Lending for new senior living projects remained muted in the fourth quarter of 2023 as broader macroeconomic factors continued to dictate lending activity.

Permanent financing for senior housing and nursing care has “remained inconsistent” across various lending categories, reflecting lingering challenges, including stricter lending standards, wider bid-ask spreads, and lower loan proceeds.

Despite those challenges, there was an increasing pace of loan underwriting applications approved in the fourth quarter of last year.

“This suggests that while challenges exist, there is continued interest in lending to the senior housing and nursing care sectors, with lenders adjusting strategies to navigate the current market conditions,” wrote NIC Principal Omar Zahraoui in a recent blog post about the report.

The report reflects the contributions of 17 lenders. Total loan volume closed for senior living consisted of over $560 million in transactions.

In the fourth quarter of last year, delinquent loan balances were down by 13% from the third quarter of 2023, and delinquencies “as a share of total loans” decreased by 4.4% in 3Q23.

Mini-perm and bridge debt issuances for senior housing have increased, along with new construction loan closings, but these levels “remained well below historical standards,” the report found.

Total loan balances for senior housing decreased on a quarter-by-quarter basis, and the decline was attributed to multiple factors such as market conditions, lender caution, loans coming off the books, and potential property distress, the report noted.

This supports past tactics observed in the senior housing lending space as operators have focused on primary capital relationships and sought out stabilized, well-operated buildings.

In a recap of the broader macroeconomic forces playing out across the industry, the report reinforces the U.S. Federal Reserve’s stance regarding future interest rate cuts. The report notes that recent comments and actions from the Federal Reserve’s Federal Open Market Committee (FOMC) have moved into a “better balance over the past year” in line with the Fed’s employment and inflation goals.

The U.S. Federal Reserve recently reiterated its posture on rate cuts, noting that the organization does not foresee any rate cuts until inflation moves toward 2%, as evidenced last week when it was reported that the Federal Reserve won’t cut interest rates this summer, as previously forecasted.

“While recent months have delivered mixed results on key inflation indicators, many market expectations include a potential rate cut by late 2024 or early 2025,” the NIC report states.