Welcome to the summer edition of The Capital Issue. As June unfolds, those in the health care industry once again find themselves waiting on a U.S. Supreme Court decision that could have far-reaching effects for hospitals and seniors housing providers. With our feature article, we explore the possible outcomes of the King v. Burwell case and what providers are doing to prepare. Separately, our hospital article summarizes the new Hospital Compare five-star ranking system and the initial industry reaction while our senior living article describes how recent changes have made REITs and FHA financing more compatible than ever before. In addition, our housing article provides an update on soft funding sources and our Fiduciary Focus article details why a strategic asset allocation study is essential.
Enjoy these articles, hopefully with a cool summer breeze, and, as always, please don’t hesitate to reach out to any of the authors for more information.
Tom Green, CEO
The Capital Issue: June-July 2015
A familiar scenario presents itself—summer has arrived and the health care industry eagerly awaits a Supreme Court decision that could topple the Affordable Care Act (ACA). Three years after the court narrowly ruled that the ACA was indeed constitutional, albeit with the important caveat that states could not be forced to participate in the Medicaid expansion, once again the future of health care reform is being decided by the U.S. Supreme Court. A decision is expected at the end of June and millions of lives will be affected.
Customer reviews have become a powerful force in recent years, as everything from apartments to restaurants have seen the success of their business affected by online comments and ratings. With the introduction of its new star rating system, the Center for Medicare & Medicaid Services’ (CMS) Hospital Compare database now offers consumers a way to assess hospitals based on patient reviews. Some, however, are already suggesting the system needs revamping to include other quality measurements in addition to patient survey responses.
Traditionally, Real Estate Investment Trusts (REITs) have had difficulty obtaining debt financing via the U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) programs due to discrepancies between FHA requirements and REIT characteristics in regard to income distributions. Therefore REITs have not been able to reap the substantial benefits derived from using FHA as a permanent financing structure. Chief among the benefits of FHA financing are the long term, fixed interest rate and nonrecourse element—all very attractive features to seniors housing owners. Now, due to recently released updates to the HUD LEAN processing handbook, the program is substantially more accessible as a long-term financing option for REITs that utilize project level debt.
Piecing together all of the funding sources that make an affordable housing transaction successful is no small feat. Even after low-income housing tax credit (LIHTC) equity and permanent mortgage financing are in place, you still may not be able to pop the cork on the champagne bottle and start celebrating.
Academic research has consistently shown that global asset allocation is a primary driver of variability of portfolio performance over a long-term time horizon. Fiduciaries must recognize the importance of implementing strategic asset allocation targets in their investment policy as a step towards maximizing opportunity for their invested funds.
The Fiduciary Focus