Betsy Vartanian launched Greystone’s Federal Housing Administration (FHA) lending platform 13 years ago from the ground up.
The firm has grown to become the #1 FHA lender accredited by the Department of Housing and Urban Development (HUD) the last two years running.
Despite that success, Greystone’s CEO, Stephen Rosenberg, recently came to Vartanian with an observation.
“Well, you are #1,” Rosenberg said, “But if you break it out, you’re #1 in multifamily and you’re #5 in healthcare. I want you to be #1 in both.”
The ensuing conversation spawned Greystone’s recently-announced healthcare lending platform, which will aim to become the top player in the sector.
The team of eight will continue to originate FHA senior loans, but with an added bridge lending and high-risk/high-yield mezzanine component to help compete with the top lenders in the space.
Firms like Lancaster Pollard and Baltimore-based Capital Funding, which specialize in healthcare lending, will be among Vartanian’s top competitors moving forward, and the firm intends to fund approximately $400 to $500m in healthcare bridge loans in the next twelve months to start making up ground.
“I’m not going to get him to where he wants to be in a year,” Vartanian said of Rosenberg’s aspiration to become the #1 healthcare lender, “But I definitely feel confident that I’ll be able to get him where he wants to be in two-and-a-half to three years.”
Fueled by mass consolidation, an increase in ambulatory care facilities, changing healthcare laws and a surging elderly population, specializing in healthcare is increasingly sophisticated. That prompted Vartanian to insist on creating a team of people focused exclusively on the industry, with the expertise to handle its rapidly shifting dynamics.
“My vision here is to create more of a healthcare financial advisory service,” Vartanian said. “I don’t want to go out there and ask, ‘Hey, I sell widgets would you like to buy one?’ I want to say, ‘Please tell me about you and what you are trying to accomplish. Are you trying to acquire property, sell property are you looking to pull out cash, refinance… what is it you lose sleep over?’”
An FHA loan is well-suited for owners who plan a long-term hold, offering interest rates below 3% on the 35-year fully amortizing non-recourse loans, but such a loan requires a six month execution. Bridge financing is essential for those seeking FHA debt who need short-term financing to accommodate purchases with “a short fuse,” or need to season debt during the two years FHA requires before a cash takeout, Vartanian explained.
“Even though they call it a real estate loan, it’s really more of an enterprise loan,” she said. “It’s not like you can convert your nursing home into a hotel or an apartment building. It’s a business and it’s all about your operator.
“Refinancings over the last five years were extremely prevalent because of the incredibly low interest rates. But most people have already done that, so nowadays it’s not that easy. It’s not just about lowering your interest rate,” she added.
Greystone’s average loan size is $12m and returns on the senior loan portion of the deals are about 2%, but returns on the unsecured, non-recourse mezzanine piece are about 15%. That additional mezzanine slice, which can account for up to 20% of the capital stack, will allow the firm to provide up to 100 percent leverage.
“What’s going to make this business successful is our ability to put together the non-vanilla pieces of capital that are high-return, high-risk,” Vartanian said. “We are very well-capitalized and we have no problem using our balance sheet funds for mezz, for preferred equity and even for revolving lines of credit.”