Freddie Mac is rolling out a new product for senior housing that will compete with banks and other existing financing sources for development and repositioning within the sector.
Greystone has secured the first-ever revolving credit facility for seniors housing offered by Freddie Mac, on behalf of Oakmont Senior Living, in the amount of $150 million.
While Freddie Mac has previously offered revolving credit facilities in the multifamily sector, this is the first of its kind specific to senior housing; a move that will offer more options to senior housing owners and operators, says Greystone.
“The advantage to this product is a client can utilize it in several ways,” says Greystone Managing Director Neal Raburn. “It can be used to provide a way to season properties before taking them to the permanent market. It can also be used to season properties that are in the acquisition pipeline. It actually can be used as a benefit for development or acquisition properties as a way to stabilize them.”
The interest-only product provides an adjustable rate tied to LIBOR and allows for up to 75% leverage an an interest-only debt service coverage of 1.5x for independent living and 1.6x for assisted living, at a stressed sizing rate. Typically, the minimum size for a revolving credit facility is $50 million, but Freddie Mac’s product can be closed with as little as one asset totaling $10 million or more.
Oakmont Senior Living recently funded its first transaction under the facility for $29 million.
Borrowers can also continue to borrow against increased values and income created in the properties up to the specified maximum amount.
Greystone offered limited detail as to the use of the credit line by Oakmont, but the company says it will utilize the credit facility to take assets off its construction loans in the short term.
“The Facility allows us to finance assets off our construction loans sooner than ever before and we can increase the leverage of the facility as assets stabilize and then again on the exit refinancing,” said Joe Lin, CFO at Oakmont Senior Living.
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The product does not require any minimum occupancy, presenting an appealing opportunity for many senior living operators, Raburn said.
“This a really compelling product for people to consider in overall financing strategy, in that there is there is no minimum occupancy. It’s a very low interest rate, which provides maximum cash flow to the client.”
Further, the lending environment currently allows operators to realize the benefit of bolstering development pipelines, he said.
“As more senior housing operators are ramping up development pipelines, this is a compelling time to consider this option because it will allow them to free up capacity with banks or other construction financing.”
Freddie Mac says it intends to offer the option to more borrowers in the near term, further positioning the government-sponsored enterprise as a senior housing mainstay.
“We value the importance of supporting the development and finance of senior housing, and are excited to have worked with Greystone and Oakmont to bring the Revolving Credit Facility to seniors housing,” said Steven T. Schmidt, National Director, Seniors Housing Group at Freddie Mac in a press release. “Greystone has served as a trusted partner to date, and we look forward to working with more of their borrowers.”
Written by Elizabeth Ecker