Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render, the largest health care focus law firm in the country. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice. Today we’ll be talking about a unique way for nonprofit health care providers to finance sale lease back transactions in build a suit facilities using what we will refer to as the foundation real estate model.

Andrew Dick: The foundation real estate model may be a new concept for some of you, but it has been around for a while and more widely used in the higher education space. In fact there are several nonprofit real estate foundations that support other nonprofit corporations by providing low cost financing options for real estate transactions.

Andrew Dick: Centurion Foundation is one example of a foundation that can provide a variety of outsourced real estate functions including ownership, financing, and other real estate services for nonprofit health care providers.

Andrew Dick: Today we’ll be talking with Ben Mingle, the executive vice president of the Centurion Foundation. Ben, thanks for joining me.

Ben Mingle: Andrew, good morning. Thanks for having me.

Andrew Dick: Well, as a little bit of background, Ben, before we talk about the Centurion Foundation, let’s talk about you and your professional experience. You’re a certified public accountant with quite a bit of accounting experience and real estate experience. So, talk a little bit about your accounting experience.

Ben Mingle: Yeah, so after college, I worked for large national CPA firms in their advisory and assurance practices. All in that was about 11 years of my career. My main focus was real estate, so those were developers, REIT’s, joint venture entities, and then the rest of my practice surrounded health care institutions and banking clients. So, a flavor across the financing and real estate aspects coupled with healthcare.

Andrew Dick: Interesting, and you were with firms, I think KPMG, and ENY were two examples, correct?

Ben Mingle: Yeah. I spent the bulk of my time with Ernst & Young, but early on I was with KPMG.

Andrew Dick: Great. After you left the public accounting world, you spent some time working for a number of real estate investment and development firms. Why did you make the leap to real estate? How did that all play out?

Ben Mingle: Yeah, I think the transition for me started while I was in public accounting working with developers and working on different real estate projects is where I kind of saw my passion for real estate and watching the project come from an idea all the way out of the ground. Then I got an opportunity through a childhood friend of mine to go work for CBL. I grew up next door to some of the executives there and so I made the leap from public accounting into the real estate world kind of through that process.

Andrew Dick: So, Ben, talk a little bit about CBL, because that was a pretty significant opportunity. CBL is pretty well known in the real estate world, it was a real estate investment trust and tell us a little bit about what you were doing there.

Ben Mingle: Man, it was a great opportunity for me. It was right at the tail end of the big run, from 05, 06, 07 and into 08, 09, 010, so I got to watch the real estate landscape change a lot. I had a really unique roll where I oversaw a big chunk of the accounting department, but then I also was kind of the finance and accounting leader over the entire development portfolio for CBL. So, that meant all day day every day I was working on different real estate projects, figuring out how to get it financed, figuring out how to work out a broken deal, in the 08, 09 timeframe.

Ben Mingle: So it was really a transformative roll for me to take me from a CPA in professional practice to an actual, you know, an executor of projects from a finance and structuring standpoint.

Andrew Dick: Right, and CBL for those that may not know was a pretty significant REID that was owned and operated retail properties, right, Ben?

Ben Mingle: That’s right, they were, you know, at the time I was there they were probably the 4th or 5th largest retail property owner in the United States.

Andrew Dick: Okay, and then you made the move to Hutton Company, which, again, pretty significant real estate company. Tell us what they did and what you were doing for Hutton Company.

Ben Mingle: Yeah, so some of the executives at Hutton were folks that I’d worked with at CBL. Hutton was, at the time, probably one of the largest net lease developers in the United States working for household names like Wal-Mart, and Dick’s Sporting Goods, and Family Dollar, Dollar General, folks like that. It was a very entrepreneurial environment, which I really enjoyed and kind of got out of public company modeling to into just a pure development model. It was a great experience for me. They, at the time when I came in, the company probably had 200 million in assets and was doing a decent bit of volume, but while I was there we doubled and tripled couple years there in a row, we had a big program with Wal-Mart. So, it was an excellent time for me to be in that space.

Andrew Dick: So you were serving as one of the chief financial officers or the chief financial officer, doing quite a bit of strategic planning, finance, etc. Is that right?

