Cambridge offers a strategic alliance program for banks, healthcare lenders

Real Estate Weekly, May 21, 1997

Cambridge Chairman Jeffrey A. Davis said the new program, called the "Cambridge Funding Partnership, A Strategic Alliance," creates opportunities for bankers and healthcare lenders to move beyond their current core lending programs.

"The funding partnership concept responds to numerous inquiries we have received over the years from other healthcare lenders looking for new ways to satisfy their customers, and from lenders not active in senior healthcare housing but who are looking to find a way to get into the growth business," Davis said.

Cambridge funding partners will be the healthcare or small business lending units of commercial banks, commercial mortgage companies, insurance companies and healthcare REITs, he added.

According to Davis, Cambridge has funded more than 100 senior housing/healthcare loans, and is one of the leading HUD senior housing lenders in the nation. In recent years, the company also has emerged as a leader in providing sophisticated Wall Street capital solutions for borrowers.

Davis explains that HUD programs offer features that are not available through conventional sources. The typical bank loan is 60 to 70 percent of value and amortized over a 20-year period. In contrast, HUD loans funded through Cambridge for 90 percent of the project value are amortized over 35 years for refinancing and 40 years for new construction. And these loans come with a non-recourse feature that is not available with conventional funding packages.

Wall Street financing available through Cambridge also offer longer amortization terms and a cash-out option that usually is not available with conventional loans.

Over the past five months, through Wall Street investors, Cambridge has provided $82 million to fund three separate multi-facility transactions. These transactions involved 27 separate senior housing/healthcare facilities situated in various parts of the country.

More than $100 million in additional multi-facility funding currently is being processed by the company, Davis said.

According to the Cambridge chairman, the lack of attractive alternative investment options has encouraged institutional investors to rethink senior housing and healthcare projects.

"Investors read the reports that show fewer foreclosures for senior housing compared with other real estate projects. And they like the fact that senior housing continues to offer lenders a pricing premium," Davis said. "Depending upon the type of project, the premium can be as small as 25 basis points or as large as 150 (a basis point is one one-hundredth of one percent).

In the current investment cycle, Davis points cut that banks have lost significant lending opportunities to large corporations with good credit because these corporations now have the ability to issue commercial paper for their short-term borrowing needs. And the competition among lenders providing funding for commercial real estate projects - apartment buildings, office buildings, industrial buildings and retail - has been fierce, leading to single-digit yields and significantly reduced lending spreads for all property types.

"Many traditional lenders have been eyeing alternative opportunities, focusing on such things as mobile home communities, mini-warehouses and the like," Davis said. "However, these projects do not offer the kind of opportunities required to capture the institutional investor."

All of these factors have converged to make Cambridge's new funding partnership program more appealing at this time, he believes. For more information about the funding partnership program, contact Davis at (312) 357-1601, ext. 101.