GSEs Find Niche in Long-Term Senior Housing Financing

Ever since the “Big 3” healthcare real estate investment trusts (REITs) began showing up to the biggest senior housing acquisition bashes of the last few quarters, agency finance has been forced to look for new parties to attend, many of which involve long-term financing.

Despite improving liquidity for senior housing and ongoing talks regarding the future of Fannie Mae and Freddie Mac—including new legislation introduced by Sen. Bob Corker (R-Tenn.) that seeks to wind them both down—lenders still see their necessity.

“We have seen the capital markets open up in addition to a lot more equity players entering the senior housing market in the past 24 months,” says Neal Raburn, managing director of senior housing finance at Greystone Servicing Corporation, Inc. “A lot of those capital sources are chasing yield where maybe they haven’t been able to get it in other financial areas. However, we have not seen an abundance of new players in the perm loan market.”


HCP Inc., Ventas, and Health Care REIT combined for nearly $20 billion of acquisitions in 2011 in just four transactions. In 2012, dollar volume fell somewhat as fewer portfolios remained on the market, but REITs still dominated the scene—including the $4.3 billion acquisition of Sunrise Senior Living by Health Care REIT—and are expected to stay active throughout 2013.

With yield-chasing REITs taking the short-term senior housing financing scene by storm, plenty of room remains for long-term players. Cue Fannie, Freddie, and the Department of Housing and Urban Development (HUD).

HUD made headlines in 2012 for record-setting loan guarantees, insuring $5.5 billion through the Section 232 LEAN program. Fannie Mae and Freddie Mac, meanwhile, have taken on a collective $3 billion in senior housing loans in the past two years.


Fannie and Freddie have both made efforts in recent months to reach a more diverse base of customers, according to Allison Holland, vice president with KeyBank Real Estate Capital’s healthcare group, who called it a positive sign of growth. Part of their movement toward the midsize market of regionally-focused owners and operators is driven by REIT activity, she adds.

“A lot of large REITs have purchased a lot of clients of existing regional lenders and agencies, and when those acquisitions happen, the REITs don’t need agency financing,” Holland explains.

As a result, the agencies have had a lot of runoff in their portfolios because of substantial loans that have been paid off, prompting a need to replace those loans.

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“They’re making a large effort to reach out to us as their partners, reach out to more regionally-focused smaller players with maybe 5-10 properties to grow their portfolios,” Holland says, noting that both agencies are still also interested in larger industry players.

REITs are trying to deploy their own capital, says Raburn, and unless they can’t reasonably assume the debt of their acquisitions, they typically pay it off.

“For the agencies to increase their portfolios, they must either reach out to existing clients that have properties that have not been financed through the agencies, or they have to reach new clients that have not utilized agencies for financing previously,” he says.

Many of KeyBank’s clients will ask Holland if she knows of any deals they can buy, or any existing owners looking to sell, which she says signals good liquidity in the market.

“People are really looking to grow and expand, which is encouraging,” she says. “That also translates into the likely belief that there is a source for financing, which is good for banks as well as agencies.”

Written by Alyssa Gerace

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