With interest rates at such competitive levels, finance activity in the senior housing industry is intensifying, and it’s not just for refinances or permanent financing—there’s also a fair amount of opportunistic activity for acquisitions and even new construction, lenders say.
Low interest rates are spurring finance transactions in more ways than one, says Keith Reuben, the executive vice president of commercial and specialty lending at Capital One Bank.
“While interest rates offered by lending institutions have certainly been competitive, we have not necessarily seen refinancing activity related solely to interest rates sensitivities; in other words, borrowers are not refinancing just to capitalize on interest rates,” he says.
Besides refinancing, there’s also a “healthy” amount of M&A activity, says Reuben, who adds that there’s still a sizable market for the non-REIT traditional buyer.
“The market’s very robust right now,” confirms Erik Lindenauer, president of Chevy Chase, Md.-based Housing & Healthcare Finance, LLC. He says his firm has already done more volume this year than it did in all of last year.
“We’re locking in rates below 2.50%—it’s amazing,” he says.
There continue to be acquisitions along with recapitalization of existing properties, such as refinancing bridge loans, says Nick Gesue, a senior vice president and director of housing at Lancaster Pollard Mortgage Company.
“There’s a lot of volume that’s purely economic, but also a lot of volume that’s due to people buying and turning around assets, or repositioning their portfolios; those types of financing are opportunistic,” he says. “Given the state of Medicaid and Medicare for the skilled nursing environment, it has created opportunity for people to buy properties and expand operations—both of which necessitate financing.”
He says the opportunistic area has kept producing recurring business on top of what’s “purely mathematical” in cases where it makes sense to refinance.
As far as the future of interest rates, the outlook is unclear, the lenders agree.
“We can’t really predict where they’re headed,” Reuben says. But regardless of where they go, he adds, banks like Capital One will maintain the ability to provide capital and lend to the market, especially based on the impending wave of boomers heading into retirement and other demographic and political winds that influence the industry.
“Everyone is projecting that rates are going to rise, but they continue to push back when the start of rising interest rates [will be],” says Gesue. “It’s now showing into 2013; in some cases, [it’s] mid-to-late 2013 before we see sustained higher rates.”
Like Reuben and Gesue, Lindenauer couldn’t speculate too much on the interest rate outlook.
“The capital market is very volatile, and it’s an election year,” he says, pointing toward the stress in Europe as well. “We’re hearing people say rates are going to stay low for another year, but who knows where rates will be?”
Written by Alyssa Gerace