any systemic operating issues are usually reflected in poor survey histories, poor census, and weak financial performance, and will be flagged in our off-site due diligence. Of course, an unclean, poorly maintained, or poorly lit property will not show well, and any indications of poor resident care or neglect will be a deal killer. Finally, any signs of widespread staff dissatisfaction can be a big red flag for us.

Cobb: GE Healthcare Financial Services tends to be turned off when the facility has what I can only describe as a “stale feeling.” Strong indications of this are a lack of engaged staff and an absence of activities. “Stale” buildings have older/worn furniture and fixtures; the exteriors of the buildings need work (paint, landscaping, etc.); residents appear listless and disengaged; and staff is not friendly and/or diligent about their duties. It also includes the intangibles that are evident when a property is compared with better run facilities.

Abrahams: A history of care issues, reporting issues, low occupancy, or high turnover, whether in management or in staff, are major turnoffs.

What are some project trends that have particular financing appeal these days?

Lewis: Aside from changing demographics, the nursing home industry is not really about trends. It is about execution—the ability to generate stable cash flow in a highly regulated, complex, and challenging operating environment. If you can show us a track record of financial performance and quality care in that environment, we will likely fund your project.

Cobb: GE Healthcare Financial Services likes a variety of the product types, designs, and markets. We believe different types of buildings work in specific markets. The same goes for operators. We like small regional operators and large national operators, so long as they are matched to their markets. The characteristics we look for in large operators may include: geographic diversity, experienced management, financial strength, sophisticated reporting systems, and a well-developed business plan. Regional operators should be focused on their markets, cautious about expansion, and fiscally responsible.

Abrahams: One trend that is rare but appealing these days is the continuing care concept or campus property—nursing home, assisted living, skilled nursing, and Alzheimer’s facilities feeding into one another. The Centers for Medicare & Medicaid Services estimates that, as the U.S. population continues to age and 77 million baby boomers reach their golden years, the demand for facilities and beds will increase. About half of all women and a third of all men who have reached the age of 65 will spend time in a nursing home in the last years of their lives. Given these statistics, and the varying needs that are implied by them, it is Bridge Healthcare Finance’s opinion that continuing care facilities are the wave of the future.

For more information on Ventas Healthcare Properties, visit; for more information on GE Healthcare Financial Services, visit; and for more information on Bridge Healthcare Finance, visit

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