Discusses the financial crisis of 2007 - 2008 and how seniors housing real estate remained stable

1. Advising the Senior Housing Community
The Resilience of Seniors Housing Real Estate
Following the Global Financial Crisis of 2007 – 2008
Presented by Sean Murphy, Executive Chairman, CensusUp
1 1/2/2013

2. I. Thesis
 Residential real estate defaults negatively impacted
the commercial real estate sector, generally, but
seniors housing held its value
 Residential real estate bubble peaked in April 2006
 Prices began steep fall mid-2006
 Bursting of residential real estate bubble:
 Produced the Global Financial Crisis (GFC) of 2007-2008
 Negatively impacted commercial real estate (CRE) for years to
come, both debt and equity capital
 Fundamentally changed institutional investors’ allocations to
CRE Funds (CREFs)
 Caused institutions to retreat to core assets (e.g. Central
Business District office in select metro areas) and reduce
exposure to other CRE asset classes
2 1/2/2013

3. II. The Residential Real Estate Bubble
2006 Peak to
Rapid Crash
- No Plateau
 US homeownership rate rose substantially between late 90’s and 2006 BUT: Hyper-
growth driven by easy credit (i.e., “Subprime Debt”)
 Residential Real Estate Bubble: Average US Home Price Nearly Doubled between
1995 – 2005 from approx. $135,000 to approx. $250,000
 Buyers’ manic purchasing, particularly by first-time homeowners with sub-standard
FICO scores
3 1/2/2013

4. III. The Crash
 Buyers sought quick
wealth (“flipping”)
 Unqualified/
unsophisticated
borrowers
 Popular Adjustable Rate
Mortgages (ARMs) with
“teaser rates”
 Upon loan re-set:
dramatically higher rates
and mortgage payments
 Widespread belief: real
estate prices only rise
Manic Buying. Peak. Massive Crash  Misplaced reliance on
ease of property
refinances
4 1/2/2013

5. III. The Crash: Subprime Meltdown
 Massive pools of
Residential Mortgage
Late 2006 July 2007
Backed Securities
(RMBS) and Collateral
Debt Obligations (CDO) Subprime defaults
rise at alarming MBS/CDOs lose
2003 – 2007 rates most of their value
 Late 2006: Subprime
For 6 more months,
defaults rise ratings agencies
New securitizations
continue to give
dramatically AAA ratings to new
MBSs and CDOs
vanish
 July 2007, Moody’s/
S&P downgrade RMBS 90% of AAA-rated
RMBS downgraded
& CDOs to junk
5 1/2/2013

6. III: The Crash: Foreclosures Nationwide
 The days of easy
credit and the
residential real
estate bubble
rapidly morphed
into a foreclosure
epidemic across
the country
 Economic models
failed – credit
rating agencies
relied upon
erroneous
assumptions of
very conservative
residential loan
default rates
Source: http://blog.builddirect.com/foreclosure-crisis-what-to-do/
6 1/2/2013

7. IV. The GFC (“Great Recession”) Crushed
Investments
 US Stockholders suffered losses
of approx. $8 TRILLION during
2008
 June 2007 - Sept 2008:
 Bear Stearns subprime hedge
funds collapsed
 Bank of America took over
Countrywide due to widespread
losses in subprime loans
 IndyMac failed and was seized by
FDIC
 Federal gov’t took over Fannie
and Freddie
 Lehman Bros. declared
bankruptcy
 Merrill Lynch forced to be
acquired by BoA and sale
announced
 Fed offered AIG an $85 billion
credit line
 WaMu failed, seized by the FDIC
and sold to JP Morgan Chase
 Federal Gov’t used hastily enacted
emergency legislation (TARP)
7 1/2/2013

8. IV. Global Financial Crisis Brought Dramatically
Lower Transaction Volume
 2007 – 2009
 88% drop in
transaction
volume
 $359 billion in
sales down to
$60 billion
 CRE property
values fell by
about one third
 EQUAL to the
decline of the
1990’s CRE
recession BUT
in a fraction of
the time
8 1/2/2013

