CapitalSource selling nursing home business

CapitalSource announced Tuesday that it is selling its nursing home business to Omega Healthcare Investors of Hunt Valley, Md., for $860 million, helping relieve CapitalSource of heavy debt acquired during the recession.

The Chevy Chase-based company also announced that its founder, John K. Delaney, would give up his chief executive job to become executive chairman, freeing Delaney from day-to-day management and allowing him to pursue deals and strategy.

CapitalSource is one of several Washington-area specialty financing companies that have been hit hard by the credit crisis and the recession. Auditors at Bethesda-based American Capital issued an opinion earlier this year that the firm was in danger of not continuing as a business. District-based Allied Capital, which has suffered seven consecutive quarterly losses, announced last month that it would be acquired by Ares Capital of New York for $648 million in an all-stock deal.

"Finance companies have been hard hit because their access to capital and access to credit have been severely limited," said research analyst Ross A. Demmerle of Hilliard Lyons. "Their value has dropped dramatically."

CapitalSource had said for months that it was considering a sale of its nursing home business. The company has disappointed analysts this year because of higher-than-expected losses on its loans to businesses and commercial real estate developers.

CapitalSource, which makes loans from $10 million to $100 million to middle-size businesses, said selling its 180 nursing homes is part of its transition to a bank. The company earlier this year changed its status from a publicly traded real estate investment trust to a bank.

"There are going to be very significant opportunities for the company in the next year or two," said Delaney, adding that the job change was his idea. "I wanted to focus my time on those opportunities and turn day-to-day operations over to capable hands."

James Pieczynski, who runs CapitalSource's health-care lending business, and Steven Museles, the company's chief legal officer, will become co-chief executives and share a new office of the chairman with Delaney. Pieczynski and Museles have been with the company since it was founded in 2000.

CapitalSource also announced that President Dean Graham is stepping down from that role but will continue to consult with the company. Graham's replacement has not been announced.

In 2008, the company bought a troubled California community bank, Fremont Investment and Loan, assuming $5.6 billion in deposits and 22 branches.

The $170 million deal gave CapitalSource control over the bank's assets, a move designed to give it a stable cash base. The 70-year-old bank had been a major subprime mortgage lender.

Shares of CapitalSource rose 34 cents, or 9.2 percent, to close Tuesday at $4.05.