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259: Alex Loo

Interest rates, repositioning assets, impacts on M&A markets and more on this market update from Alex Loo, VP of Originations with Hudson Realty Capital.

This episode was recorded at the 2023 ASHA Annual Meeting.

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Welcome to season six of Bridge The Gap, a podcast dedicated to informing, educating, and influencing the future of housing and services for seniors. Powered by sponsors Accushield, Connected Living, Hamilton CapTel, Referah, The Bridge Group Construction and Solinity. The contributors are brought to you by Peak Senior Living and produced by Solinity Marketing.


Welcome to Bridge The Gap podcast, the senior Living podcast with Josh and Lucas. An exciting episode today, we are at ASHA in Scottsdale, Arizona for the beginning of the year, winter meeting.

Josh 1:08

It is exciting. It’s exciting to be in person.

Lucas 1:11

  1. This is our first conference meeting, attendee meeting. We’ve got the studio set up here, and guess what? We’ve got a great friend, a great guest on. I wanna welcome Alex Loo, you are over commercial real estate lending at Hudson Realty Capital.

Alex 1:30

Yeah, it’s great to be on and think y’all, Josh, Sarah and Lucas for having me on. It’s my first time on a podcast. To say that I’m nervous is probably an understatement concerning my old managing director, Josh Hausfeld, just walked by and took a photo of me. So nice to have a little pressure.

Lucas 1:46

I know, well, you’re famous, you’re worldwide. You’re worldwide. I follow your Instagram, I know where you go. He’s on an airplane to another country in another city, literally every day. This guy, he’s wining and dining. He’s making deals and he’s one of the smartest guys in the room. And you know what, you actually think that we brought you on here to give us a market update, but we actually brought you on to talk about your ideas on college sports.

Alex 2:14

Oh, I knew there was an ambush. Of course you asked the guy whose undergrad has no football team, whose grad school programs football team is also atrocious. The University of Chicago. You’ve heard of it. Horrible football.

Josh 2:27

Oh yes. Huge football school.

Alex 2:29

Yes. Great. Almost as good as Michigan State. Absolutely.

Lucas 2:33

No, I won’t do that to you. I won’t do that to you. So, you know, with that said, talk to us. Give us a market update. Where are we in January of 2023?

Alex 2:43

Yeah, I mean, I think looking at where we were sitting 12 months ago, right? January, 2022, everyone had a much different mindset. Everyone thought, you know, Covid, thank goodness is over. We’re in the last stretch, recovery, recovery, recovery. And we saw record number of transactions the first two quarters, and I think it was around the time of NIC last year, when things started ot slow down, people realized, wait, interest rates are actually going up. You know, labor is continuing to go up. We haven’t done much rate increases, what’s happening? And I would say January, sitting again in lovely Scottsdale versus Chicago. Cautiously optimistic, I think the first two quarters will probably be a bit slow, but I think there’s a lot of appetite, mostly because transactions, M&A market for non-stabilized deals have been frozen, deals are stabilized, things are going great, absolutely.

But for those without, you know, it’s been difficult. And the way I look at it is there’s been a lot of banks, other financial institutions who did deals the last two years during Covid, hoping that things would continue, things would improve a lot faster. They still have to go through the process internally figuring out what they want to do with it. Like kind of how I look at it is being flexible, not being on a bank lender. We kind of want to be the white blood cells in the system trying to figure out how we can help solve other people’s problems. I was, you know, I would say practicing with my lovely grandfather over a Chinese New Year this last weekend. He’s like, “White blood cells, no one knows what that means. You should tell them Lipitor, I use it all the time to like help, you know, reduce the number of blood clots in my system.” So my mentality is like, no, we kind of wanna be that preventative, help other peoples, you know, solve problems. And I think the first two quarters we’re gonna see, you know, a lot more self performing people deciding that, yeah, you know, we’re given it a lot of time, but maybe it’s time for someone else to kick in. So that’s kind of, you know, I would say cautious optimism and the idea that, you know, the third and fourth quarter will, you know, have some form of normalcy.

Josh 4:44

So the developer, owner, operator, that probably feels like they’ve been on the sideline for a while because, you know, everything kind of paused where a lot of things during Covid then after, you know, just trying to get things back together, I think a lot of people were thinking this was gonna be a big boom year. What do you think the outlook looks like for the developer, owner, operators and what can they be doing to kind of prepare themselves for the market that you think’s ahead?

Alex 5:12

Yeah, I mean, I know one thing for sure. They’re much smarter than me, so I’m not gonna tell them what they should or should not be doing. I guess my perspective would be looking at where we were a few months ago, people thought interest rates were a passing fad, people still think interest rates will probably lower later this year. I’m probably not that optimistic. I think the rates will probably be where they are, slightly go up. And if I were them, I would try and lock in longer term financing while I can, trying to risk it, you know, assuming that things will get better, vis-A-vis last year, I think, is a bit, very optimistic. And no, if anyone can provide more time, if you can, I think that’s always value. And if you don’t, if you want to risk it, sure, take shorter term money.

