Seniors Housing Business

JUL 2018

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

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www.seniorshousingbusiness.com 31 July 2018 n Seniors Housing Business • Our Expert built successful teams for large banks and for smaller private companies. • More than 20 years of financial experience. • Almost 10 years as a HUD-certified LEAN Underwriter. High-Level Perspective for Detailed Execution Latoria Thompson Consulting, LLC offers versatile consulting and underwriting services in commercial real estate finance. We bring to every project vast experience in healthcare and multi- family analysis and strong expertise in HUD lending. Latoria Thompson Consulting, LLC Bowie, MD • (301) 966-0102 www.latoriathompsonconsulting.com Your Seniors Housing HUD Expert "Even with rates ticking up, you can still close a HUD loan in the low 4 percent range today for a term of 35 years, which is about 100 basis points inside of agency loans," emphasizes Fenton. "What we might see is borrowers who have historically used agency loans migrate back to HUD for higher proceeds and a lower rate." Gehl of Housing & Healthcare Finance reminds borrowers that the benchmark 10-year Treasury yield is still well below historical averages. "In the years prior to the Great Recession, we saw a 10-year Treasury yield in the low- to mid-4 percent range." Constraints, considerations Although borrowers may have a sense of urgency to refinance prop- erties sooner than later in a rising- interest-rate environment, HUD's programmatic lending constraints could hinder their efforts to refi- nance newly built skilled nursing or assisted living facilities, says Steve Kennedy, senior managing director at Columbus, Ohio-based Lancaster Pollard Mortgage Co. In fiscal year 2017, Lancaster Pollard was the top lender in the HUD Lean program with 79 loans closed for a total of $769.3 million. "You can't refinance a newly constructed facility through HUD until you have had your certifi- cate of occupancy for three years," explains Kennedy. "There is a large volume of seniors housing prop- erties that have been delivered to the market over the past year, or will be in the coming year. Those properties are just not going to be able to get to HUD in the near term because they have to stabilize and await the passage of time." While borrowers are sensitive to rate hikes, Kennedy believes that HUD financing provides more "cushion" than traditional private- sector financing alternatives. For starters, HUD's fixed rates are typ- ically lower than rates offered by private-sector sources. Addition- ally, HUD's term and amortiza- tion for a refinancing, for example, extend up to 35 years. By stretching out the loan pay- ment and low fixed rate over that term and using relatively conser- vative cap rates in valuing proj- ects, the effect out of the gate is that a HUD deal is typically going to have a debt-service coverage ratio of nearly 2.0, which means the property is generating substan- tial positive cash flow after debt service, according to Kennedy. "When you have that much excess cash flow coming from an asset, you have more capacity to absorb higher interest rates com- pared with not only private sec- tor sources of capital, but also other asset classes that might be underwritten at lower cap rates and tighter debt-service coverage ratios," says Kennedy. Sampling of deals Last year was a record year for New York City-based Greystone with regard to the amount of 223(f) loans that it closed. This year the company hopes to surpass that unspecified total, says Nikhil Kanodia, head of HUD loan pro- duction at Greystone. "We've also seen more acquisi- tion financings, specifically port- folio financing transactions. We've had a lot of requests where a bor- rower says, "Hey, we're acquiring this three-, four- or seven-property portfolio. We'd like to take it to HUD." This spring, Greystone provided three HUD-insured loans totaling $75 million to Avenir Healthcare Group for the acquisition of three skilled nursing facilities in New York. Known as the Optima portfolio, the properties include Brookside Multicare in Smithtown; White Plains Center for Nursing and Rehab in White Plains; and Little Neck Nursing Center in Queens. All totaled, the Optima Portfolio includes 561 beds. The loans carry a low fixed rate with 35-year terms and are fully amortizing. "The process of taking three deals all at once through HUD with a single borrower was intense but we got it done," says Kanodia. What made the acquisition financing for the Optima Portfo- lio particularly unique in New York was that these were not bridge-to-HUD loans, adds Kano- dia. Typically, a lender provides a bridge loan to a borrower as a short-term financing solution that is a prerequisite to the borrower securing permanent financing through HUD. "This was acquisi- tion financing that went straight to HUD," says Kanodia. In fiscal year 2017, Greystone closed 15 loans totaling $376.7 mil- lion through the HUD Lean pro- gram. The company is on track to nearly double its transactions in fiscal year 2018 and boost the total loan amount by 80 percent, says Kanodia. "It's been a significant focus of Greystone to grow our presence on the healthcare lending side." About 70 percent of the loans that Greystone closes through the

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