The Department of Housing and Urban Development (HUD) processed nearly $5.5 billion of senior housing loans in 2012 through its Section 232 LEAN program, with volume skyrocketing more than 66% above last year’s $3.3 billion record.
HUD’s LEAN program became the largest single source of debt capital to the senior housing industry with 706 loans closed, led by Columbus, Ohio-based Lancaster Pollard.
Although 48 lenders closed loans through the LEAN program, Lancaster Pollard generated the most activity with 98 loans totaling $738.6 million, or 13.5% of total volume.
“A combination of factors are driving the enormous volume of activity through the HUD program,” said Brian Pollard, senior managing director of Lancaster Pollard. “Certainly, the historically low rate environment has been the primary driver of demand because no other funding source better captures the benefits of this rate environment. But there have been other contributors as well, including improved timing of the HUD process and continued depressed activity by many of the traditional lenders to this space.”
Cambridge Realty Capital had a record year, too, both in terms of transaction volume and dollar amount, said president and CEO Jeff Davis, with 9.63% of loan volume.
“Because of the drop in interest rates and the ability to refinance existing loans, we’ve reduced the cost structure for a number of our clients by millions of dollars,” he says. “It’s been a positive win-win for everybody.”
He credited his Chicago, Ill.-based firm’s success this year to its HUD team, which has been doing loans through the department since the early ’90s, giving them a knowledge level that’s very beneficial to clients.
Part of the increased loan volume can also be attributed to the LEAN program, Davis says. “I think it took some time, but the LEAN concept of processing HUD loans has really taken hold, and it’s enabled lenders like us to work with much more knowledgable people in a process that’s much more consistent coast to coast.”
HUD’s LEAN queue came under fire last year for its backlog of applications, which at one point grew to more than 400. In January, HUD said it was working “diligently” through the applications awaiting underwriting review and said it was making significant headway, with expectations to eliminate the queue by mid-2012.
In early March, HUD announced it had officially “busted through” the queue during an industry conference in New York, and invited the senior housing industry to bring more deals.
Part of the strategy HUD adopted to process all the applications was to bring on more staff, and Pollard says the program and its personnel deserve much of the credit for the program’s success in recent years.
“This isn’t your dad’s HUD program and the improvements under LEAN have made HUD a legitimate first stop for capital to providers of all sizes,” Pollard said. “HUD is listening to their stakeholders and providing meaningful responses. One such example is their decision to hire private sector subcontractors to process applications in an attempt to reduce the size of the backlog of applications waiting for HUD review, which has worked better than most could have imagined.”
Other prolific HUD LEAN lenders include Housing & Healthcare Finance LLC with 8.85% of loan volume; Capital Funding LLC with 7.22%; and Red Mortgage Capital with 6.76% to round out the top five lenders. Greystone Funding Corp., Walker and Dunlop LLC, and Love Funding also rank among top LEAN lenders in 2012.
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Written by Alyssa Gerace