Senior housing project development financings can be problematic, and that includes independent living senior housing properties are an area of specialization within the INVIZEN Real-Time Underwriting (or RTU) program. Underwriting reviews provided by INVIZEN for new construction commercial real estate income-producing property proposals within the independent living asset class are undertaken in light of the requirements of Section 941 of the Dodd-Frank Wall Street Reform Act and pay particular attention to management and mitigation of execution risk. This is part of our entire end-to-end underwriting and investment performance assurance program underwriting approach that includes the following component reviews:
- Capacity underwriting. The core of the INVIZEN Real-Time Underwriting (or RTU) program is capacity underwriting because earnings drive everything. The INVIZEN system utilizes a multi-layered approach that includes a full-scope intended-use analysis of the site and market. The intended-use is then subjected to a thorough market and financial feasibility analysis where the market analysis assumptions and conclusions are tested in the resulting financial forecast to determine if a reasonable basis exists for their use and inclusion in the market analysis. The outcome is then modeled to create the Underwritten Effective Gross Income, Underwritten Operating Expenses, Underwritten Net Operating Income and Underwritten Net Cash Flow forecasts that support the entirety of the program model. All of these operations are undertaken by the INVIZEN program on a real-time basis, thus cutting weeks (perhaps months in the case of HUD/FHA) off the underwriting schedule and saving considerable sums of money for the client and the capital markets.
- Credit underwriting. Credit underwriting is the biggest potential problem in the entire underwriting process of the capital markets today as subjective criteria such as reputation, character and experience are used to determine whether or not capital should be deployed. The INVIZEN model recognizes the shortcomings of these measures and utilizes a liquidity enforcement approach based upon the premise the INVIZEN system will monitor the ongoing business operations and market opportunity to help ensure there is advance notice of conditions that may lead to reduced revenues before these conditions become critical.
- Default risk underwriting. The business terms of the key contract documents are reviewed in terms of their impact on the resulting financial results of ongoing operations. The focus of the INVIZEN model is to not provide a legal underwriting review, but to focus on whether or not the business terms support the intended business model of the sponsor, and whether or not the sponsor’s representations of facts are supported by third-party sources that are not at conflict with the transaction. Where conflicts-of-interest are found, these are made disclosure items. The default risk underwriting review includes pre-programming for ongoing default risk monitoring in the post-funding operating environment to minimize the potential for an administrative foreclosure. This additional level of service helps provide equity investors with the assurance that independent monitoring will help prevent their investment from becoming an unintended failure.
- Collateral underwriting. Collateral underwriting is the sum-total of the previous three (3) underwriting reviews undertaken by the INVIZEN RTU model approach. In a market economy, collateral value only exists if a future income-generating (i.e.: capacity underwriting) opportunity may be reasonably demonstrated to exist of sufficient magnitude to attract capital investment. Outside collateral really only serves as cold comfort to the CRE investor or lender, otherwise; there would be no such thing as investment loss severity risk. The INVIZEN model focuses on the premise the transaction has to stand on its own two (2) feet because, sooner or later, it may have to do just that.
Once the underwriting program is completed, the resulting project profile goes into our provider network for referral after consultation with the client. The referral will be one of the following:
- Direct to the broker-dealer community for placement.
- Direct to a co-sponsor for a joint-venture negotiation in the case of a marginal developer.
- Direct to a mezzanine lender for a mezzanine financing.
Find out more by talking to an INVIZEN representative today at 832.663.9634.