Senior Housing Lending on the Upswing, Underwriting Focuses on Operating Margins

The lending environment within the senior housing sector became more competitive, with borrowing activity increasing in 2021.

Banks returned to the market during the second half of 2021 in particular, according to lender survey results released Friday by Chicago-based speciality investment bank Ziegler. One respondent noted $700 million 2021 volume, compared to $600 million in 2020, with the lending environment becoming more competitive.

Of the 131 lenders solicited for participation in the survey, a total of 16 responded, including: five regional banks, four national banks, four finance companies/alternative lenders and three listed as “other.” The report also found a majority of lenders indicated average deal commitments between $16 million and $40 million.


Remarks from survey respondents reflected a notably more bullish outlook on senior living, compared with the first year of the Covid-19 pandemic in 2020.

Expectations of increased borrowing within the senior housing field could stem in part from banks being lenient on loan conditions given the Covid situation over the last two years, Donald Husi, managing director at Ziegler, told Senior Housing News.

“A lot of those loans are coming due now, so I think that is going to have an impact on the volume of transactions that are occurring,” Husi said. “I think the other thing that is occurring is that some of these owner-operators are just tired and exiting the business and that will drive up some of these transactions.”


Husi added that an increase in senior housing borrowing could come most commonly within assisted living and memory care spheres, while construction borrowing could remain behind historical trends due to rising interest rates and high building costs.

One respondent reported that lending activity in 2021 doubled compared to 2020 as market acceptance and knowledge of the Covid-19 pandemic’s impact stabilized.

Another respondent was with a firm that entered the senior housing and long-term care space in 2021, and the firm expects to increase its exposure to the sector in 2022.

Even as conditions improved, three different methods for underwriting Covid-19 related expenses and revenues appeared to surface, the report noted. The methods were: excluding all Covid-related revenue and expenses; excluding all Covid-related revenues but including Covid-related expenses; including all Covid-related revenues and expenses.

As occupancy has ticked up, lenders are increasingly focused on where operating margins will stabilize, one respondent noted. Higher costs for labor, food and supplies are “potentially permanent” and must be underwritten accordingly.

As for lending terms, the typical spread range was between 2.6% and 3.5%, although there was substantial variation across lenders and property types. Most respondents had a base rate floor in the 0.10% to 1.00% range, which was similar to 2020.

In terms of loan-to-value, most respondents reported a maximum 71% to 80% maximum.

Companies featured in this article: