Financing for Senior Housing Will Loosen Up in 2013—For Some

Despite ongoing economic uncertainty, financing for senior housing looking ahead to 2013 is becoming more available—but on certain conditions, finance experts agree.

“We’re definitely seeing things loosening up out there,” said Thomas Hanrahan, managing director of healthcare real estate at Capital One Bank, during a Senior Housing News Summit event held last Thursday in Chicago.

“It’s the sponsor team that’s key,” he said, adding that there are a “lot of deals” his bank wants to get done with the “right” sponsor. “There have to be the right people behind it, with a track record and depth of management team.”


Prior relationships are important, as well.

“We have a lot of repeat business with existing customers,” said Phillip Kayden, an investment officer at Ventas Inc., a real estate investment trust headquartered in Chicago. “We want to understand who the operator is, how they’re capitalized, and what their track record is.”

Obtaining financing for new construction is still a “challenging time,” according to Hanrahan. “There’s enough inventory out there, and products that can be restructured or recapitalized; it’s such a wealth of opportunity that we haven’t had to go do new construction projects.”


Capital One has been noticing more borrowers coming to the table with their own equity in the deals. “Some are bringing deals they’ve closed with their own money, and they’re coming to us to refinance,” said Hanrahan.

Contributing equity seems to be a trend going forward when it comes to financing continuing care retirement community (CCRC) construction, especially those with nonprofit sponsors, says Michael Zarriello, managing director at Cain Brothers’ San Francisco, Calif. office.

Cain Brothers has been noticing inflows of capital into municipal bond funds in the last 25 weeks, says Zarriello, which means that there’s money around to be invested. The firm says it is seeing “big inflows” into funds for investments in renovation, expansion, refinancing, and even some start-ups.

“[The investors] are driven to [tax-exempt bonds] because rates are very low in other areas that are quasi-safe,” says Zarriello, citing U.S. Treasury bonds’ approximately 1.55% yield. “[They] want to look somewhere else to get a better yield.”

Good projects can get done, he says, including new construction—but the financing for those projects is looking different from how it’s been in the past, with borrowers being asked to contribute equity and have “skin in the game.”

At the end of the day—and looking into next year—a lot has changed in terms of financing, the panelists agreed, but there are some lessons to be learned.

First, communication between borrowers and lenders is crucial, said Zarriello and Hanrahan.

“We don’t want any surprises. Let us know what’s happening; keep us in the loop,” Hanrahan said.

Another big lesson that investors can learn, said Kayden, has to do with asset performance.

“NOI doesn’t always go up,” he said, adding that in 2005 and 2006, underwriting leases for newly-acquired properties didn’t have much room for “slippage.”

“In our leases, rent goes up year to year,” he noted. “If you’re not growing NOI, you have a hard time keeping up with that escalator.”

Written by Alyssa Gerace

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