Ben Mingle: Yeah, I was the CFO there, and we were going through that tremendous growth period, so my main job was to set the strategic plan so that we had enough capital to continue to develop for our client. So that covered the full suit of finance, tax, treasury, accounting, you name it, it was all encompassing.

Andrew Dick: Okay, and then you work for a couple years there and make the move to The University Financing Foundation, also known as TUFF, tell us a little bit about that transition and what you were doing for TUFF.

Ben Mingle: Yeah, so, back to Ernst & Young, again, through some relationships that I kept up through Ernst & Young I’d gotten to TUFF and over a long period of time I learned more about their business and really saw how unique it was and what a powerful solution that a 501C3 real estate foundation can provide to its clients and really felt like it was an opportunity to take my finance skill sets and use that in a way that had a bigger impact. So, I made the move to TUFF in 2017.

Andrew Dick: Then after working for TUFF for a while, you decided to move to Centurion Foundation, which is a little bit of a similar model compared to TUFF. Talk about how you decided to make the move to Centurion Foundation and what that was like, because it sounds like you were considering forming your own foundation to provide resources to nonprofit corporations, but then found Centurion. Tell us a little bit about that.

Ben Mingle: Yeah, so being at TUFF, they were one of the early 501C3’s and they were exclusively focused on higher education, so really kind of at the epicenter of that world. While I was there, I realized the solutions that exist in the higher ed space were really needed in the healthcare space. A lot of hospitals face many of the same kind of challenges that higher education institutions face, from a funding standpoint. So, really kind of saw that that opportunity and that need was there and was thinking that I would potentially set up my own foundation to focus exclusively on healthcare and as I was going through that process, I got introduced to Greg Grove and the Centurion Foundation. Greg had a background in healthcare, tax exempt financing, he had been an investment banker at the beginning of his career.

Ben Mingle: He had set up Centurion Foundation in 1996 with the mission of helping other 501C3 organizations deliver mission critical facilities. So, it was a fortuitous chance that Greg and I met. We worked together for over a year and really kind of honed in on what we thought the vision for Centurion could be and I decided to come on board in 2018 at Centurion.

Andrew Dick: Ben, Centurion Foundation, it’s headquartered in Atlanta, Georgia, it’s been around for a while. Talk about the types of projects that it has financed in the past and what your vision is going forward.

Ben Mingle: Centurion was founded in 96, like I mentioned earlier, with a very broad mission, and that broad mission was intentional so that we had the biggest opportunity to help the most organizations out there. That’s important for listeners on the call today to think about because we want to be able to look at many different types of transactions in healthcare and in other spaces and be flexible and be open to the needs of those clients. Our mission being very broad is really important.

Ben Mingle: Centurion has financed a number of projects in the past. When I say financed, some of the are ownership structures with leasing, like we’re going to talk about later today, and then some of those are more direct lending transactions. So the transactions include long-term care facilities, student housing in charter schools to date.

Ben Mingle: Centurion also has a sister 501C3 organization with some common board membership and that’s The Guardian Foundation. The Guardian Foundation has bene around since 89, and it owns and operates long terms care facilities, and it’s financed over 20 facilities throughout the United States.

Andrew Dick: That’s interesting. So, talk a little bit about your vision for taking Centurion to the next level and really focusing on the healthcare industry. What type of transactions will Centurion be focusing on in the healthcare space? New development projects, sale lease backs, all of the above, talk a little bit about what you’re out there chasing today.

Ben Mingle: I think the all the above comment kind of hits right in with us. We look at new development projects a lot, we also were looking at sale lease backs, you know, the focus for us is where the hospital is the anchor tenant for the project. So we can do a hospital, an entire hospital, a hospital wing, a medical office building, an outpatient clinic, a surgery center, a free standing ED, really any project where the hospital is the key anchor. We can have private docs and private use in the facility, but the key for the facility for us, is that the hospital is the main beneficiary of that facility.

Andrew Dick: Okay, let’s talk a little bit about the structure, because the foundation model has been around for sometime, but some of our listeners may not be familiar with the structure. Typically, you’re going to form a nonprofit entity, the hospital which needs to be, typically, a nonprofit hospital that would be the tenant in the project. Centurion could partner with, like on a build to suit project, a developer and help the hospital really shape the project from design to completion. Talk a little bit about some of the flexibility that you have in terms of you could help source architects, fee developers, et cetera.

Ben Mingle: Yeah, so I think the most important thing for people to hear today when we talk about this is the flexibility concept. We are not set with a particular model of this how we do a project. We look at each project, and more importantly, we look at the needs of the health system and crash the model to fit those constraints that mold the ask. So, in a typical transaction, we would expect to ground lease from the hospital, we would own the project, and we would lease the project back to the hospital system. In the case of a development deal, we would bring in a fee development, fee only developer, and they would work with us and work with the hospital to manage the architect and manage the design process and manage the construction process and ensure everything is completed in the way that you would expect of a building of that caliber. The flip of that is if the hospital has all those resources in house, the development resources, the hospital can manage the design of the building and manage selecting the contractor, we’ll be involved and help all along the way, but if the hospital wants to play in that role, that’s something that we’re open to.

Ben Mingle: So, in either case, if there’s a developer involved or not, Centurion would finance with taking that lease and that support of the transaction by the hospital due to lease. We would finance the portions of the building the hospital’s going to occupy with tax exempt debt, but then portions of the hospital that might occupied by for profit uses, we would finance with taxable debt. What we feel about this is that blend ultimately creates greater flexibility in how the hospital can use the facility, and it also creates the lowest cost to capital. We feel like that’s one of the key competitive advantages that we have.

Andrew Dick: I think you’re right, Ben, I think you’re right. I think the low cost of capital is where these nonprofit healthcare systems can really benefit from the Centurion model, and at the end of the, for example, if it’s a 25 lease, at the end of the lease, one of the benefits is the hospital owns the project at the end, is that right, Ben?

Ben Mingle: Yeah, I mean, when you kind of think about the key benefits, what we like to say is number one you’re working with another 501C3 that isn’t necessarily motivated by profit. So, we’re aligned, you hope to feel alignment in working with us from day one. We’re extremely transparent. You’ll know everything that we know, there won’t be any mystery as to how the transaction gets done. The second point that you just kind of mentioned is our goal is for the ownership of the facility to revert back to the hospital at the end of the lease term. Without getting into lease accounting on this call today, we can structure that in several different ways just to meet whatever desired structure the hospital wants, but through that, the hospital is ensured long term control of the facility.

Ben Mingle: Then, what I’d say about the rent structure is we can structure the rent in any manner that the hospital wants. So we could have a flat rent over the entire term, we can have built in increases, all of that is just to manufacture the lowest cost debt service, which equals lowest rent payment and we can structure that based on whatever their needs are for that particular asset and whatever their overall corporate constraints are.

Ben Mingle: The other benefit would be, generally, we’re going to be able to pass through real estate tax exemption, every state’s different, but generally we’re going to help be able to maintain that real estate tax exemption, so that’s critical. Then in the case of a development deal, we should also be able to help avoid sales tax on construction material.

Ben Mingle: So we kind of see those as our key benefits when the hospitals are thinking about ways that they’re going outsource and looking at us, comparing us to another alternative they might have.

Andrew Dick: I mean those are significant benefits. I know, Ben, over the years when I’ve represented healthcare providers, most for profit developers can’t bring those benefits to the table. So when I think about the Centurion model, some of my clients might say, well, why wouldn’t my healthcare system simply issue bonds itself to fund the project instead of using Centurion. I think the response is, well Centurion handles the issuance of the bonds and provides a turnkey solution that is often much more simpler for the health system to execute when compared to a bond issuance through a large health system. Am I thinking about that correctly?

Ben Mingle: Andrew, you’re right. I mean we would always say that hopefully the hospitals cost to finance is the lowest, but there could be other things that are constraining them. So, if they have a need not to have direct debt, then they likely are considering outsourcing, and what we would like to say is, Centurion or someone like us would be their next best option, because we’re also going to have effectively that really low cost to financing like they will have, but it won’t be direct debt. Then we also have the opportunity to simplify it for them, where they can just sign a lease and they have a development partner that we can work with together and they have some assurance that that development partner that they may have had some past experience with or one that I could introduce them to, has surety of execution.

