Healthcare real estate investment trust (REIT) acquisitions and financing deals in senior housing are forcing Fannie Mae to adapt its business strategy and put a focus on working with small to mid-size players in the industry.
“In the past, we’ve done business with larger operators, but not many with middle market borrowers,” said Bob Simpson, who was recently named vice president for affordable multifamily lending and oversees the seniors housing division. In March, the seniors housing group was placed into its affordable housing channel to better suit its overall mission.
“Senior housing is a specialty product that requires significant expertise,” he said. “It’s different than conventional and in order to move forward, we have to look at it differently.”
To help with the transition, Fannie Mae also added Sheila Miller as its director of loan production, who will be responsible for managing relationships with approved senior lenders.
At the end Q2 2012, the Government Sponsored Entity (GSE) had $14.6 billion of senior housing loans on its balance sheet, up from $14.2 billion a year ago. While seniors housing is only 7% of Fannie Mae’s book of business, by working with smaller borrowers, that might start to change.
The driving force behind the change is the REITs, which have dominated the financing landscape over the last few years. In August, Health Care REIT (NYSE:HCN) announced the acquisition of Sunrise Senior Living for $845 million. While the size of these deals are shrinking, the REITs’ cost of capital is making it tough for Fannie Mae to compete in today’s market.
As a result, the GSE is putting more of a focus on the smaller REITs, growing operators and some with less than five properties. “We didn’t do it in the past, but we’re starting to do it now,” said Simpson.
Don’t expect any significant product changes to assist with the smaller operators, but rather a focus on working with new partners.
“It’s an upgrade to our business strategy more than anything,” said Chris Honn, director of senior housing for Fannie Mae. “With the health care REITs doing so many deals, it became an eye opener and it challenged us to change our overall strategy.”
Simpson isn’t sure how much of its overall business will come from this new segment of borrowers, but sees the change as a natural exertion its mission and ways of providing liquidity to the market. However, initial feedback from lenders has been extremely positive.
“We’re seeing some good traction, it has been a lot of fun being out in the market meeting with this new segment of borrowers,” said Honn.
Written by John Yedinak