An Interview with Sheila Miller, Director of Seniors Housing Loan Production and Lender Relationships

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This article originally appeared on NIC Insider and is reprinted here with permission.

Sheila MillerSeptember 22, 2014 -- Fannie Mae looks forward to continuing to establish relationships with and do business with the seniors housing industry, according to Sheila Miller, director of seniors housing loan production and lender relationships.

Miller, who assumed the responsibility of managing the seniors housing loan program two years ago, explains that strong and sustainable market fundamentals are among the criteria Fannie Mae uses when assessing a loan.

She recently took the time to speak with NIC to discuss additional important criteria used for loan assessment, the impact of healthcare REITs on Fannie Mae's business strategy, and the importance of data.

NIC: You have been with Fannie Mae since 1997 and, since 2012, you have been responsible for overseeing Fannie Mae's seniors housing loan program. Two years ago, seniors housing accounted for 7% of Fannie Mae's business. What's its share now? Has the entry of new debt providers affected the volume of business Fannie is able to conduct? Additionally, what are your expectations for the next 12 to 24 months?

Sheila Miller: As of June 30, seniors housing is 6% of Fannie Mae's business, and our seniors housing book size is $12.5 billion. With respect to the entry of new debt providers, I would say not significantly. The new entrants have certainly made things much more competitive but we are still winning our fair share of business. It has certainly had an impact on pricing, on proceeds and for some, their ability to rate lock at application. That's certainly been a challenge, but again, we've been able to work through it and we've gotten our fair share of business from those new entrants.

I can't speak specifically about debt volume expectations but we did $1.6 billion in new production last year, and we are committed to grow in this space. There's certainly commitment from senior management about continuing on and finding ways to do more business in seniors housing.

NIC: Are the types of opportunities that Fannie Mae is financing changing? Are you going into secondary markets? With new seniors housing construction picking up in select markets, do you expect seniors housing construction loans to represent a growing share of Fannie Mae's business?

Miller: Absolutely. We're seeing a big shift in financing newly constructed properties that are coming on line. It's a great opportunity for us to add fresh new properties into our portfolio. With respect to secondary markets, we've always been there, as long as there's a market to support the property we would be interested in financing it.

NIC: What type of criteria does Fannie Mae use in assessing a loan? What specific characteristics do you look for in an operator?

Miller: There are three main things that we look for. One, and this is probably a big one, sponsorship. Does the sponsor have proven experience and a track record with the property type? Does the sponsor have the financial wherewithal to stand behind any non-recourse guarantee?

Second is market. Are the seniors housing market fundamentals strong and sustainable in the subject market area?

Three is property performance. Can the property maintain performance sustainability in order to refinance parameters at the end of the long term?

NIC: What's your take on cap rates in the current environment?

Miller: It's interesting. Clearly we're seeing some compression between different property types such as independent living and assisted living, and that is continuing. But we're also seeing a difference in cap rates when it comes to acquisition and refinance. For acquisitions, we're noticing a trend toward lower cap rates and, for a refinance, they can be a little higher. But at the end of the day, we're really focused on cash flow and debt service coverage. So, with regards to the loan-to-value ratio, certainly we'll consider that and we'll dive into that, but we're really focusing in on debt service coverage for the property.

NIC: Have healthcare REIT acquisitions and deals altered Fannie Mae's business strategy?

Miller: Yes, absolutely. We can no longer rely on the big REITs to help us meet our production goals. A few years ago, we really shifted our strategy to focusing more on establishing, maintaining and growing our relationship with smaller, local, regional operators, and we've had a lot of success with this new strategy over the years.

NIC: Earlier this year, you sat on a NIC panel that focused on the topic of transforming strategic business decision making through data. What role does data play in Fannie Mae's daily operations and decision-making?

Miller: Data plays a significant role. We have two main data sources. One is our own database, we have a $12.5 billion geographically diverse portfolio. As a result we are constantly taping into that database. We also rely heavily on the NIC's NIC MAP® data. Our production team as well as our asset management team utilizes both sources almost on a daily basis.