Ben Mingle: So when you think about an operating lease benefit that potentially saves credit capacity for them to focus on other mission critical facilities or investments or initiatives and not potentially have to tie up their credit for whatever this project would cost them.

Andrew Dick: Yeah, I think that’s an important distinction, and I think some of my clients would say, you know, going through a bond issuance for a larger health system is a ton of work. A lot due diligence needs to be performed, where as with the Centurion model, it’s much simpler, like you said, more of sign the lease and you’re off to the races.
Andrew Dick: In terms, let’s quickly talk about build to suit transactions, I think we’ve mentioned some of the benefits but Centurion could act, when it provides a turnkey solution, it could engage architects, it could engage contractors, take some development risk, help with development selection if that’s needed. Isn’t that right, Ben, I mean one of the benefits is you can just provide the financing on one end of the spectrum, on the other end you could provide a turnkey development solution for the healthcare system. I am thinking about that correctly?

Ben Mingle: Yeah, that’s right. We like to think that we provide a solution that may be different than the way they’ve been executing projects and that we bring an institutional thought process to how a building should be designed. We’re going to listen, we’re going to make sure that building is designed to meet your needs, but we’re also going to be able to point out things that your internal team may not be considering just by, we’ll bring a national developer onto our team that’s developing across the country and that perspective, a lot of times, can help lower cost or refine the criteria for the building.

Ben Mingle: So, we bring that but we also bring the humility to know that some hospitals out there today are very dialed into the things that I just mentioned and they may want to be in total control and so we’re flexible either way. So, we work architects, we work contractors, we work with developers and attorneys, all day that’s the business of real estate, but we’re so flexible, that I think that, again, separates us from some of their other options that we’ll literally do this transaction in a way that they want to execute it versus the way we want to execute it.

Andrew Dick: That’s helpful. We’ve talked about build to suit transactions, let’s talk just a little bit about sale lease back transactions, because we know a number of healthcare systems over the last 10 years or more have decided to monetize some of their real estate assets for example, medical office buildings. Centurion can also provide a solution there as well, where Centurion comes in and becomes the surrogate owner of those assets, leases them back to the healthcare system. Ben, in terms of sale least back transactions, why would someone use Centurion over any other for profit real estate company, what are the benefits?

Ben Mingle: Yeah, I think it first is rooted in our not for profit mission. I mean, when you look at a transaction with us versus a REID or another private owner, our ultimate goal in the way we will look at it is, how do we achieve sale accounting for the hospital, any gain recognition that they’re looking for, but then also structure that lease, that operating lease so that ownership will revert back to the hospital at the end of the lease term. Then, when you think about that and look at that over the life cycle of the building, you’re going to have a much lower cost of occupancy because our lease payments will be really calculated on the cost to finance and not the cost of the spread and the marketplace and what rental rates are doing today.

Ben Mingle: So, the hospital has a great opportunity to benefit over the long term because our lease payment could be fixed for effectively 20, 30 years, and a REID or other ownership model, that won’t be the case. Then, at the end, you know, we’re not going to be trying to negotiate a fair value buy out if the hospital ever wants to buy the facility back. Another big benefit in doing a similar transaction with us is, we’re likely to be able to maintain property tax exemption as well, so when they think about all those things and look at all of them, we feel like we’ve got a really compelling story when they’re thinking about potentially selling a building on a sale lease back basis.

Andrew Dick: Interesting. Talk a little bit about the lease terms, Ben, how much flexibility is there? Are we talking 15 year leases, 20 year leases, 30 year, or is it really however you structure the deal, I mean there can be flexibility there in other words.

Ben Mingle: Yeah, that’s the most important thing for the folks on the call to come away with today, is our flexibility and our willingness to look at many different structures. The simple answer is, we kind of look at it and think that the 20 year lease makes the most sense because it provides a really low cost to finance and then it also maintains a reasonable rent constant. You know, the shorter 10, 12, 15 year leases get pretty expensive on an annual basis. So, we really will look at anything though, and we’ll look at any structure whether it’s a public bond financing, a private bond financing, a CTL, or other source of capital. We have effectively all the different capital solutions available to us to work with in the Centurion platform.

