Seniors Housing Business

OCT-NOV 2017

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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Capital Corner 10 www.seniorshousingbusiness.com Seniors Housing Business n October-November 2017 Top 10 HUD Lean Lenders in Senior Living for FY 2017 (Loan amounts in millions of dollars) Lenders in the HUD Lean Section 232 mortgage insurance program for senior living closed $3.4 billion in loans in fiscal year 2017, up 20 percent over the prior year. Lancaster Pollard led all lenders by a wide margin in total loan amount ($769.3 million) and number of loans closed (79). The firm has captured the top spot in the rankings for three consecutive years. Source: HUD Office of Residential Care Facilities, Lancaster Pollard Lancaster Pollard Mortgage Company Greystone Funding Corp. Keybank NA First American Capital Group Capital Funding LLC Housing & Healthcare Finance Berkadia Commercial Mortgage Capital One Multifamily Finance LLC M&T Realty Corp. Walker & Dunlop LLC $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $769.3 $376.7 $333.4 $278.7 $266.9 $238.3 $135.0 $114.5 $85.6 $80.7 79 15 33 18 28 18 17 10 5 6 Total loan amount Number of loans closed Lancaster Pollard Ranks As Top HUD Lender Again Firm closes $769.3 million in FY2017, while deal volume in program climbs 20 percent. By Matt Valley For the third consecutive year, Lancaster Pollard Mortgage Co. can lay claim to being the top loan producer in the U.S. Department of Housing and Urban Develop- ment's mortgage insurance pro- gram used to finance seniors hous- ing properties. Lenders in the program, com- monly referred to as the HUD/ FHA Lean Section 232 program, closed $3.4 billion in loans in fiscal 2017, a 20 percent increase from the prior year. (HUD's fiscal year runs from Oct. 1 to Sep. 30.) Lancaster Pollard led the pack on two fronts: The Columbus, Ohio- based firm closed the most number of loans (79) in the program, and also recorded the highest total loan amount ($769.3 million). "Throughout HUD's fiscal year, 75 of our 79 transactions were refi- nancings using the HUD/FHA Sec- tion 232/223(f) program for a total loan amount of $704 million, pro- viding low, long-term, fixed rates for our clients and improving their fiscal outlook," says Kass Matt, president of Lancaster Pollard. Greystone Funding Corp. came in second place with 15 loans closed through the program for a lending total of $376.7 million, and Keybank NA ranked third with 33 loans totaling $333.4 million. More broadly, 35 lenders closed HUD loans through the program in fiscal year 2017 with Lancaster Pol- lard responsible for 23 percent of the total activity. The firm has been the top HUD Lean lender overall since fiscal year 2010 with 600 loans total- ing $4.7 billion over that period. In September of this year, the firm was acquired by ORIX USA, a division of leading international financial services group ORIX Corp. ORIX also owns RED Capi- tal Group, the seventh ranked Lean lender during that time span. Skilled nursing, assisted living, and other residential care facilities can utilize the program for a vari- ety of purposes, such as financing purchases, new construction, sub- stantial rehabilitation, or refinanc- ing existing conventional loans. Why deal volume spiked It doesn't surprise Ed Foulon, FHA program manager for Cleve- land-based KeyBank Real Estate Capital, that lending volume in the program rose 20 percent in fiscal 2017. "First, HUD is the best prod- uct to finance skilled nursing facil- ities, and the program is very com- petitive with respect to assisted living and memory care facilities. Second, the number of mergers and acquisitions of the healthcare product is up. Finally, HUD has a good reputation of delivering loan proceeds." Mordecai Rosenberg, head of FHA Lending at New York City- based Greystone, says that the surge in the lending volume in fis- cal year 2017 doesn't surprise him either because interest rates are still near historic lows and the HUD loan product offers by far the best loan terms available in the market. "There has also been a signifi- cant amount of acquisition activity over the past several years, a lot of which was financed assuming a bridge-to-HUD execution. The volumes that we saw this year and that we will continue to see over the next few years will be fueled in part by the takeout financing of these bridge loans," explains Rosenberg. Steve Kennedy, senior manag- ing director with Lancaster Pollard, offers another possibility for the increase in deal volume in 2017. "This past year it was not nec- essarily that overall HUD activ- ity increased. It was more that the loan modifications went away. The byproduct of that is HUD origina- tors pitching non-note modification opportunities. As a result, you see an increase in 223(f) refinancings." There were plenty of loan modifi- cations executed in fiscal year 2016 that did not get captured in the overall lending volume because a note modification isn't considered to be a new loan closing. In a loan modification, the interest rate is lowered on the borrower's current note, while all other terms of the deal remain the same. When interest rates began to rise in the latter half of 2016, the loan modification business began to wane. (The 10-year Treasury yield closed at 2.43 percent on Oct. 26, up 60 basis points from a year ago). Another reason for the uptick in HUD deal volume in fiscal year 2017 is that banks began to tighten up from a leverage standpoint, so HUD presents an attractive financ- ing alternative, says Kennedy. Predictions for 2018 Fiscal year 2018 should be another banner year for the HUD Lean 232 mortgage insurance pro- gram overall, says Foulon. "The mergers and acquisitions business continues to be strong. KeyBank's bridge-to-HUD pro- gram is the industry leader," Fou- lon believes. "We expect it to drive the volume and number of Key's healthcare deal closings in fiscal year 2018 to record heights — at least double over this year." Greystone's Rosenberg also expects fiscal year 2018 to be strong on the lending front because inter- est rates remain near historic lows and there is bound to be plenty of borrowers looking for bridge-to- HUD refinancing deals. The company is trying to achieve something bigger, however. "We have been singularly focused on being the easiest lender in the coun- try to work with and the easiest lender in the country to work for," says Rosenberg. "Toward that end, we have been aggressively growing our team with top industry talent. We have also invested heavily in technology development and process enhance- ments with the goal of making quantum-leap improvements to the client experience through HUD underwriting," adds Rosenberg. In one year Greystone reduced the average underwriting time- frame from a range of 12 to 18 months to a range of six to eight months, a 50 percent decrease. n

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