Transcript Generated by AI 00:00 Hey, Mark Parkinson back with Park Place and 00:02 thank you so much for joining us. 00:04 I'm really excited today we have Eric Howard from Capital Funding Group. 00:09 Capital Funding Group has agreed to sponsor Parkview. 00:12 Eric, thanks a lot for that. 00:14 So absolutely you're putting your name on my segments, which is a little bit risky. 00:18 Nah, not at all, but we really appreciate it. 00:20 And you know, we've had a relationship for 15 plus 00:23 years. 00:23 You and Jack have been amazing for the sector. 00:27 You know, forget the money that you all provided 00:30 during the worst days of COVID to help us with a publicity campaign that helped a 00:34 ton. 00:34 And you guys have been there for forever. 00:36 So thank you for that. 00:37 It's our pleasure. 00:38 It's you know, we something we've been doing for a very 00:41 long time. 00:41 The sector means a tremendous amount to us and we're happy to help and get back 00:44 in any way that we can. 00:45 And I'm really glad you're sponsoring my segments because folks that have heard me 00:49 give speeches around the country for the last 15 years that have been burdened to 00:52 hear that they frequently heard me say, you got to get the HUD. 00:55 And you know, 10 years years ago, 12 years ago, I was telling folks, hey, 00:59 rates are not historically normally this low. 01:02 You got to go to HUD. 01:04 A bunch of them did it, but unfortunately a number of them didn't. 01:07 And they're now kind of facing the consequences of these increased rates. 01:10 We're going to talk about that in just a second. 01:12 Sure. 01:12 But before we talk about that, Eric, tell us a little bit about CFGCCFG has 01:17 been a bellwether in the industry Mark obviously for for 30 plus years. 01:22 Jack Dwyer, many folks know Jack is an industry 01:26 pioneer and and serial entrepreneur, started Capital funding Group in 1993, 01:31 but it was actually one of his second or third endeavors, 01:34 started his career even 15 years before that in in healthcare finance. 01:39 And so you know, when you look at the, the, 01:43 the landscape of lenders over the last 20-30 years in the space, 01:48 our longevity in the space and in particular our commitment has, 01:53 has been unparalleled. 01:55 You know, during that time, you know, when you go back to even the early 2000s, 02:00 we've been one of the largest HUD producers with over 4 1/2 or almost $4 02:04 billion servicing portfolio today, which makes US1 of Hud's largest 02:07 healthcare lenders. 02:09 That number is almost 10% of Hud's entire healthcare portfolio. 02:13 Well, let's talk about the HUD program because, 02:15 you know, I think it's great and folks that have 02:18 the opportunity to get to HUD should absolutely go to HUD. 02:21 And before we talk about that, though, the, you know, the advantage of it, 02:24 let's just talk about interest rates for a little bit. 02:27 You know, I remember when interest you could get 02:31 ACD one year CD rated 18%. 02:32 I actually got one of those when I was working up on Capitol Hill in the early 02:36 80s. 02:37 Interest rates then went down for almost 40 years. 02:40 And then two or three years ago rates started going up. 02:43 And it's a huge problem because folks that are, you know, 02:46 providers that are so used to them just going down their, 02:49 their loans are readjusting right now if they're not at HUD right now. 02:53 So just talk, talk a little bit about where you've seen 02:55 rates and, and the challenges that creates. 02:57 Yeah, in a, in a sector, obviously Mark that has so much 03:00 variability and you know, perceived risk in terms of reimbursement 03:03 at the state level and the federal level. 03:06 Obviously staffing has been a big challenge. 03:08 And when you look at the the variable cost that the sector has trying to fix, 03:13 one of the largest expenses just makes a tremendous amount of sense. 03:19 And and to your point, rates have begun there, 03:22 have have crept up since 2022. 03:26 Coming out of COVID, we saw the 10 years low as 30 basis 03:29 points was obviously less than 1%, amazing. 03:31 And at the time and to your point, we were refinancing HUD loans around 2%, 03:37 which was just phenomenal. 03:39 And so you know when you look at what inflation did to the 10 year in early 03:45 2022, we were as low as 175 and finished 22 03:49 having touched over 4%. 