Investors in today’s thriving senior-housing market need financing to purchase existing
stock, build new properties and rehab existing properties to compete for current and
future residents. Fortunately, commercial mortgage brokers can choose from a variety of
capital options, although the availability and competitiveness of capital will vary.
Construction financing is the most difficult type of capital to obtain, Gorham said, noting
that banks continue to be challenged from a regulatory perspective, which is creating an
opportunity for nonbank lenders to step in and fill the void. New regulations, coupled with
concerns about oversupply in certain markets, have resulted in banks requiring more
equity — typically 30 percent to 35 percent — and, potentially, more recourse. Nonrecourse
financing is available, but at leverage rates of 50 percent to 60 percent.
Transitional financing is more readily available. Commercial banks can work with
loan-to-value (LTV) ratios up to 75 percent and focus on experienced owner-operators
with consistent cash flow. There also are nonbank capital sources that may lend up to 80
percent LTV on a first mortgage and will consider mezzanine debt up to 90 percent LTV,
or may provide preferred equity up to 95 percent LTV.
Stabilized senior-housing properties have a variety of borrowing options. Life insurance
companies, as well as Fannie Mae and Freddie Mac, are competitive for
properties with LTVs of 65 or less. The GSEs will likely offer the best
terms on LTVs up to 75 percent. The U.S. Department of Housing and
Urban Development (HUD) is active in the assisted-living and
memory-care space. It provides a variety of financing options
for new construction and stabilized properties. HUD loans have
terms up to 40 years, are fully assumable and have attractive pricing.
What lenders want
In general, lenders will favor properties with open floor plans, which
offer a more aesthetically pleasing building, enable larger units with
amenities more in line with a traditional home, and allow for restaurant-style
dining options and more common space. Older properties that lack these features may
have difficulty optimizing their financing without the owner modernizing the space by
investing significant capital.
Developers can make their new-construction properties more attractive to lenders by
building for the long term. Properties must be functional and appealing to residents of
today, but also to those 10 years down the road.
Lenders can assess how stable the operation is — or will be — by asking a simple
question: Will the residents of today and tomorrow want to live there? The types of
programs a senior-housing property offers can impact the residents’ quality of life and
their desire to call the property home. A lender might check to see if the operator takes
a one-size-fits-all approach to programming, or whether the staff customizes activity
plans for residents.
n n n
Americans are living longer and the swelling ranks of an aging population are changing
the face of senior housing. This is creating enormous opportunities for developers,
owner-operators, mortgage brokers and lenders. Private-pay senior housing is poised
for strong growth and is evolving to meet the modern demands of residents and
their families. These modern properties combine the components of real estate,
hospitality and health care, making them attractive and exciting opportunities for
equity and debt investments. n
<< Seniors continued from Page 32
Scotsman Guide Commercial Edition |
ScotsmanGuide.com | March 2018 34
Trace Wilson is a director at PGIM Real Estate Finance. Since 2013, he has
originated and closed more than $1.5 billion in loans secured by senior housing.
PGIM’s senior-housing team offers a depth of expertise and has access to
multiple capital sources, including Prudential Financial’s general account,
Fannie Mae’s Delegated Underwriting and Servicing (DUS) program, Freddie Mac and a
bridge-to-agency program. Reach Wilson at (404) 704-8948 or firstname.lastname@example.org.