IHC, What Makes them Different, their Investors’ Niche

Wally:
Okay, great. Well, let’s start off with Patrick. Tell us a little bit about Inspired, about what the niche is, what your specific lane is, what do you run in?

Patrick Lam:
Sure, absolutely. So Inspired Healthcare Capital is a sponsor in the financial service industry that focuses on senior housing real estate. And as many of you know, not all real estate is created equal. And that is also true in the senior housing space. So inside the senior housing space, we focus on two specialties, assisted living and memory care facilities. And the reason why we do that is because by and large, assisted living and memory care facilities are the most consistent, the most predictable, and more importantly, the most conservative type of asset class inside senior housing.

Wally:
Okay. How long has Inspired Healthcare been doing this?

Patrick Lam:
I think the executive team for Inspired Healthcare Capital has been in the senior housing industry for the last 20 to 25 years.

Wally:
Okay.

Patrick Lam:
Luke Lee, our CEO prior to starting Inspired Healthcare Capital, was the manager of acquisitions for HTA, which is Healthcare Trust of America, a publicly traded healthcare REIT.

Wally:
Okay. I like healthcare. Healthcare is one of the favorite sectors for our clients. What do you see with really the demographics that are pushing this, that are driving this to be such a strong sector? Can you talk to that a little bit?

Patrick Lam:
Sure, absolutely. We’ve been in the healthcare space for the last 15 to 20, some of us 25 years now. And we’ve been excited about this time or this part of 2022 now, just because we’ve seen that the demographics and all the facts and figures coming to this point in time.
I will tell you that growing up, watching hockey, Wayne Gretzky was obviously one of the best players of all time. And he’d always said that he never just became a hockey player because he skated to where the puck is at, he’s skated to where the puck was going to be. And I think that resonates a lot to where America is now and the healthcare sector. It’s a fact that there is 10,000 baby boomers turning 65 every single day. It’s a fact that the first group of baby boomers turned 75 just this past year and to come full circle with all the facts and figures, as our baby boomers are getting older, they’re going to need a place to live. And more importantly, they’re going to need a special type of care if they fall into the categories of Alzheimer’s, dementia, or they can’t do two of the six activities of daily living such as changing by themselves, eating by themselves or showering by themselves for that matter.
And so when you take a look at all the facts and figures and all the demographics and the data points, we’re so excited to be where we are at today because with the demand and the baby boomers coming into and growing older, there’s going to be a lot more supply that is needed in America to service those demands.

Wally:
Well, I know the age wave that I guess Harry Dent talked about has really born itself out to be true with a demographic wave of people getting older. I noticed you’ve kind of oscillated back and forth between an all-cash or levered deals. Is that intentional, or do you think you’ll lean more towards one or the other or keep alternating?

Patrick Lam:
Sure. To be really clear, we don’t come into a facility or look at a facility before purchasing it and say, “We want to do that all-cash or we want to do that leverage.” We look at the facility and through underwriting through Mike and our entire team, we look at what will be best for our investors and for our company as a whole. [crosstalk] And then we take a look at that and see if an all-cash deal is better at that point or a leverage deal. And it just so happens at the last quarter in Q4 of this year, our last three or four deals were all cash deals because that’s where it fit the best. And more importantly, that’s where it fit the best for our investors. I will say that looking forward for the 2022 and Q1 of 2022, we’re going to have a good mix of all-cash deals and leverage deals altogether. I think one of the key differences between us as a DST sponsor and other sponsors is the fact that there are a few things that are different. We’re a lot more client-friendly or investor-focused. And what I say by that is the fact that we don’t take a disposition fee unless there is a return of capital plus all the income that your investors have been receiving. In other words, our interests are aligned with your investors. We’re not going to take a fee unless we did well for your investors. So one of the major differences is the fact that we give excess income to your investors. So in any given year, for example, we give X number amount in terms of percentages to your investors as a rental income. But in that same year, let’s say we got a hundred or 200 basis points more in income from the facility. All that excess income gets put into a trust reserve, which ultimately gets given to every single investor at exit.

Wally:
Excellent. I really like that. I know our clients, with so many of them. I mean, it’s the same demographic that you’re serving, where it’s baby boomers, and they’re looking to transition out of 40 or 50 or five or two, whatever the number is of properties they’ve held for years. And they’re accustomed to controlling it. So handing that control over to somebody else.
I was on the phone yesterday with a gentleman who said, “I’ve never seen somebody manage a property like I would manage it myself.” And so the idea of really trying to show that and give them evidence that this is… Having the interest aligned with the investor, I think, is huge. So how we can demonstrate that just as a track record.

Jason Muth:
On a lot of these bid situations, we very well might not be the highest bidder that comes in, but we still might win that deal oftentimes because of our track record and what we’ve been able to do of the last couple of years. These brokers know that we’re for real, know that we’re going to close on these deals. So they’ll take that certainty a lot of times over price. I mean, we have to be in the general ballpark, but a lot of times if we’re close to the highest price, they’ll go with us instead of that very highest price, because the certainty of getting the deal done, they know IHC will get it done.

Wally:
And let me that brought up a point. I know you’ve used… Again, we don’t want to talk products or returns or anything right now. But you’ve used your mezzanine financing funds to help with acquisitions in the past. Do you see that ongoing or will you change over to line of credit financing? What do you anticipate?

Mike Jones:
The foreseeable future, we will continue to use our in-house mezzanine financing.

Wally:
Okay. Okay. I know that’s been very attractive. So I didn’t know if there was a point at which you graduate past that or whether it’s working. So keep it going.

Patrick Lam:
Yeah, [crosstalk].

Mike Jones:
Frankly, it really gives us… Yeah, I think Patrick was going to say the same thing. I was going to say it gives us a lot of flexibility because we have complete control over it. And so it gives us the ability to close quickly. And that’s one of the things that’s been attractive on Jason’s side of things is that a lot of times and in my experience over the last 10 years, these properties, the closing tends to drag on and on and on for various reasons, one of which mostly was financing. And that’s the world I come out of has been in seniors housing finance for these last 15 years. And so that’s been the main drag on timing. And because we control that mezzanine financing and are able to put that in when we need to, then we close a lot faster than other [crosstalk].

Wally:
Very good.