03:51 So that volatility has obviously continued for the last three years. 03:55 Rates are on everybody's mind. 03:57 We can talk about it throughout the end of the segment and later. 04:00 But obviously given the dynamic with the administration, with the Federal Reserve, 04:06 you know those those operators that aren't in a fixed rate loan today have 04:11 have seen Sofer continue to climb since 2022, higher rates higher for longer. 04:16 Now, there's talk about some reduction, but again, 04:19 when you contrast that to HUD rates that have been relatively stable and and 04:24 materially lower, it's just a different paradigm. 04:27 I mean, if you're not locked in, you're just rolling the dice on a bunch 04:31 of international affairs that we have no control over. 04:34 Rates are higher than they were three years ago, but they could be much higher. 04:38 I mean, when Stacy and I built our first building, 04:40 we thought we got an incredible deal with the bank and we were at 9.75, right? 04:44 And they had been rates had been at 12 or 13 just a few years before that. 04:49 Sure. 04:50 I think people that think it can't get any worse, 04:52 they're just not looking at historical rates. 04:54 You know, one of the things I've always kind of 04:56 counseled folks, Mark, is I'm not a bond trader, you know, 04:59 you're not a bond trader. 05:00 And many of our clients, they, they're great owner operators and, 05:05 and it's fantastic to try and, and get a great rate. 05:08 We all get it and it makes sense for the sector and for the operators. 05:11 But at the end of the day, when you're talking about a rate today 05:16 before mortgage insurance, which is about 5 1/2% with, with, 05:20 with some opportunities to structure in and around that to, to hedge that, 05:25 if you will. 05:26 And we'll talk about that later. 05:27 But you know, that's, that's effectively. 05:30 So for one, if you were in a bridge loan today, 05:32 you're paying so for 100, which is almost impossible to get. 05:36 OK. 05:37 So we're, there's a risk of rates are already high, 05:39 there's a risk of them going even higher potential. 05:42 Tell us about the HUD program and how it can help. 05:45 What, how, what can it do? 05:46 Sure. 05:47 So you know when you when you think about lending and you think about what banks or 05:52 or private credit or financial institutions are willing to do, 05:55 in particular when you're talking about an operating business, 05:59 which is really what we have at the end of the day, 06:02 most banks may go to five years, 7 maybe with a great relationship, 06:06 you go to 10. 06:07 But owners and operators take what we refer to as interest rate risk, 06:10 which is you wake up in five years or seven years and 10 years and rates of 06:14 materially higher. 06:16 We saw that obviously to the extent as an example, 06:19 if you had a bank loan prior to Covic and it repriced in 2022 or 2023, 06:23 you may have been up 3 to 400 basis points, right. 06:27 And so clearly what HUD gives you, amongst other things is great visibility 06:31 and Peace of Mind in terms of knowing day in and day out for 35 years what that 06:36 payment's going to be. 06:37 Your rate is fixed forever fixed. 06:39 It's fixed forever. 06:39 You don't have to worry about what happens with the Fed, 06:42 what happens with the presidential elections, 06:43 what happens in Russia or China or it's just done. 06:46 And one of the things that again, happy to dive into it, Mark, 06:50 but I think is is misunderstood with HUD is you can provide flexibility around 06:55 that rate and give owners and operators in the sector and ability to refinance 07:00 even lower. 07:01 So as an example, and if you lock today and rates go to 07:05 5678 percent, you still have a 550 loan. 07:08 You're genius. 07:09 If rates go to four 3 1/2, there's opportunities, 07:12 which I think a lot of borrowers aren't really aware of, 07:16 to simply reprice that loan, move that loan down, 07:19 stay with a HUD loan that now isn't 5 1/2, it's 3 1/2. 07:23 Yeah. 07:24 So tremendous flexibility and, and, and protection really for the borrower 07:27 and for the operator. 07:28 Yeah, 5 1/2 is really a pretty favorable number 07:30 all things considered considering where we're at right now. 07:34 There's two other huge advantages in my mind to HUD lens and 1 is that it's non 07:38 recourse and the other is that it's amortized over 35 years, of course. 