$4.5 Billion in CMBS Loans Secured by Senior Housing, Delinquencies Possible

A combination of oversupply in some markets and baby boomers entering the senior living space at an older age may adversely impact the future performance of senior housing-backed commercial mortgage-backed securities (CMBS) loans.

These loans are performing well at the moment, however, according to a new report by Kroll Bond Rating Agency (KBRA), a New York-based credit rating agency. KBRA looked at the exposure of age restricted, independent living and assisted living facilities to the CMBS market, and identified $4.5 billion in CMBS loans secured by senior housing. Age restricted communities account for 46% of the total — $2.1 billion. The balance is equally split between assisted living and independent living.

Courtesy of KBRA, Trepp
A breakdown of CMBS loans securitized by senior housing.

Senior housing exposure to the CMBS market is limited to loans in CMBS 2.0 conduit — loans issued after 2009, when the CMBS market was essentially frozen in the financial collapse— and Freddie Mac K-Series transactions, KBRA noted.

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The CMBS market’s appetite for age-restricted housing mirrors overall investor interest in the space. The 2019 Senior Housing Outlook Report from Hunt Real Estate Capital and Senior Housing News revealed that active adult trailed only independent living as the most popular senior housing type among investors — a trend that could disrupt the industry at large if it continues.

The report cited data from commercial real estate research firm CoStar and the National Investment Center for Seniors Housing & Care (NIC) to caution that CMBS loans collateralized by senior housing could be at risk to underperform, if the properties are located in markets with pockets of oversupply.

KBRA also noted that the boomer generation will be 55 and older by the end of 2019, squarely placing it in the market for age-restricted housing. But boomers’ desire for choice in where they live, wanting to live in intergenerational neighborhoods as long as they can and entering higher acuity senior housing at an older age, may drive down occupancy rates which could impact the performance of properties backing CMBS loans.

Still, the vast majority of these loans are performing well at the moment, with only one currently delinquent or in service.

That loan, valued at $8.5 million, is collateralized by Agape of Harbison, an assisted living facility in Imro, South Carolina. It has been delinquent for over 90 days and the community’s net cash flow is insufficient to meet debt service requirements — a strong sign of the community’s underperformance. 

Another delinquent CMBS loan, securitized by four Pillsbury Senior Communities properties in Vermont, was bought out of receivership on August 30. The former owner of those communities, Andrew White of East Lake Capital Management, is alleged to have been an absentee owner and misdirected funds from the properties into other business interests.

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