At Greystone, where building relationships is a permanent focus, open communication with all participants in senior living growth is vital to improving, repositioning or developing CCRCs that exceed expectations.
On Oct. 27, 2011, Greystone leadership hosted institutional bond investors in Irving, Texas, to engage in a day of dialogue and to gain a better understanding of how the lending community views senior housing. The investors were able to share their hot button issues and critical success factors – another step toward better communication and ultimately better communities that minimize risk for stakeholders.
Discussion topics included:
- How exactly are market and financial assumptions created?
- How can transparency in the flow of information between parties be increased?
- Can projects be developed with enough flexibility to continually adapt and meet market demand over the course of a 30- or 35-year bond life?
In discussing these topics, Greystone professionals shared real-time examples from the more than 40 projects on which they are currently working. Central to each topic was the need to select projects that are well poised to experience long-lasting success.
How are projects best selected? First, each project needs a strong sponsor, one well-respected and committed to the project. Market dynamics – including depth of income eligible households, a relatively stable real estate market and competitive opportunity – are also vital to predicting a community’s success. Lastly, and perhaps most importantly, the project’s value proposition must fit well into the proposed community’s potential market.
The careful details behind these factors are investigated and analyzed through an iterative process. As more information becomes known, project assumptions are tuned, with a continual focus on what brings value to the consumer. These careful details are the driving force behind the market and financial assumptions that bond investors eventually see.
After a project is financed, transparency becomes immensely important. Monthly calls with investors allow them to stay up to date on how the project team is responding to changes in the environment. These calls include representatives from marketing, development, planning and management, so that each team may answer specific questions about its role. While transparency alone doesn’t eliminate unexpected project setbacks, it does allow everyone involved to work through challenges with the best information available.
Finally, in regard to project flexibility, Greystone believes in developing the smallest financially-viable first phase of a project. This first phase should allow a project to cover debt service and operating expenses with its operating revenue – a 1.0 revenue coverage ratio. This allows a community to build reserves from turnover entrance fees and plan future phases in response to changes in market demand. In addition, simplifying the number of unit types and styles and designing with an eye toward combination units can also help flexibility and cost efficiency.
This October meeting continued a dialogue that began in late 2009 and early 2010, when Greystone leadership visited more than 30 investors at their offices. Now, between a late 2010 meeting and this October discussion, more than 20 investors have come to Greystone’s Texas-based headquarters to further the conversation and continue to develop mutual understanding.
“It’s nice to attend other events with Greystone, but it’s not the same as when you have a working business session in a formal setting, specifically getting the chance to see how they view the market,” said Ron Mintz, principal and credit analyst in Vanguard’s fixed income group. “Our interests are highly aligned, which is great. Strong investor-developer relationships help both parties do a better job.”
This dialogue has proven beneficial to all. Since these meetings began in 2009, Greystone and investors have worked together to create $2 billion in funding for non-profit sponsors of CCRCs. Securing financing matched to specific needs and capabilities is more critical today than in the past, and success comes through understanding and overcoming obstacles. Open communication is a key to meeting challenges head-on.