Tips for Smarter Bridge Financing in Senior Housing

Senior living providers who need to grow to stay competitive but don’t want to wait for FHA financing should consider a bridge loan. However, there are some caveats to keep in mind.

That was a big takeaway from a May 24 webinar hosted by Senior Housing News and Arbor Realty Trust, a direct lender with 13 branches across the U.S. The webinar, called “Financing Trends for the Changing Senior Housing Landscape in 2017,” aimed to equip providers with advice for getting ahead of an expected wave of demand for senior housing.

It’s no secret that the demand wave is looming, professor and economist Sam Chandan said during the webinar.

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Assisted living, independent living, and skilled nursing providers in markets across the U.S. should see a significant spike in demand over the next decade mostly due to aging baby boomers, he noted.

Though the demand boom is still a decade or more away, some providers might consider bulking up their senior housing supply before then. One common strategy for providers that want to do that is to buy up a struggling or mismanaged asset in a strong market and then flip it to turn a profit.

And there are several ways to accomplish that, including securing cash through a loan backed by the Federal Housing Administration (FHA). These are especially popular among senior living companies these days, and FHA loans are non-recourse, fixed-interest, and can be used to acquire all senior living property types.

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There’s a downside, however: The FHA loan application process could take a year or more. An opportunistic operator looking for a quick turnaround might think about getting a bridge loan, Arbor Realty Trust Regional Managing Director Brian Jones tells Senior Housing News, expanding on the webinar’s message.

The loans are “a great option for borrowers that are acquiring an underperforming facility where the performance is not market driven,” he adds.

As an example, Jones points to a hypothetical community in a strong market that has low occupancy and high expenses due to mismanagement.

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“In these situations, a borrower who has a proven track record of profitably operating comparable facilities, and who presents a sound business plan to turnaround a facility, is a great candidate for a bridge loan,” he says. “Because FHA and agency lenders will only underwrite to historical operations, owners use our bridge loan to acquire and reposition the facility before seeking a long-term permanent financing solution.”

As an added bonus, bridge loans can be closed within months, not years.

But there are some things providers should keep in mind:

  • Make certain that the market itself is strong, with healthy demand, available workforce, and other key indicators in place.
  • Determine why the asset is underperforming. Is it mismanaged? Is it physically obsolete? Is it in an undesirable location relative to competitors?
  • Establish a plan to turn around the performance and secure long-term financing.

And the process of converting bridge financing to FHA loans might soon get even faster, thanks to recent changes the U.S. Department of Housing and Urban Development (HUD) proposed.

Written by Tim Regan

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