December 2014-January 2015
With each new year comes new opportunities. As 2014 winds down and 2015 appears on the horizon, it is appropriate that many of the articles in the December-January edition of The Capital Issue discuss emerging opportunities.
The feature article details the opportunity that community hospitals have to improve their financial outlook by investing in seniors housing in their market area. By comparing the performance of hospitals in states that accepted the Medicaid expansion versus those that didn’t, the hospital article provides an opportunity to examine two different versions of how health reform is working thus far. The senior living article examines the recent influx of private capital into the space and the opportunities providers have to pursue alternative capital sources. The housing article explores if the opportunity exists for short-term, taxable bonds to enjoy lower interest rates than traditional tax-exempt bond structures. Finally, this issue’s Fiduciary Focus explains why strategic benchmarking allows fiduciaries to better understand if they are maximizing the opportunities in the market.
As we look toward the future and all the opportunities that await, all of us at Lancaster Pollard wish you and your organization the very best for 2015.
Tom Green, CEO
The Capital Issue: December 2014-January 2015
Community hospitals face many challenges given the dynamic nature of the health care sector today. Compressed margins, competition from acquisitive health systems, and physician recruitment and retention are just a few examples. However, community hospitals may be able to leverage some of their inherent strengths to mitigate some of these challenges through prudent investments in seniors housing within their market area.
When the Supreme Court ruled that the Patient Protection and Affordable Care Act (ACA) was unconstitutionally coercive in June of 2012, it effectively created two paradigms of health care reform in the U.S.—reform in states that accepted the Medicaid expansion and reform in states that did not. A look at recent data helps illuminate which paradigm appears to be working better for hospitals.
Currently, about 8,000 Americans will turn 65 each day according to the American Association of Retired Persons. Many of the individuals will eventually need some form of assistance in daily living and will entertain the idea of moving into a senior living community where many amenities are offered that make daily living easier than homeownership. As such, seniors housing has become quite the attractive industry for real estate investors and developers seeking new construction, turnaround projects or acquisitions of stabilized assets.
It is no secret to those familiar with the affordable multifamily rental housing industry—need dramatically outpaces supply. For the 11.5 million extremely low-income households in 2012 there were only 3.3 million rental units affordable and available to them.1
The U.S. stock market rally over the last five-and-a-half years has led to impressive returns across nonprofit investment portfolios. While it is easy to become complacent in a period of outsized returns, fiduciaries must ask themselves two critical questions:
- What is the source of these high returns and are they sustainable?
- Is recent performance the result of superior asset allocation and manager selection, or simply a rising tide lifting all boats?
The Fiduciary Focus