Continued access to capital is critical for any business. For senior living, all sources—FHA/HUD, Fannie/Freddie, tax-exempt bonds, bank loans—have their merits, depending on the type of project, the amount of capital being sought, and the type of entity seeking the financing. On the other hand, different lenders have different appetites for the various seniors housing operating models. KeyBank, for instance, has portfolio percentage targets for skilled nursing facilities vs. independent living vs. assisted living, because it perceives different risks for the different operating models, according to Grant Saunders, Senior Vice President and Senior Banker, Healthcare/Seniors Housing Finance, at KeyBank Real Estate Capital in Tampa, Florida. So where do you go for financing?
Conventional bank financing, traditionally short-term, is typically used for construction, expansion, and bridge loans—although some banks finance on a longer-term basis and more regularly do stabilized financing.
Agency financing—Fannie Mae, Freddie Mac, and HUD—is traditionally used for longer-term, fixed-rate permanent financing.
Tax-exempt financing is available to not-for-profits.
REITs are having a huge impact on the sector recently. Publicly traded REITs have had unprecedented access to cheap capital, which has spearheaded consolidation; nontraded REITs, which raise capital from retail broker-dealers, have also raised large amounts of equity that then has to be deployed. Owner-operators traditionally go to REITs for sale/leaseback financing.
Private equity firms create joint ventures with owner-operators who contribute their existing assets and, in some cases, additional capital for development and/or acquisition.
Commercial mortgage-backed securities and insurance companies are increasingly providing financing in the sector, especially as Fannie and Freddie rates have increased.
Lender interest also varies based on attributes such as loan tenure, ease of repayment, leverage (loan-to-value and loan-to-cost), credit profile, and purpose (e.g., construction, acquisition, troubled property, permanent financing). An analysis of the sponsor—a general credit profile—is important to most financing institutions operating in the senior living space. Among the items the lenders analyze are:
Experience: How long has the company been in the business, how many properties has it operated, and where are they located? …….Want more invaluable information like this? Click here for a free trial to Senior Living Business Interactive and download a FREE webcast today!