9. IV. The GFC: CMBS Nearly Extinct
Source: Commercial Real Estate Finance Council (DC Trade Association)
 CMBS issuances of approx. $235 billion in 2007 fell to approx. $12 Billion in 2008
 Borrowers needing to re-finance were in a very difficult position
 Lenders: “extend & pretend”
 Very slow improvement over past 3 years - standards have tightened making debt
unavailable to many commercial borrowers.
9 1/2/2013

10. IV. The GFC: Maturing CMBS Slowing CRE
Market Revival
 Brake on CRE
market:
 restructuring
distressed debt
delays lending
on new
projects
 Estimate: 60%
of CRE
maturities
Lenders need to deal with problem loans before they can
advance additional debt to CRE markets. through 2015
in distress
10 1/2/2013

11. V. Seniors Housing Cyclical Resilience, Unique
Demand
 Growing Market Demand
 Healthcare expenditures are approximately 17% of U.S. GDP and are
expected to reach 20% by 2017.(1)
 Seniors housing is a highly fragmented market. There are approximately
22,000 seniors housing and nursing care facilities in the U.S. valued
between $250Bn and $270Bn.(2)
 Seniors population rises as the baby boom ages
 Attractive Risk-Adjusted Returns Relative to General
Commercial Real Estate Sectors
 Conventional real estate assets recently traded at historically low cap
rates and many are currently under stress.
 Barriers to entry - specific skill set required, regulatory approvals restrict
supply, historical lack of institutional capital.
 Distinct Performance and Pricing Characteristics
 Higher current returns should reduce reliance on terminal values to
achieve favorable risk-adjusted total returns.
 Financing market for seniors housing has become attractive despite
Sources:
ongoing stress in the credit markets.
1) Centers for Medicare and Medicaid Services
2) NIC Investment Guide 2012: Investing in Seniors Housing & Care Properties
11 1/2/2013

12. V. Seniors Housing Real Estate Spectrum –
Mid-Acuity = Steady Demand
Mid-Acuity
High Acuity (Sustained Need) Low Acuity
(Acute Need) (Lifestyle Choice)
Reimbursemen Cyclicality
t Risk High Risk High
Acute Care Skilled Assisted Age
Hospitals Nursing Living Restricted
Memory Housing
Care
Rehabilitation Independent
Facilities Living
Image Source: Wakefield Capital Management, Inc. Communities
 Throughout market cycles, need-driven, mid-acuity healthcare real estate provides
superior risk-adjusted returns
 Demand for mid-acuity assets is driven by sustained needs
 Mid-acuity real estate assets are less sensitive to economic pressures faced by lower
acuity, lifestyle-driven properties (independent living and age-restricted housing) that
are subject to consumer tastes and financial capacity or by higher acuity properties
(hospitals) with substantial exposure to government reimbursement risk.
12 1/2/2013

13. V. Sector Resilience – New Units Supply
Constrained
The number of new seniors housing units added to the market has declined
substantially since 1998 due to regulatory constraints in existence nationwide and other
barriers to entry, absorption of over-built stock from the late 1990s and recent lack of
available construction financing.
13 1/2/2013

14. V. Sector Resilience - Occupancy Rates Steady
Over Time
Favorable supply and demand dynamics have allowed Assisted Living Facilities to
historically maintain a steady level of occupancy.
89 Historical Occupancy Rates for Assisted Living Facilities in U.S.
Assisted Living Facility Occupancy Rates
88
87
86
85
84
83
82
Source: National Investment Center for Seniors Housing
14 1/2/2013

15. V. Sector Resilience - Senior Housing Rents
Less Volatile
 Seniors housing
Apartment Office Retail Hotels Seniors Housing
12
is the only major
real estate asset
8
type that did not
4
experience a
0 decline in asking
-4 rents during the
-8
recent economic
recession.
-12
2007
2008
2009
2010
2011
Source: NIC MAP® Data & Analysis Service; MBAA; REIS; STR
15 1/2/2013

