SPECIAL REPORT: Capital Changes Expected to Have Huge Impact on Senior Housing Industry

TAMPA, FL--Allen McMurtry, (top right photo) president, CLW Health Care Services Group, reports on the highlights from the National Investment Center’s annual conference held in Chicago earlier this month. McMurtry says the NIC conference "consistently reflects the pulse of the Senior Housing industry."

Where are the deals? Where is the debt?

•75% or less loan to value will be common for the next three years
• Relationship lending will remain strong
• The CMBS market essentially does not exist today - - it could take 3 years for this market to
return
• A focus on operations is the only salvation for financing
• Smaller loan sizes are cheaper
• Mezzanine debt will be very important
• Syndication is the new securitization
• Recourse loans are becoming standard
• Near term fear - quantity of highly leveraged loans maturing in the next few years. Much of the debt is floating rate until maturity.

What is going to happen when this demand for recapitalization comes to market?

• The cost of equity and debt are almost the same
• Capital changes have a huge impact on such a small sector like Senior Housing

CAPITAL MARKETS

• It is the age of the health care REIT
• How will the new REIT laws affect public perception?

.Will the public perceive the REITs as riskier investments since they will now be able to play a more active role in operations through asset management?

REITS

• The Senior Housing industry needs to be more transparent - - putting forth clear and consistent
information so that outsiders can grasp industry fundamentals
• The industry should emphasize the health not the care in health care
• Market penetration potential is the upside story (not demographics)
• Higher penetration rates can be acceptable if the overall market acceptance of the product
is high - - i.e. Philadelphia marketplace
• Throw away appraisals completed in the last couple years - - these values are no longer applicable
in today’s market.

Institutional Investors noted the following:

- 6.75% - 7.5% cap rate with conservative underwriting (IL institutional stabilized properties)
- 175-200 basis point premium over multi-family (IL institutional stabilized properties)
- 12.5%-13% cap rates for Skilled Nursing

((The Pavilion at Crossing Pointe, Orlando, bottom left photo)

VALUES

• Construction financing - - some markets are requiring 40% equity going-in. Rates are good,
but terms are not.
• Numerous land acquisition opportunities not available two years ago
• One company noted that land costs are 12% - 15% of total project costs.

CONTACT:

Allen McMurtry, CLW Health Care Services Group, 4301 Anchor Plaza Parkway, Suite 400,
Tampa, FL 33634, (813)-349-8349, http://www.clwhcsg.com/