Testimony to
The Commission on Affordable Housing and Health Facility
Needs for Seniors in the 21st Century
September 24, 2001
by
Mark J. Schulte
Chairman and Chief Executive Officer
Brookdale Living Communities, Inc

I am Mark J. Schulte, Chairman and Chief Executive Officer of Brookdale Living Communities, headquartered in Chicago, Illinois. I also serve as Chairman of the American Seniors Housing Association, an industry trade group based in Washington, D.C. Brookdale acquires, develops, and operates independent and assisted living communities nationwide. Brookdale currently operates 52 properties containing nearly 10,000 units in 24 states, with a value in excess of a billion dollars. Brookdale's typical community averages 200 units of independent and assisted living where residents pay one monthly rental fee for a studio one or two bedroom apartment, meal service, housekeeping, transportation activities and emergency call response. The average monthly fee in our communities is $2,500. Most of our communities contain a separate wing or area for assisted living where residents who need assistance with their activities of daily living such as dressing, bathing and medication can receive needed services in residential environment. All residents of Brookdale properties are private pay, and we have no participation and receive no funding from Medicaid, Medicare or any government subsidized housing programs.

I have been invited to speak about my experience with private financing of senior housing, more specifically, Brookdale's experience with Freddie Mac and Fannie Mae programs. Over the last several years Freddie Mac and Fannie Mae have both introduced mortgage-financing programs for independent and assisted living properties. The two programs are very similar in the types of properties that are financed and terms. Over the last three years Brookdale has completed approximately $225 million in financing with Freddie Mac and approximately $40 million with Fannie Mae. Both of the programs typically finance stabilized (occupancy of 90% or greater) independent and assisted living properties up to 75% loan-to-value with fixed rates on a 7-15 year term, utilizing a 30-day amortization schedule. The financings we have completed have generally been first mortgage-financings that have an approximately 200 basis point spread over corresponding treasuries. This results in fixed-rate financing for these properties at around a 7% interest rate. The Freddie Mac and Fannie Mae programs have been Brookdale's best source of financing for senior living properties. Both programs work through correspondents; Freddie Mac with their "Program Plus Participants" and Fannie Mae through their DUS programs. Generally, it has taken 90-120 days from start to finish to obtain financing for an eligible property. Freddie Mac has also provided Brookdale with approximately $80 million in credit enhancement for tax-exempt and bond financing on existing properties, which allows even more favorable interest rates.

Overall Brookdale's experience with the Fannie Mae and the Freddie Mac programs has been very positive. We have found both lenders to be responsive and timely in completing transactions.

Although Freddie Mac and Fannie Mae have existing programs and have been very responsive to us, their target is a very narrow property type; market rate properties that have a proven track record. Their programs accommodate properties that are generally servicing the middle and upper middle income population that is largely Brookdale's clientele.

An issue that we have grappled with at Brookdale over the years is how to create a more affordable product for the vast population of seniors that cannot afford an upscale retirement community, yet has too much income to qualify for Section 8 or tax credit housing. Development, financing and operating costs make such developments infeasible in almost all markets.

In order to create more affordable housing for seniors, I do think Freddie Mac and Fannie Mae could be instrumental in creating tools that would allow development of such affordable housing:

1. Interest rate subsidies for maintaining a certain percentage of apartments for low or moderate-income residents. Brookdale has experience with financing independent and assisted living with tax-exempt bond financing that require 20% of the residents to be income qualified. In exchange for the lower rate on the tax-exempt bonds, these properties "internally subsidize" these low and moderate-income residents. We have operated several properties like this over the last 10 years and have found them to be very successful. Since debt service is the largest single component of senior housing expense, to somehow reduce or subsidize the interest rate could create more affordable housing.



2. Provide construction financing for affordable seniors housing. To my knowledge neither Freddie Mac nor Fannie Mae currently provide construction financing for senior housing (they may not be authorized by charter to do so). Providing construction loan program for affordable senior housing at below market rates would go a long way toward creation of new units. This could also take the form of credit enhancement or loan guarantees for construction loans or providing a take-out of the third party construction lender.



3. Provide higher loan to value in properties where there is an affordable component.



4. Assist in educating consumers and the general public on senior living alternatives. As America ages, housing options for seniors become more numerous, everything from large retirement communities like Del Web is Sun City to smaller rural assisted living properties. However, there is still a large component of our population that either does not know that this type of housing exists or confused as to the different types housing and providers, and the differences between independent living, assisted living and nursing homes. Fannie Mae and Freddie Mac run large consumer education programs for single family home buyers, taking on a similar campaign for senior housing would not only raise the level of awareness and education among consumers, but could also increase demand leading to construction of more units.