16. Advising the Senior Housing Community
Biographies
CensusUp Team
16 1/2/2013

17. CensusUp Management Team
 Sean P. Murphy, Esq. – Executive Chairman
 A Partner and COO at Wakefield Capital Management, Sean also served
as a principal in a joint venture with NorthStar Realty Finance (NYSE:
NRF) which acquired, managed and sold (in part) over $750 million in
seniors housing and healthcare-related real estate. Sean has particular
expertise in seniors housing real estate transactions and he serves on the
Board of Directors of the Teresian House Center for the Elderly, a seniors
housing facility in New York operated by the Carmelite Order. Sean also
serves as an executive with Fidelity National Financial (Chicago Title
Insurance Company) and he received his law degree and Masters in Real
Estate from Georgetown University.
 James Guidera, Jr. – Founder and COO
 With over 25 years of experience in marketing and sales, Jim understands
how to formulate a compelling message and deliver that message to the
right audience. Jim has spent the last 4 years focusing on new
technology-based marketing methodologies. Jim understands the needs
and trends of senior housing, and how to apply modern marketing and
sales techniques to the senior housing market.
17 1/2/2013

18. CensusUp Management Team, continued
 Gary Hughes, MAgS, ALFA – Executive Vice President
 Gary has more than 20 years experience working with vulnerable
populations, especially older adults. His expertise in senior housing is in
sales/marketing, operations and regulatory compliance. He has served as
an Executive Director and Director of Community Relations of several
Assisted Living and Memory Care Facilities on behalf of Sunrise Senior
Living. He has also been an Assisted Living Executive Director . He has a
Master’s degree from the UMBC Erickson School of Aging and holds an
Assisted Living Facility Administrator license.
 E. Brian Alexander, Esq. – Vice President Energy and
Construction Services and General Counsel
 Brian has close to 20 years of experience in the construction and energy
efficiency fields. Brian has more than 10 years in healthcare construction
projects, with particular expertise in project management, building
mechanical and electrical systems. Brian currently works with developers
and building owners and operators seeking to construct and operate
sustainable buildings that use energy in an economically optimal manner.
18 1/2/2013

19. CensusUp Management Team, continued
 Nicholas Park – Vice President Technology Implementation
and Integration
 Nick has over 25 years of experience working with senior living
facilities, health care facilities and hotels. He is focused on the seamless
integration of communication systems and information technology for the
health and safety of residents and efficiency improvements by staff. Some
examples of products that he has integrated into senior housing during his
extensive career include distribution cabling, portable and stationary
audio/video systems, communication systems, TV systems, and security
and card access systems (a critical issue in Memory Care Facilities for
Seniors). Nick is a registered architect with AIA and NCARB. He received
his MBA from the University of Houston and his Bachelor of Architecture
from Boston Architectural Center.
19 1/2/2013

20. Advisory Board
 Steve Gurney – Founder of Guide to Retirement Living
Sourcebook
 The Guide to Retirement Living SourceBook is the most comprehensive
database of all senior housing, assisted living, nursing homes, home
health care services, and professional resources in the Mid-Atlantic. Steve
specializes in working with organizations to develop innovative concepts
and products to help elders and families understand resources. He is also
frequently called upon to help organizations better communicate their
offerings to seniors, families and professionals. Steve has his Masters of
Management in Aging Services (MAgS), The Erickson School –
Management, Policy, Aging.
20 1/2/2013

21. Advisory Board
 Nick Lantuh – Former President of NetWitness Corporation
 While at NetWitness, Nick led the sale and merger with EMC Corporation
in 2011. Prior to this role, Nick was Vice President of the NetWitness
Product Group, a Division of ManTech International. Nick conveys 18
years of I/T leadership, fund raising & start up experience, ranging from
pre-revenue start-ups to Fortune 100. Mr. Lantuh has held leadership
roles at organizations such as Cisco Systems, as well as pre-revenue
start-ups in the security, software, wireless and networking spaces leading
to three acquisitions and an IPO and the recent cash sale to EMC. Nick
presently advises Census Up and government and business leaders in
cyber security issues and spoke recently about “Entrepreneurship in
Disruptive Technologies and Finding the Winning Formula”.
21 1/2/2013