There’s people out there, myself included, who love to do, you know, 12 to 24th month paper, idea that hopefully in two years things will get better. And on the multi-family side, we’re seeing a lot of this, we’re doing this a lot on behind Fannie and Freddie paper with the idea that, you know, in two years, hopefully there’ll be some form of, you know, more assurity in the market or just more liquidity from other folks entering, you know, having more capital, not as being worried because a thing isn’t so much not to quote Ted Lasso, “It’s not the hope that kills you,” right? It’s the fear that kills you. So hopefully in 69 months, right, we’ll have some form of adjustment, understand what’s happening and, you know, uncertainty is what prevents people from doing anything.

Josh 6:39

Are there segments of the senior living market? You know, we cover a lot of things, the independent, assisted, memory care we’ve got some skilled operators that are kind of in here and senior living. Now we’re even starting to track data and a lot of senior living developers do active adult. Are there any sectors that you’re thinking this year is gonna be like the sector where most of the growth is?

Alex 7:04

I think for the most part, you know, the much more care focused acuity, just because, you know, anyone who spent lots of time with their family the last year or two, if only realized, you know, their parents or grandparents need a lot more care. I think until we see some more certainty in the financial markets, you know, older people know, you know, financial security, the ones where it’s more choice driven, I think will be kind of a bifurcated market. The high end, you know, if it’s a lifestyle choice, absolutely you can afford it, you wanna have a good time, you’re gonna do it. But you know, if you’re not at that mindset, not the financial capacity, you wanna be much more focused on care driven aspects. So I would say, you know, it’s generally, you know, higher acuity assisted living, member care, I think those will probably recover vis-a-vis, I would say more lifestyle decisions. And you know, obviously with the lifestyle decisions, you know, that’s a different market. But I think, you know, care driven, you know, people want to be taken care of in good, safe communities, quality areas, and I think that’s where we’re gonna see, you know, that market come back after the holidays.

Josh 8:05

Do you have any opinion on how, is this the same impact on the M&A?

Alex 8:13

Wow. I would say, you know, M&A part of it is, you know, press discovery. Lots of sellers are still hoping that, you know, the market will get better. And part of that is driven by, you know, if there’s not as much liquidity as we used to be you know, before NIC, every bank, every financial lender, myself included, aggressively pitching deals. I think one deal I’d bid at was 95% loan to cost. That’s not really available in the market, right? So if you’re used to, you know, getting relatively higher yields in M&A markets, especially on unstabilized value add deals, it’s a lot harder to try and transact now versus six months ago, just from lack of price discovery as well as people, you know, just trying to figure out a wait out the market. I am optimistic that liquidity will come back hopefully in six to nine months or, you know, some adjustments in pricing. And in the meantime, you know, a lot of lenders like ourselves are being flexible in how we can, you know, help sponsors buy assets, cash and refinance. It’s an interesting market.

Josh 9:16

Yeah. So Lucas, I’m curious, you know, talking a little bit from the developer, owner, operator standpoint, but you work with developer, owner, operators every day. How do you see this impacting your business?

Lucas 9:27

Well, in a lot of ways, right? And this is why this conversation is so important, right? There’s that market update and there’s the challenges that they’re all gonna face. The interest rates, you know, I’m hearing these conversations, some people are bullish. They’re like, “Oh yeah, we’re going for it this year.” And then other people are like, “We didn’t just hit the breaks, we pulled the emergency break on everything.” And I’m not quite sure what dictates that in each organization. Which leads me to my question, there’s gonna be winners and losers in 2023. What does a winner look like? What does a winner do this year?

Alex 10:04

Now there is a saying, as long as we don’t lose money that’s winning in a market like this. And I think, you know, not to set the bar too low, but that is something, something you said about being defensive, that deploying your capital selectively in good markets, assets just because of the uncertainty factor. I think, you know, in the next six months, we wanna see a lot of folks who have been putting money into deals, great sponsors, great deals, who are concluding, you know, why am I spending so much my time and energy in senior housing vis-a-vis multi-family or industrial, right? You know, beyond the folks who are specialized in senior housing, there’s also everyone else who’s gone into senior housing the last five or seven years. Other people call ’em tourists. I wouldn’t say that. I would say, you know, they’re effectively reallocating capital to have a more diversified portfolio, and that makes sense.

But you know, they have to decide, do they still wanna be in senior housing or do they want to exit? And I think for some of them, the answer will probably be, it’s not worth the brain damage. But for those who stay in, you know, I think senior housing long term in the US, you know, there’s a huge demand for it. We have a great community of owners, operators, marketing folks, GCs, lenders. We’re committed long term, I think in the next two to four years, we’re going to see the ones who’ve stuck in, you know, probably unfortunately painful for, you know, good part of this year. But, you know, there is a light at the end of the tunnel.

Josh 11:24

We like when there’s a light at the end of the tunnel.

Lucas 11:27

As long as it’s not a train, right?

Josh 11:29

That’s exactly – well put.

