Fannie, Freddie Shake Off Effects of Pandemic

After a major drop in seniors housing loan production in 2020 resulting from COVID-19, the agencies nearly hold the line in 2021.

By Jeff Shaw

After a significant decline in deal volume in 2020, both Freddie Mac and Fannie Mae saw only modest slips in their seniors housing production in 2021, a sign that the industry has stabilized.

Freddie Mac’s annual lending volume in the seniors housing sector fell 45 percent year over year in 2020, dropping from $3.8 billion in 2019 to $2.1 billion in 2020, but fell just slightly to $2 billion in 2021.

Fannie Mae’s volume has fallen precipitously in recent years. After growing from $2.3 billion in 2018 to $3.1 billion in 2019, volume dropped 71 percent to $900 million in 2020. Fannie Mae’s total for 2021 was approximately $800 million.

This is despite the fact that Freddie Mac hit its cap of $70.7 billion for overall multifamily lending. Freddie Mac’s cap has been increased to $78 billion for 2022. As part of that increase, Freddie Mac’s multifamily volume will need to be 25 percent for affordable housing, up from 20 percent in 2021.

While Fannie Mae’s overall multifamily lending fell from $76 billion in 2020 to $70 billion in 2021, it increased its affordable housing lending by 23.1 percent and green multifamily lending by 3.6 percent.

Technically, neither of the government-sponsored enterprises (GSEs) originate or provide mortgages to borrowers, but they do purchase and guarantee them through the secondary mortgage market.

“The changes in Freddie Mac’s seniors housing volume throughout the past few years largely reflect what was happening in the market,” says Steve Schmidt, national director of seniors housing loan production with Freddie Mac. 

“The pandemic understandably drove occupancies way down, forcing many operators to look to bridge loans as they stabilized. The drop in occupancies also made refinancings more challenging to pencil out, and also slowed acquisitions.” 

“The good news is the industry is recovering, and we’re optimistic about seniors housing in the years ahead,” concludes Schmidt.

The top Fannie Mae seniors housing lenders for 2021 were, in order from highest, PGIM Real Estate Agency Financing, PNC Real Estate, Newmark, Walker & Dunlop and Greystone Servicing Co. The top Freddie Mac lenders were Berkadia, CBRE, Newmark, Greystone and JLL.

Vital signs improve

Schmidt says that the seniors housing industry is “already in a rebound,” and the lending environment will follow. However, he notes that until the industry is fully back up to pre-pandemic levels, each deal will be distinctly different.

“Although occupancies remain off their pre-pandemic averages, property-level economics are continually improving,” says Schmidt. “We’re seeing more and more lending opportunities, but the business is still very much market-by-market, operator-by-operator and deal-by-deal.”

The core metric for seniors housing communities is occupancy, which fell to a record-low of 78.8 percent for private-pay seniors housing in the first quarter of 2021, according to the National Investment Center for Seniors Housing & Care (NIC). 

The numbers have steadily improved since that low. The most recent NIC numbers, for fourth-quarter 2021, had private-pay seniors housing occupancy at 81 percent with an annual rent growth of 2.3 percent. NIC’s numbers are national averages based on 31 primary markets.

Schmidt noted that, despite still lending at well below pre-pandemic levels, Freddie Mac is still committed to the seniors housing sector.

“Freddie Mac continued to fulfill its mission throughout the pandemic,” he says. “We never left the market, even as many other debt providers moved to the sidelines. We maintained credit discipline and took the step of implementing temporary debt-service escrows, which are generally no longer required, so that we could provide consistent liquidity.”

“We also provided borrowers with unprecedented flexibility with the availability of a nationwide forbearance program,” adds Schmidt. “We’re proud of the support we provided to the market and learned a lot from what was a unique set of challenges for seniors housing.”

Freddie Mac’s seniors housing lending total includes affordable housing and senior apartments, also known as active adult. This allows the organization to continue its mission of supporting affordability in the multifamily space.

“When we approach the seniors housing business, we do so from the standpoint of our mission. Our goal is to broadly support affordability in the marketplace, and one way of achieving that is through readily available debt financing,” says Schmidt.

Regarding the increase in bridge lending to help weather the pandemic, Schmidt predicts this will lead to increased volume by the GSEs in the future as borrowers look to convert that financing to permanent loans.

“Over the long run, we’re looking at rising demand and constrained supply. At present, there are more than $10 billion in short-term, mini-perm loans out there that will be looking for permanent financing in the near-term,” says Schmidt. “Banks and other bridge lenders know that Freddie Mac is going to remain in the market and continue to be a key source of that takeout financing. As a result, our liquidity is providing the confidence they need to lend into the seniors housing market.

“In that way, we’re helping to support seniors housing operators as they work to build supply, which is ultimately essential to addressing affordability in a real way,” adds Schmidt.