Andrew Dick: You mentioned CTL financing for those listeners that may be familiar with that term or may not be, it’s credit tenent lease, CTL for short. Ben, some of the listeners may say, well, how is Centurion different than a CTL lender or how can you distinguish yourself between a traditional CTL transaction and what Centurion offers?

Ben Mingle: Yeah, so if a hospital’s thinking that they may be just put a CTL loan on the building versus selling it, there’s a couple other things that we provide that are compelling when they think about is, if there’s good tax exempt use in that building, then we should be able to finance the sale lease back with tax exempt debt and therefore lowering the cost of occupancy lower than a CTL rent loan payment. Then, it also typically would be indirect debt, because it would be an operating lease in that we hope, depending on the way your debt covenants are structured, can preserve some of your debt capacity.

Andrew Dick: Ben, in terms of, we talked a little bit about this earlier, as much as Centurion Foundation is focused on nonprofit healthcare systems, if those healthcare systems have a project that has mixed use, meaning some good 501C3 tax exempt use in the building but some for profit use or private use, maybe it’s a physician practice group that’s independent that happens to be in a medical office building. Does that limit your ability to underwrite a deal.

Ben Mingle: I think the short answer is no. We’re going to look at a couple different things on something that has for profit use. The first things we’re going to look at from our perspective is, is this facility helping achieve the mission of the hospital. So we’re going to make sure there’s a mission match and generally there will be. So we’ll need some form of C3 component in the facility to kind of accomplish that. Then, from a financing standpoint, we’ll look at, who are tenants today and which of those tenants are good C3 users and which of those users are for profit users. Then, we’ll look out into the future with the health system and ask question of what do you think will happen, you know, five, ten years down the road in this facility. Then, we’ll craft and mold the blend of taxable and tax exempt debt based upon those answers so that we can still accommodate for profit use in that building.

Andrew Dick: Great. Talk about geographic restrictions if any, will Centurion finance project in any state, or are you focused to projects in the southeast, since you’re in Atlanta, talk a little bit about that.

Ben Mingle: So, we’re having conversations right now in the southeast, and also in the west. So we’ll look at anything in the US and that kind of goes back to our flexibility comments earlier on, is we won’t have boots on the ground on the west coast, but we will partner with a developer if we need it or with the hospital system for boots on the ground. So we think that model keeps us nimble and flexible, so we’re not dictated by our own structure as far as looking at a different transaction.

Andrew Dick: In terms of other services that Centurion can provide, we’ve talked a lot about healthcare today, will you also look at higher education projects or projects that involve other nonprofits or are you just going to focus on healthcare?

Ben Mingle: Yeah, I think our main focus is healthcare. We have some university relationships, and we are looking at a couple different university projects, but our focus really is healthcare but we will, you know, an academic medical center is a good example of that. You’re blending the needs of a health system and a university, so we’re looking at some of those, and then other not for profits definitely fit in our scope, so we will look at any transaction or potential transaction that has a 501C3 use.

Andrew Dick: Great. Well, Ben, looking forward, five years from today, where do you see Centurion Foundation? What will you all be working on, is the outlook positive, I mean how much interest in this model has there been? Talk a little bit about that.

Ben Mingle: Yeah, I feel really good about where we are and where we’re going. I expect that in five years, this solution that we provide and that some others provide, will be a very commonly used tool in the healthcare space. I think it will be more of a household solution that hospitals can understand and use that to their benefit. So, I hope we’re still doing what we’re doing five, ten years from now. I just expect that there’ll probably be other people in this space and there’ll be a lot more prevalence of this approach.

Andrew Dick: Ben, how can folks connect with you and learn more about what Centurion is doing?

Ben Mingle: I think the easiest way is to just drop me a note, an email. It’s Ben, it’s bmingle@centurionmail.org. I think if they just drop me a note, I’ll be quick to follow up with them.

Andrew Dick: Great, hey, Ben, thanks for joining us on the podcast today. This is really good information for our listeners. I want to thank our audience as well for listening to the podcast on your Apple or Android device, please subscribe to the podcast and leave feedback for us. We also publish a newsletter call The Healthcare Real Estate Advisor, to be added to that list please email me at adick@hallrender.com. Thanks so much and have a great day.