Non-profit senior living bond financing was down in the first half of this year compared to 2021 as cost inflation drove the market.

That’s according to the 2022 Mid-Year Update, a new report that Chicago-based capital investment bank Ziegler released last week.

Non-profit senior living tax-exempt debt issuance for the first half of 2022 was down roughly 9% compared with the same period in 2021. Senior living bond financing volume also clocked in below last year’s levels at a little under $1.6 billion, compared with nearly $1.8 billion for the first half of last year.

The report comes as occupancy continues to trend positively for operators nationwide following four consecutive quarters of growth.

New money represented roughly one billion dollars, or 64% of the total bond financing in the first half of this year, marking a 9% decrease compared to the same period in 2021. Those dollars accounted for new communities, campus expansions, affiliations or acquisitions, renovations and capital improvements, according to the report.

Thanks in part to low interest rates, not-for-profit borrowers closed more than $6.4 billion in bond financing in 2021. But the Fed raised rates in February, which has helped to disrupt the market since then, according to Ziegler. The report estimated that short-term rates could rise by the end of July by another approximately 75 basis points.

“With another interest rate increase on the horizon, it is hopeful that inflation will trend downward and municipal bonds will see greater demand,” Ziegler Vice President of Senior Living Research Cathy Owen wrote.

While refinancings were down in the first half of this year, the figures show signs that the market is getting more active. A total of $577 million was financed in the first half of this year compared to approximately $670 million. On the whole, not-for-profit refinancing volume is up 46% from 2020, the report states.

The majority of bank financings are for new money issuances, refundings, expansions or affiliations. Much of the financing in the first half of 2022 took the form of fixed-rate bond issues rather than letter of credit-backed variable rate demand bonds, according to the report.

Borrowers of fixed-rate bonds made up 55% of the volume in the first half of 2022. The issuance for the same period last year was 46%.