Since its founding in 2000, Contemporary Healthcare Capital has operated by a guiding philosophy: Every financing scenario requires an in-depth understanding of current trends and industry nuances. That’s why the Chattanooga, Tenn.-based company specializes in providing capital solutions for small and medium-sized healthcare providers in seniors housing.
Contemporary Healthcare Capital offers senior mortgage, mezzanine and asset-based financing. In addition, the company makes equity investments to assist in the funding of acquisitions, mergers, partnership buyouts, refinancing of existing debt, plus construction and working capital financing.
Most deals range from $1 million to $15 million. By property type, skilled nursing and assisted living each account for 40 percent of its more than $250 million investment portfolio, followed by memory care at 20 percent, according to a presentation the company made this spring at the NIC Capital & Business Strategies Forum in San Diego.
In May, the company announced a strategic alliance with Community & Southern Bank to offer a wider variety of funding options with stronger efficiencies in service.
This alliance also marked the return of Steve McGee to the company. McGee was a co-founder of Contemporary Healthcare Capital’s predecessor company. He joined Community & Southern in 2011 to establish its seniors housing lending department.
McGee was named director of originations for the alliance, which now allows him to offer clients more options — from first mortgage loans to enhanced leverage, standalone mezzanine loans and preferred equity.
Seniors Housing Business recently spoke with McGee about the evolution of the company.
Seniors Housing Business: Can you give us a brief history of Contemporary Healthcare Capital? Why did the company choose to enter the seniors housing industry?
Steve McGee: Contemporary Healthcare Capital was founded in 2000 as Ziegler Healthcare Capital and was originally a joint venture between Ziegler and other majority equity owners that continue to own the company today. The principals of Contemporary have been involved in the seniors housing business since the 1980s as owners/operators of more than 50 properties. Their background provided a unique perspective as they entered the capital markets side of the business.
SHB: What percentage of your business is in seniors housing versus other property sectors?
McGee: Although we’ve financed, on a small scale, other lines of business in the past like home health, durable medical equipment and other ancillary businesses, Contemporary now focuses solely on the seniors housing industry. The current business is split pretty evenly between skilled nursing and traditional seniors housing. It is what we know best, and we will stick to our area of expertise.
The four principals of Contemporary have each individually been involved in the seniors housing and long-term care market for over 30 years, from both an owner/operator and lending perspective.
SHB: How much do you lend in seniors housing on an annual basis and how has that number changed over time?
McGee: In the past, that number has been $40 million. We expect to increase it to $50 million on an ongoing basis.
SHB: You say your target is small to mid-sized companies. What’s the average loan size you aim for when it comes to seniors housing?
McGee: With the exception of the publicly traded provider companies and a few of the larger national private chains, virtually every long-term care and seniors housing provider meets our definition of small to mid-sized companies. Our mezzanine loans/equity investments usually range between $1 million and $15 million.
We are a small business investment company funded partially by the Small Business Administration (SBA), and the focus of that program is to provide capital to small businesses that create jobs for Americans.
Our philosophy is that healthcare is a locally delivered service. We prefer operators that are focused on limited and defined regions, where they know the local hospitals, discharge planners, families, employees and residents.
SHB: In 2010, Contemporary received the SBA’s Small Business Investment Company of the Year award. How did your company earn it?
McGee: We achieved extraordinary results when compared to other small business investment companies. This accomplishment stems from our focus on senior living investing, while the majority of comparable companies invest across a broad spectrum of businesses.
SHB: You recently formed a strategic alliance with Community & Southern Bank. What’s the benefit of that alliance for both companies? How does working together serve both companies’ clients? Can you also explain some of the specifics of how the alliance works?
McGee: We enjoy a very close working relationship with Community & Southern Bank and its lending team. We felt this strategic alliance would serve the industry in a more efficient, streamlined and cost-effective manner.
Additionally, we enjoy close working relationships with many of the other senior mortgage providers in the country when a transaction is not the best fit for Community & Southern Bank.
SHB: The pace of seniors housing development is currently at a fever pitch in some markets, especially in Texas and Florida. Do you worry the bubble might burst, or is there really enough room for all this growth in the industry?
McGee: We are very cautious with new development in select markets, and we foresee a market correction coming in the next 18 to 24 months. However, we align ourselves with best-in-class operators, due diligence teams and senior lending partners to ensure a very seasoned team of trained eyeballs looks at any new development transaction.