Strong short-term headwinds resulted in a decline in loan volumes for the U.S. Department of Housing and Urban Development’s (HUD) Lean financing program for senior housing in 2022, but some of the key players in the space say opportunity lies ahead for next year.
For 2022, overall Lean program volume dropped to $2.89 billion across 243 transactions. For perspective, that’s the lowest dollar volume seen since FY2016 when $2.84 billion was seen in the space after coming off two strong years in 2020 and 2021.
During the fiscal year ending Sept. 30, 2022, the federal agency’s overall transaction volume fell by 32% and overall dollar volume fell by 35% from FY2021, according to HUD data.
Greystone led all lenders in transactions closed and total amount, at 35 and $418.5 million respectively, followed by VIUM Capital with 30 transactions for $351.6 million total and NewPoint with 23 loans for $354.7 million, according to HUD data.
For VIUM, a relatively new player in the HUD lending space, 2022 was consistent with expectations, according to Executive Managing Director Steve Kennedy.
In the short term he said borrowers are feeling the pinch of rapid increases in the cost of capital, something he called a “shock to the system” of income statements for owner-operators that were “already battling” high labor costs and inflation-induced increased expenses.
“I think the answer is ultimately, it’s a good time to go to HUD as any and now I think borrowers are starting to feel the pain of those increased variable rates,” Kennedy told Senior Housing News. “I think we as the lender community want to continue to work collaboratively with HUD leadership to make sure we’re getting those quality assets with quality operators into HUD as soon as we can.”
Looking back at 2022, Greystone’s Scott Thurman, head of healthcare FHA production, said the year went “better than expected” given the strong headwinds from rising interest rates.
“This is still one of the better years that we’ve had in the health care space … it’s still one of the top five years we’ve had,” Thurman told Senior Housing News.
Inflation remains a big challenge for lenders in the space and it’s squeezing yields, which has resulted in a pinch on net operating income (NOI), Thurman said. That ultimately led players to be more debt service constrained.
Areas that could feel the most pressure could come from assisted living and memory care deals, he said.
Long-term though, Thurman forecasted opportunity ahead for lenders, noting that acquisitions will be plentiful in chasing the “demand curve” as more people enter senior living communities nationwide and operators prepare for the baby boomer generation.
“There’s still going to be a fair number of transactions. I think there’s going to be a lot of sales opportunities,” Thurman added. “The demand curve is closer than it’s ever been.”
And while opportunities for acquisitions could be plentiful, owners looking to go to market with premier, stabilized assets should have no problem finding a suitor.
Over time, Kennedy estimated pressures would ease “a little bit slower” as owners recoup occupancy and margin losses from the Covid-19 pandemic. In 2023, Kennedy said he expected to see new volume into HUD loans this year coming in the form of 232 and 223(f).
That could mean a similar volume seen in 2022 and down from previous high watermarks.
“But the velocity and the pace is going to really pick up in the second half of the year,” Kennedy said in reference to 2023.