If they haven’t already, it may be time for investors to reject the notion that seniors housing is a niche asset class. To meet surging demand for the properties brought on by the aging baby boomer population, sophisticated owners have spent years building modern, amenity-rich properties that feel like home, a far cry from 20th century versions of the model, which were often bare-boned and sterile environments.
Despite the complex nature of underwriting healthcare operators, the number of lenders serving seniors housing developers has ballooned over the years given the industry’s stable and favorable long-term outlook. M&T Bank has been a strong and competitive participant in the senior housing debt markets, and it is laying the groundwork for the property sector’s continuing expansion.
The bank is among a handful of financial institutions in the U.S. that can finance the full spectrum of seniors housing and healthcare properties, including independent living, assisted living and memory care facilities, whether in a continuum-of-care or standalone setting. What’s more, borrowers can rely on M&T Bank to provide the full spectrum of financing: The bank uses its balance sheet to provide bridge or construction loans while M&T Realty Capital Corp., its mortgage banking division, arranges permanent financing.
“Our balance sheet lending and Realty Capital divisions are always working together to find the best solutions for our customers,” says Chris Tesla, a commercial banking team leader for M&T Bank in the Seattle area. “All of our loan products are under one roof, and we can work with owners from construction all the way to permanent financing without having to hand them off to a colleague in another part of the bank.”
M&T Bank’s seniors housing loan portfolio of $8.7 billion attests to its commitment to the sector, and M&T Realty Capital Corp. has consistently ranked as a top intermediary of permanent seniors housing financing solutions offered through HUD, Fannie Mae and Freddie Mac. Among other programs, M&T Bank’s bridge-to-agency platform provides borrowers with strategic short-term cash-out refinancing that is later replaced by a HUD/FHA Section 232/223(f) permanent loan. (Read more about the program here.)
The bank continues to expand into new territories as part of a healthcare banking growth initiative. In recent months, M&T Bank added Tesla to its Pacific Northwest office to enhance its expertise in the region. M&T Bank also expanded into South Florida, appointing Peter Schatz, a commercial senior relationship manager for M&T Bank, to its new office in West Palm Beach. To properly serve clients and succeed in these endeavors, M&T Bank and Realty Capital Corp. officials must fully understand not only the type of product a borrower wants to build, renovate or buy, but also how a market’s supply and demand, existing and potential competition, barriers to entry and other conditions can make or break that investment.
In both the fast-growing Pacific Northwest and South Florida regions, seniors housing developers face high land and construction costs, which can restrict new development, say Tesla and Schatz. But in the Portland and Seattle markets, rigorous entitlement and permitting processes also have helped temper construction, Tesla explains. Similar restrictive conditions aren’t as prevalent in sprawling metros like the Phoenix market, he adds.
“Location and barriers to entry are something we really pay attention to,” Tesla continues. “Developers don’t want to start building and then suddenly see competitors popping up.”
Barriers to entry are a mixed bag in South Florida, points out Schatz, where M&T Bank has multiple independent living, assisted living and memory care property deals in the works.
Peter Schatz, M&T Bank
“When it comes to entitlements and the ease of getting things done, there are big differences between municipalities in South Florida,” he says. “But proven sponsors and operators who can cut through the red tape in a tough permitting process and perform give us confidence that their projects are going to get built and filled prior to other competitors coming online.”
When M&T Bank makes a construction or bridge loan, it typically begins working with M&T Realty Capital Corp. on finding a permanent financing solution for the borrower early in the development phase. “In the case of long-term holders, that process often involves arranging agency financing to take out construction loans,” says Steven Muth, managing director for M&T Realty Capital Corp. in Richmond, Virginia. But the mortgage bank is adept at fulfilling a variety of strategic goals, too, such as arranging a short-term permanent loan – or mini perm – for funds with life cycles ending sooner rather than later, he adds.
Steven Muth, M&T Realty Capital Corp.
The teamwork extends to specialized assets like standalone memory care properties that, by their nature, are subject to additional underwriting criteria due to enhanced occupancy risk and other potential complications. Unlike continuum-of-care settings, which can channel independent or assisted living residents into memory care units, standalone memory care facilities must market to the broader community. Additionally, the advanced frailty of the typical memory care inhabitant tends to translate into shorter stays and more resident turnover.
Despite the potential challenges, M&T Bank officials maintain that the model can thrive under the tutelage of experienced operators in strategic locations. For example, the bank recently provided a $24 million construction loan to the developer of a standalone memory care project in the Seattle area. It is now collaborating with M&T Realty Capital Corp. to arrange a permanent loan.
Sean Huntsman, M&T Realty Capital Corp.
“We have a nice advantage being able to work with HUD, Fannie Mae and Freddie Mac, not just one or two of the agencies,” explains Sean Huntsman, an executive managing director with M&T Realty Capital Corp. in Los Angeles. “If one solution doesn’t work for a borrower, we can quickly pivot and look to other options.”
— By Joe Gose, contributing writer. This article was written in conjunction with M&T Realty Capital Corporation, a content partner of Seniors Housing Business.
M&T Realty Capital Corporation is a wholly-owned commercial mortgage banking subsidiary of M&T Bank, Member FDIC. 
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