07:42 Just tell us a little bit about those two things. 07:44 Yeah. 07:44 So obviously, you know, the program is non recourse to, 07:47 to individuals and again, to get a bank loan with the leverage that 07:51 you can get with HUD. 07:52 I mean, HUD still has very attractive leverage up 07:55 to 80%, obviously, and some other programs a little bit less 07:57 that we'll talk about. 07:58 But so to, to get a non recourse loan at 70 or 80% 08:02 is, is really challenging in, in the commercial lending world. 08:07 The amortization, again, to your point, it really takes away that variability in 08:10 terms of what's my payment next month? 08:12 It's it's like a home mortgage every month. 08:14 It's the same number, it's the same number for 35 years. 08:17 So again, provides and there's a bunch of bank 08:19 loans that are amortizing or they are, they're amortizing or they may be, 08:23 they may have repricing structures, as you've noted, 08:25 which is their interest only for some period of time, 08:27 then they amortize and then maybe they're floating, maybe they're fixed for a while, 08:31 then start floating. 08:32 So all sorts of gyrations that can come up with commercial financing. 08:36 And obviously there's a role for banks. 08:38 I mean, you guys have a bank. 08:40 We do and there's a really important role for banks and getting projects started 08:43 sometimes in transitioning, sometimes in growing. 08:45 Absolutely. 08:46 But I just don't understand when once people get stabilized, 08:48 I don't understand why they don't go to HUD. 08:51 And and again, we could talk about it in a different 08:54 time, but there's been real progress made in 08:56 terms of the program, in particular with this administration, 09:00 which has continued to prove to be really probusiness and really look for 09:04 inefficiencies. 09:05 And so we think it's a great time to be able to utilize some of the tailwinds 09:09 that have been coming out of HUD and some of the really neat things that they're 09:13 doing. 09:14 But yeah, again, I think that's probably the biggest 09:17 misunderstanding is the flexibility around the rate and what it allows you to 09:22 do. 09:22 And again, Hud's been looking at their equity 09:25 recapture programs as an example and and trying to refine that process, 09:28 which has been great, which has also been one of the reasons a 09:32 lot of folks haven't really used the program over the years is no ability to 09:36 take cash out. 09:37 And so I think as HUD continues to be, you know, 09:39 more focused on how to make the program more efficient, 09:42 it's just going to drive more folks to it, which I think is great. 09:46 Great. 09:47 Well, Eric, again, thank you very much for your sponsorship 09:49 of Parkview Park Place and really look forward. 09:52 You know, our mission is the success of our viewers 09:54 of providers. 09:55 And of course, for many of them in many settings, 09:57 you know, getting to HUD is a big part of long term 10:00 success. 10:00 Should be a center perfect sponsor, should be a centerpiece for for their 10:05 growth. 10:06 And you know, we're seeing more and more folks move 10:08 into it. 10:08 And again, when you look at the percentage that you 10:11 spend on that in terms of your overall spend, 10:14 being able to lock that down for 35 years and Peace of Mind is it's just 10:17 unparalleled. 10:18 Very good. 10:19 But well, we appreciate the opportunity, Mark, thanks so much. 10:21 Thank you, of course, and thank all of you for watching 10:24 Parkview. 10:25 That's again, obviously this segment was sponsored by 10:27 Capital Funding Group, and we look forward to learning more 10:30 about interest rates with HUD and capital funding in the future. 10:33 Thank you. 10:36 Oh my God, if you're still watching this, this means that you watch the end of a 10:40 very long video on Park Place. 10:42 I'm not sure what that means. 10:43 It says something about you or maybe there was just nothing else to watch 10:47 today, or maybe your priorities are a little bit 10:50 off. 10:50 But whatever it is, we really appreciate your support. 10:53 And if you want to continue to follow us, follow us on LinkedIn, 10:57 on our various social media sites and, you know, 10:59 try to find something else to do.