Lucas 11:31

So Alex, my kind of one of my final questions, and this may not be an area that you spend a lot of time in, but how will interest rates affect people buying this kind of shift? I’m noticing a lot of portfolios are shifting. So these value add deals where they’re like, hey, we’re gonna come in here, we’re gonna change out the operator, we’re gonna change out the marketing, we’re gonna up the tech and we’re gonna deploy like 2 million in CapEx. You know, this place needs a refresh. How are the market conditions affecting that for that type of an investor?

Alex 12:08

To completely digress and quote, one of my favorite people in modern day America, Ray Dalio, “Interest rates the last 10 years are not representative of history.” I think going forward with interest rates being higher, the cost of capital is also higher, right? If you have to decide, why are we doing value add versus construction? And if you can buy the deals at a good enough basis, put in money and basically get a product that is, you know, let’s say 80 to 90% of the quality of development, but at 50 or 70% the cost, that’s a winner, right? And I think to your point about the capital markets interest rates, that’s exactly what we’re gonna see people doing. If they can see value in repositioning value add vis-a-vis development. Absolutely. Can you imagine not having to go through, in front of entitlements, development committee boards, getting permission? I imagine they’ll make a lot of developers very happy, not having to do public hearings.

Lucas 13:05

Sure. Well, and then I’m also seeing, you know, NIC reports that are coming out in the industry that occupancy is up, occupancy is up, it’s up, you know, the buildings are getting full and, you know, clearly COVID has ravaged so many people in the industry and we’re seeing an exit. You know, people are just, they’re done, they’re out. It was just time. There’s a changing of hands, there’s new people coming in. And so maybe that, you know, is that a winner this year? Is it finding the pain point, which is, hey, I’m out, I’m not gonna get top dollar for this portfolio anymore. It’s struggling and occupancy is maybe not, you know, rockstar status just because their heart’s not in anymore. Is that a winner this year that they can go in and really reposition that?

Alex 13:56

You know, having great occupancy is always good, but the one thing we’ve seen a lot of and other lenders and sponsors seeing as well, if occupancy is happening at, you know, a detriment to margin, that’s probably not ideal. Understandable. An environment like the last few years, right? You want more people to be in your communities enjoying them, knowing that you’re providing good care. But if it’s not at a price point where it makes sense for the sponsors, that’s where I think a lot of the pricing pain is where you have a 90% full building, but the projection of how much, there’s excess cash flow, is like substantially less. That’s a hard conversation to have, right? And I know sponsors and operators have been doing great hikes now 8 to 10%, which is not unreasonable concerning social security got a great bump.

My grandfather was telling me about how great it is as well. But the thing is, how long can you keep that happening where people were seeing 8 to 12% rate hikes, right? If you’re on a fixed income that might not be as palatable in two or three years versus one or two years. And like, that’s the hard part to try, not just set adjustments or expectations at the operations level, but also with your residents. Because ultimately that’s the business we’re all in, caring for these seniors, for family members, as well as friends.

Josh 15:16

Well, it’s an amazing forecast and forecast on market opinions with Alex at the ASHA event and talking about a room full of talent that we have here with us at ASHA over the next few days. Alex, thanks for kicking this off with us, man, on your first podcast, right?

Alex 15:34

Absolutely, Josh. And thank you for being kind enough to call me out in front of everyone.

Lucas 15:40

Well Alex, I’ll never forget you and I met many years ago at NIC when I knew no one there, no one knew me. And you were very gracious introducing yourself and introducing me to other people. And we’ve just stayed in contact and I’ve even come up for meetings in Chicago. We’ve grabbed a burger.

Alex 16:00

Oh, when I dragged you to Small Cheval to stuff your face full of a $12 cheeseburger.

Lucas 16:06

Yes. It was worth every penny worth every penny.

Josh 16:08

I’m sure he went kicking and screaming. Yeah, I can just imagine that.

Alex 16:12

Only when I demanded he try the various aioli and ketchup up with the fries, I think, absolutely. I don’t think you had the fries, actually, Lucas.

Lucas 16:19

If y’all want to know where’s good food and what you should eat, Alex, is your guy, he’s gonna know, and probably any city or country that you would be traveling to.

Josh 16:28

We might need a whole section just on that in our podcast notes for those that want to connect with Alex in Chicago.

Alex 16:34

Well, I do have great recommendations outside of Chicago and the US and Egypt and Greece. Lovely, lovely restaurants.

Josh 16:40

Wow. Now you weren’t kidding. World traveler here.

Lucas 16:42

That’s it. That’s Alex. Well, Alex, thanks for your time today. Hope you enjoy ASHA. And thanks to all of our listeners. If you wanna check out this episode and many more and go to, connect with us there. You know, hey, if you’ve been listening to us for six years, five years, four years, four days, we’d love to hear from you. Connect with us there, shoot us an email, connect with us on LinkedIn, DM us on social media. We wanna know why you’re listening, what you love about Bridge The Gap, and we want to meet you and talk with you. Thanks everybody for listening to another great episode of Bridge The Gap.


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259: Alex Loo