Welcome to the Winter 2008 edition of The Capital Issue. Recent issues with liquidity in the capital markets have led to questions about financing and investment issues. We're glad in this edition to help explain the impact on low-income housing tax credits, and to explore the concept of market timing. This edition also features a guest article from Planetree on healing environments in hospitals, an introduction to interest rate swaps, and a fantastic example of creative long-term care design.
As always, we welcome your suggestions for content. Additionally, we are considering offering The Capital Issue as a hard copy newsletter.
Thomas R. Green, CEO
Interest rate volatility can significantly affect an organization’s cash flows and its ability to service variable-rate debt. Recent Federal Reserve actions and market instability have contributed to fluctuations in the cost of capital. When considered along with the current shape of the yield curve, they have created an opportune time for organizations seeking more control over cash flows to examine their exposure to floating interest rate risk.
A healing environment is essential to patient-centered care. Many hospitals, however, still occupy buildings built during the last construction boom of the 1960s and 1970s. As hospitals look to update, they should keep in mind that although enhancing the physical environment is important, a healing environment involves many more aspects than just the “look” of a space.
The “Main Street” concept in nursing home design has been growing in popularity as a tool to create a comfortable, less institutional home for residents and to stimulate memories. Good Samaritan Home in Evansville, Ind., is taking the idea one step farther, transforming its hallways into actual recreations of Evansville, circa 1940, complete with a riverboat.
The recent turmoil in the capital markets has trickled into the complex world of tax credits. Affordable housing borrowers who anticipated a tax credit equity infusion this year may have to seek additional ingredients to round out their financing stew, or face the possibility that a project may become more expensive or even fall through. Understanding the situation and monitoring the players in a tax credit agreement can help developers prevent further losses and anticipate potential setbacks.
Whenever the public securities market witnesses extraordinary price volatility, most investors begin to question their investing discipline. While most non-professional investors are fearful of significant price swings, most professional investors embrace volatility as an investing opportunity. Both views, one half-empty, the other half-full, suggest that a change in asset allocation may be warranted because of the increase in volatility. Such an asset allocation procedure is known as “market timing.”