By Russell Phillips
The senior housing sector faced challenges during the height of the pandemic. Illness was widely reported among residents and staff, and restrictions increased inside the nation’s facilities. Additionally, many families chose to keep elder parents and relatives living with them, rather than allow them to reside in senior housing. A reduced demand for units followed and investor interest, transactions, finance availability, and new construction all slowed. However, market fundamentals have bounced back as restrictions lessen and demand tailwinds persevere.[i] Additionally, while rising interest rates are causing concern among all involved in senior housing, lenders, borrowers and investors alike remaining bullish on the sector overall, as the pandemic continues to recede and another surge of baby boomers is on the horizon.[ii]
The sentiment of lenders active in senior housing is on the upswing. However, lenders’ willingness to finance is somewhat based on the senior housing asset and loan types in question, in part because recovery in asset sub-sectors varies. For example, the National Investment Center for Seniors Housing & Care (NIC) released research in March 2022 indicating demand for assisted living properties is bouncing back after a pandemic-related drop. [iii] On the other hand, the Omicron variant caused COVID-19 cases to spike at the beginning of the year, seemingly stalling the occupancy recovery in skilled nursing facilities. Occupancy in these facilities remains low compared to the pre-pandemic February 2020 level of 86.1%.[iv]
Financing trends and options for senior facilities
Owners of assisted living and skilled nursing facilities can explore numerous paths to finance. Three agencies offer finance solutions for these properties – Fannie Mae, Freddie Mac and HUD. Fannie Mae and Freddie Mac financing is designed specifically for existing, stabilized and purpose-built senior housing properties. Benefits of these offerings include customized solutions, flexible yield maintenance periods and competitive pricing. Loan terms are typically 5 to 15 years and may be fixed- or variable-rate. Borrowers seeking to begin a financing relationship with either Fannie or Freddie may contact us directly for information.
HUD offers financing via FHA Section 232/223(f). Eligible properties must have been completed or substantially rehabilitated at least three years prior to the date of the firm commitment application. Fixed-rate and non-recourse, the program supports borrowers comprising a single asset and single purpose entity (either for-profit or nonprofit). Rates are determined by market conditions at the time of the rate lock. Given the potential pitfalls, and sometimes rigid process, of FHA/HUD financing, we encourage borrowers to contact us for guidance and to explore the finance options available based on financial projections.
In addition to facilitating agency provided financing, Regions Bank offers on-balance sheet lending options for senior housing and/or skilled nursing facility owner/operators, primarily in the form of construction, bridge and short-term loans. Notably, as facility occupancy and operating incomes have fluctuated during the pandemic, bridge financing has become an ideal option for many borrowers seeking a short-term debt solution as a conduit to future Fannie, Freddie or HUD longer-term permanent financing.
The team at Regions Bank is happy to assist any borrower interested in any of these agency and bank loan options.
Russell Phillips is Managing Director of Real Estate Capital Markets for Regions Bank, a nationwide senior housing, multifamily and commercial real estate lender. Visit www.regions.com or contact Russell about senior housing finance options at Russell.phillips@regions.com or 813.226.1138.
[i] JLL Research, Seniors Housing & Care: Investor Survey and Trends Outlook, Spring 2022, https://www.us.jll.com/en/trends-and-insights/research/seniors-housing-care-investor-survey-and-trend-outlook
[ii] NIC Notes: Insights in Seniors Housing & Care, Financing Market Faces Headwinds, Rides Tailwinds, May 11, 2022, https://blog.nic.org/financing-market-faces-headwinds-rides-tailwinds
[iii] NIC Notes: Insights in Seniors Housing & Care, Skilled Nursing Medicare Mix Increased Significantly Due to Omicron, March 31, 2022, https://blog.nic.org/skilled-nursing-medicare-mix-increased-significantly-due-to-omicron
[iv] NIC Notes: Insights in Seniors Housing & Care, Assisted Living Demand Bouncing Back Relatively Swiftly, March 17, 2022, https://blog.nic.org/the-pandemic-weighed-on-assisted-living-demand-is-bouncing-back