Leumi has a basis in social and political history that few other business institutions can match.
The bank was founded in 1902 as the Anglo-Palestine Co. in London, intended to be the financing arm of the Zionist Organization seeking to establish a home for Jews in the Middle East.
When that goal was realized in 1948 with the founding of Israel, the bank was soon tapped to produce the official currency of the new country. Two years later, the bank would change its name to Bank Leumi le-Israel, B.M. — “The National Bank.”
When the Bank of Israel was established a few years later, Leumi became a commercial bank and continued to grow over the next 60 years. According to the Dun’s 100 bank rankings, as of 2014 Leumi employs over 13,000 people in 274 branches, offices, and subsidiaries in key financial centers worldwide, including the United States where its first branch was established in 1962.
Leumi is integral to the history of Europe and the Americas. During World War I, the Ottoman Empire attempted to seize the bank’s assets. During World War II, the bank funded the manufacture of supplies for the British army.
Seniors Housing Business spoke with Paul Letourneau, first senior vice president and regional executive for Leumi in Chicago, about the bank’s position in the U.S. market and its increasing expansion into the seniors housing space, which it has served for over 35 years.
Seniors Housing Business: In the 1990s, Leumi underwent a major shakeup — removing all retail branches to focus on international, commercial and private banking. Since changing focus, how has the company grown and changed in the commercial real estate industry, and seniors housing in particular?
Paul Letourneau: Leumi was formed in the U.S. in 1997 when the branches of Bank Leumi le-Israel, B.M. that were operating in California, Florida, and Illinois were merged with the New York subsidiary, Bank Leumi Trust Co. of New York.
A strategic change in the bank’s business in the mid-1990s led to a focus on commercial banking to the middle market and commercial real estate lending and private banking both internationally and domestically. As a result, Leumi disposed of the retail branches.
These changes allowed the bank over time to concentrate its resources, talent and energy in areas where expertise and a strong reputation had already been established. These included areas like seniors housing and care and commercial real estate, where we continue to focus our resources. The bank expects these two areas — as well as high-tech, apparel and the wholesale sectors — to be a driving force in our commercial banking growth.
SHB: Prices for independent living, assisted living and skilled nursing all reached record highs in 2014, with the former two going up over 25 percent, according to research by Irving Levin Associates. This also pushed capitalization rates to record lows. How does Leumi’s approach adjust to such an unusual market?
Letourneau: In the current market cycle we acknowledge that high prices and low cap rates exist, yet you can still find opportunistic targets. Leumi takes a holistic approach to our underwriting process, including both qualitative and quantitative guidelines. We not only factor in the individual borrowing entity, but we also consider the relationship and sponsors.
The experience of our clients through various price and cap rate cycles is something we consistently factor into our underwriting. In today’s environment, we have remained consistent in our approach. There are still a large number of value-add opportunities that our clients or prospective clients receive that fall outside of these trends.
SHB: A recent Lancaster Pollard poll showed that the majority of smaller operators plan to start new construction and renovate current facilities during 2015. Are you observing this shift away from acquisitions toward construction in your business? How are you handling that as a lender?
Letourneau: It varies by market, inventory available, and changes within the industry segments and states of location. Leumi has a national presence and we focus on being proactive to understand each unique market we serve.
The refinance and acquisition deal flow is still strong and there is evidence that the overall consolidation away from smaller portfolios of owner/operators to larger held portfolios is becoming a trend.
The demand for beds, space, and seniors housing apartments is rising. This, coupled with the replacement of older inventory or updating/upgrading existing facilities, is the primary trend we see in many of our markets. Others are replacing existing older inventory with newly built facilities, but again, it varies by the regional marketplace.
The cost to build is not cheap either, so it comes back to knowing the market dynamics and understanding the eventual return expectations.
SHB: Leumi offers the following types of financing in seniors housing: property finance, working capital lines of credit, cash management, and capital and growth opportunities. If you were to draw a pie chart based on revenues generated from each of those business lines on a percentage basis, what would that pie chart look like?
Letourneau: Today, our lines of business product suite broken down would look something like the following:
– Property financing – 20 percent
– Working capital – 15 percent
– Cash management/treasury services – 15 percent
– Growth property financing – 50 percent
SHB: Does the bank concentrate more on refinancing, acquisition financing, development or is that simply a matter of market conditions?
Letourneau: The majority of our opportunities are acquisition or refinancing of properties. This depends on the market conditions and the needs of our clients. For example, as our relationships continue to seek efficiency in their cash cycles, our treasury services product line goes in tandem with the debt instruments and with the short-term asset working capital lines.
SHB: In absolute dollars, how much does Leumi lend to the seniors housing community on an annual basis? Has the figure gone up over time? What percentage of Leumi’s lending business is in seniors housing versus other sectors?
Letourneau: We have industry-knowledgeable relationship managers located in New York; Chicago; Aventura, Fla.; and Los Angeles. Today, this industry is over 15 percent of our total commercial banking portfolio and growing.
Coming out of 2014, our seniors housing and care teams lent in excess of $300 million and we continue to see growth in the double digits.
SHB: Is there a sweet spot in terms of loan amount (average size deal) and length of loan for Leumi? Please explain.
Letourneau: The average size loan amount varies by region and state of origin. Generally speaking, our average loan is $8 million to $10 million.