Operators Refinancing to Combat Reimbursement Cuts, Improve Cashflow

The senior housing industry is seeing a flurry of financing activity with interest rates as competitive as they are, and many lenders are saying that considering the possible financial benefits that can be reaped, now is the time to refinance portfolios both large and small.

“We’re seeing a tremendous amount of refinancing, [especially] for people with existing Department of Housing and Urban Development-insure mortgages, at rates anywhere from 4.25% to 6% to 7%, and even those with prepayment penalties,” says Love Funding’s Bob Smallwood, a senior director working out of the firm’s Cleveland, Ohio office. “Because of the drop in interest rates, we’re able to take [the loan] back to HUD and refinance it through the [Section] 223(a)(7) program, and get a significant gain in cashflow.” 

Lender Lancaster Pollard is seeing transactions done as recently as three years ago getting refinanced as rates have dropped even lower. 


“We’re finding that anything that hasn’t been refinanced in the last five years absolutely makes sense, unless there’s some lockout or other economic or legal prohibition from refinancing,” says Nick Gesue, a senior vice president at the Columbus, Ohio-headquartered firm.

There’s “such a large number of deals” that make sense to refinance, he says, which is driving a lot of the activity. 

Improving cashflow is increasingly important considering Medicare and Medicaid cuts—a contributing factor to why many are making the decision to lock in lower interest rates, and why more should do so, Smallwood says.


Many owners or operators have already made as many reductions to operational expenses as possible, he says. Now, they’re recognizing they have to do something more—and that something more is refinancing.

For many companies, it’s “nothing” to see $60,000, $70,000, or even $80,000 a year in savings through a mortgage refinancing, he says, and that can get even higher for larger companies.

Whether a company’s portfolio of properties is large or small, there’s value in getting interest rates lowered, says Smallwood. And the benefits to smaller players mean “a whole lot more.” 

“It could benefit them maybe $3,000 to $4,000 a month in cashflow, if not more,” he says. “That becomes pretty significant.”

Typically, he adds, someone moving from traditional financing to a HUD-insured loan sees improvement in cashflow become “that much greater.”

The idea of refinancing can become even more enticing consider that the process for doing so isn’t difficult, he says. At this point, and with the right lender, he says, HUD’s Lean queue is “basically nonexistent.” 

“There’s just no reason to not take advantage of the situation, unless there’s some sort of strategical deterrent,” he says. “If you’re going to own and operate, I can’t imagine not refinancing.”

Written by Alyssa Gerace

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