What advice do you give to borrowers who are seeking to either acquire, refinance or develop seniors housing?
Reset your expectations
By Alex Florea
Blueprint Healthcare Real Estate Advisors
My advice would be to take a step back, reset expectations and approach the market with an open mind. Attractive financing is available, and you can absolutely get your deal done.
But things have changed, and you may need to give recourse or other credit support. You may need to go outside your traditional bank group or work with an advisor.
All that said, if you can be flexible and adapt to the times, there’s still a strong and active capital marketplace — and rates remain very low.
Expect lower proceeds
By Alan C. Plush
The good times were put on pause starting in April of 2020. Prior to COVID-19, it was rather routine to expect proceeds from refinancing.
Underwriting has tightened, as have many loan-to-value ratios or coverage terms. Further, reserve covenants have increased, so the net result, even if valuations have held up pretty well in most cases, is that proceeds are less.
Less liquidity will put a near-term glass ceiling on valuation appreciation until likely the middle of next year when we expect the effects of COVID-19 will begin to fade.
Choose your lender carefully
By Lawrence Brin
Managing Director, Head of Healthcare Real Estate
MidCap Financial Services
Approach financing needs pragmatically and focus on a lender’s commitment to the seniors housing sector. The debt capital markets for seniors housing are still dislocated.
While nonrecourse agency and bank options are available for pristine assets in strong markets, many situations are better served by more flexible capital. Alternative capital can tolerate the immediate disruption caused by COVID and focus on the sector’s longer-term value.
Moreover, in a volatile and uncertain market, an experienced seniors housing lender will have will have more ability to execute at the closing table and prove to be a superior partner during the loan term.
Terms have changed
By Aron Will
Vice Chairman, National Senior Housing
CBRE Capital Markets
Be realistic. Generally terms for bridge and construction loans are significantly different today than they were pre-COVID. Many national banks are still out of the market, so those lending are by and large regional banks and debt funds.
Leverage for non-recourse executions has ratcheted back by 5 to 10 percent, and lenders are underwriting expenses and lease-up velocity more conservatively. All this said, attractive debt capital is still out there; it’s simply that it’s harder to come by. Close to half the lending community is on the sidelines or only lending to existing borrowers.
The good news is that agency financing is still very attractive for permanent opportunities, despite the principal and interest reserve requirements that they require.
Lenders become more selective
By John K. Powell, Jr.
National Director of Agency Production
Debt capital is available. However, while there is some evidence of market improvement, borrowers should continue to expect conservative structures.
Lenders want to minimize and mitigate risk, being more selective on transactions and concentrating on experienced, quality owners and operators. For permanent debt, Fannie Mae and Freddie Mac have generally reduced maximum leverage by 5 percent and increased debt-service coverage by 5 basis points; want to underwrite a realistic, achievable net operating income; and have implemented debt-service reserves to mitigate declines in property performance.
Similarly, construction and bridge lenders have generally lowered leverage 5 to 10 percent, increased loan spreads (including LIBOR floors) and are requiring greater levels of recourse.