Concerns about real estate distress have primarily focused on retail and hospitality properties, both of which have most visibly borne the brunt of COVID-19 state and local lockdowns. Yet, arguably, seniors housing has suffered just as severe a blow, say Matthew Pipitone and Jeff Rodman, program managers for M&T Realty Capital Corp. (MTRCC), the commercial mortgage banking subsidiary of M&T Bank.
Not only have seniors housing residents been restricted from having guests and seeing family members, but owners and operators have been tasked with finding ways to continue caring for residents while also negotiating physical space and other safety protocols. Pipitone and Rodman add, the pandemic also largely shut down new seniors housing construction.
Developers added only 1,626 units in primary markets in the fourth quarter of 2020 amid a declining occupancy rate that ended the year at 80.7 percent, according to the National Investment Center for Seniors Housing & Care (NIC), a 501(c)(3) organization that provides data and analytics to the seniors housing industry. That represents the lowest number of units added in eight years, NIC says.
But as the economy reopens, Rodman and Pipitone anticipate that pent-up demand will fuel seniors housing development in the coming months, and in particular, affordable seniors housing funded through federal low-income housing tax credits (LIHTC) and other initiatives.
Even before the pandemic, a record 10.2 million older households were spending more than 30 percent of their income on housing, according to the 2020 State of Nation’s Housing, an annual report issued by the Joint Center for Housing Studies of Harvard University. Among these cost-burdened renters, roughly 35 percent over the age of 80 were spending more than 50 percent of their income on housing, as were 30 percent over the age of 65, according to the report, which was issued in November.
To address these needs as well as the shortage of affordable housing more generally, MTRCC significantly expanded its affordable housing platform last year, opening new origination offices in Plano, Texas, where Rodman is located, and in Chicago.
“I would characterize the affordable seniors housing market as ‘on edge,’ and we have an opportunity to not only show the market that we care about affordable housing, but to also meet the growing demand that’s out there,” Rodman says. “It has been harder to get new projects off the ground during COVID because a lot of seniors weren’t willing to move. But we know the need is there, and I think we’re going to see a lot more new construction of affordable seniors housing over the next several years.”
Expanded Product Platform
Beyond opening new origination offices, M&T Realty Capital Corp. also became a Freddie Mac Optigo Targeted Affordable Housing (TAH) lender in 2020. The move expanded the mortgage banker’s roster of affordable housing financing solutions, which already included a full range of Fannie Mae and HUD products.
Freddie Mac’s TAH program provides loans for properties that serve low and very low-income renters in underserved areas. Among other TAH products, commitments to fund permanent loans early in the development process play an important role in affordable housing finance, Rodman says. LIHTC investors who provide equity to a development want all of the financing in place up front, which enhances confidence that the project can satisfy a 15-year compliance period.
“A default or a risk in the ability for a project to refinance the construction loan could violate compliance and investors could lose their tax credits,” he explains. “At the same time, we close on the LIHTC equity and construction loan, Freddie Mac commits to permanently funding the deal with an interest rate that’s locked-in. As long as the developer builds it and leases it and the net operating income pans out, then the loan goes into place.”
M&T bank and its mortgage banking subsidiary have long leveraged a close relationship to better serve clients and provide customized financing options. Now, having the capacity to provide additional financing solutions like Freddie Mac’s TAH program further complements M&T Bank’s balance sheet debt products, which include construction and bridge loans, adds Pipitone, who oversees seniors housing.
The synergy between the two platforms was critical during the pandemic when Fannie Mae and Freddie Mac became more conservative in the seniors housing sector, Pipitone says. Not only did the agencies rein in loan amounts and require more debt service coverage, but they also tilted their preference toward stabilized properties as well as sponsor experience and strength. As a result, some borrowers arranging permanent or refinance loans found themselves in limbo.
“It’s always important that our seniors housing team stays in touch with our bank colleagues, but it was even more so over the last year,” Pipitone says. “Agency and HUD lending terms and requirements were changing rapidly and were creating uncertainty around how quickly a client could refinance a construction or bridge loan in the permanent market. That’s when the bank’s balance sheet could step up and help out.”
The bank and M&T Realty Capital also plan on leveraging their partnership in other ways. M&T Bank invests in affordable housing tax credits through a number of syndicators, for example, and M&T Realty Capital’s growing emphasis on the affordable market will leverage that LIHTC equity to drive additional business, Rodman says.
Enhancing Client Communication
In addition to disrupting loan transactions, the pandemic put a halt to routine financing operations and procedures. For example, coordinating seniors housing visits with vendors to complete the due diligence process for a loan approval required extra steps to protect the health of residents and staff, Pipitone says.
Every day in-person consultations and meeting with clients also were limited. Consequently, M&T Bank launched Managing Through Challenging Times, an award-winning webinar series that allowed clients of the bank and its subsidiaries to keep abreast of various financial topics and events affecting seniors housing, affordable housing, workplace diversity, cybersecurity and other areas of interest.
“We’ve found the webinars to be a great resource for providing information to our clients,” Rodman said. “It’s one more way that we can display our expertise to the market.”
M&T Realty Capital Corporation is a wholly-owned commercial mortgage banking subsidiary of M&T Bank, Member FDIC. Equal Housing Lender. NMLS #1024366