As senior housing remains attractive for a variety of investors both new and established, the lending landscape in 2015 will be characterized by several macroeconomic trends, greater appetite from banks and even increased competition among lenders in the year ahead.
A favorably low interest rate environment in the U.S. has created a proliferation of low-cost bank financing, enabling borrowers to continue to leverage off of banks’ strong appetites to deploy funds, says Adam Sherman, managing director at RED Capital Group.
“On a macro level, senior housing as an asset class has risen over the last several years,” Sherman says. “There’s a rising tide of awareness as capital providers are becoming more comfortable and educated in the sector.”
Banks are also willing to commit longer to transactions, increasing their leverage points to give providers more debt than they would have in the past, says Chris Blanda, vice president at Lancaster Pollard, senior housing and healthcare financial services firm headquartered in Columbus, Ohio.
Interest from commercial banks in the senior housing sector will also be a boon to providers in their growth plans, whether those include building new properties or expanding existing ones.
“The rate environment is still going to be favorable [in 2015] and it’s our expectation that interest in the senior housing is growing by the quarter,” says Blanda.
Lancaster Pollard, who does tax-exempt bond placement for non-profit senior housing clients, among other products and services, has been seeing the number of banks interested in providing these types of loans grow.
“Financing options are broadening and getting attractive,” Blanda says. “Unless there is some sort of banking crisis that impairs banks’ abilities to lend, or an event that forces the Fed to raise interest rates, 2015 is going to be a really good year.
However, that is not to say that financing through federal programs like the Department of Housing and Urban Development (HUD), Fannie Mae and Freddie Mac won’t be a factor next year.
HUD, whose infamous backlogs for Section 232/223 loans would have taken up to a year in the past to have an application picked up by an underwriter, announced earlier this year that it has cleared the queues in all of its multifamily programs.
“HUD is basically telling all lenders, bring in the deals because we’re ready and eager to get going,” says Dan Biron, senior vice president at Berkadia. “Construction deals are still taking time, however, and HUD is being very selective in who they’ll do a deal with.”
Though the queue might be gone, it could still take anywhere from five to eight months to finance a project through the HUD 232/223 program. However, that shouldn’t damper demand in the coming year, especially as more operators look to expand or renovate their existing communities, or even pursue new construction opportunities.
“I anticipate to see the same strong demand as in 2014,” says Biron. “The industry is getting more recognition, the baby boomers are getting older, more investors see there is a demand and that this is an industry worth pursuing.”
The year ahead in 2015 could likely see more products developed as the result of collaborations between partners, especially as more commercial banks return to the sector and non-bank lenders look for ways to differentiate from conventional lending sources and permanent lending programs like HUD.
But the underlying theme to all of that is 2015 will be undoubtedly be a competitive year for senior housing lenders.
“Lenders of all types are going to be forced to adapt to all types of competition,” says Sherman. “Talent is always going to follow opportunity in the lending community.”
Written by Jason Oliva