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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32 www.seniorshousingbusiness.com Seniors Housing Business n July 2018 HUD 232 program are a direct result of its bridge lending plat- form, which Kanodia describes as a critical part of the company's business. Greystone's bridge loans, which range from $5 million to $35 million, carry a loan term of up to 36 months. As a result of a recently closed debt fund, Greystone now has about $3 billion in lending capac- ity for bridge and mezzanine lending exclusively, a significant increase from last year. In July 2017, Greystone closed on a $78 million HUD loan to refi- nance Boro Park Center for Nurs- ing & Rehabilitation, a 510-bed skilled nursing facility in Brook- lyn. The transaction marked one of the largest-ever HUD loans for a skilled nursing facility. The borrower, Centers Health Care, acquired the property more than six years ago when the facil- ity was struggling financially and subsequently invested more than $20 million in renovations. The investment helped transform the underperforming property into one of the finest facilities in the country, according to Greystone. Continuing on a roll Erik Howard, managing director of real estate finance at Baltimore- based Capital Funding Group, says the company is on pace for a banner year in terms of deal vol- ume. In fiscal year 2017, Capital Funding Group closed 28 loans totaling $266.9 million through the HUD Lean program. Through June of fiscal year 2018, Capital Funding had already closed $350 million of loans and Howard expects to close another $250 million over the next few months. "We expect that we will be in excess of $600 million for HUD's fiscal year ending in September." The reason for Capital Fund- ing's surge in annual deal volume is twofold: continued growth and expansion of its bridge-to-HUD lending program and a large port- folio deal in excess of $250 mil- lion that involves the refinancing of several properties by a national owner and operator of skilled nursing facilities. "We've seen a number of loans move from temporary bridge financing that we provided to permanent financing with HUD," explains Howard. "As we continue to expand our bridge-to HUD plat- form, we expect to see continued growth in our HUD volume and the refinancings that we're putting together." Howard says it's no accident that about two-thirds of the deal volume in the HUD Lean program is tied to the skilled nursing sec- tor versus assisted living or other forms of residential care. "We generally see owners and operators of skilled nursing facili- ties as longer-term investors. If your investment horizon is 10 years or greater, you are going to look for corresponding capi- tal to match to that hold period," explains Howard. Growth opportunity Serving as a "one-stop shop," Capital One Multifamily Finance's bridge-to-HUD program provides the biggest potential for growth, says Rosen. "We have existing Capital One clients with loans on the balance sheet and a lot of them are now turning to HUD as their exit [strategy]. Having a contin- uum of capital available is a good opportunity for our growth." In June, Capital One closed on a $20.8 million HUD loan to refi- nance a 313-bed seniors housing facility in Tucson, Arizona. The facility opened in 1964, with addi- tions completed in 1977 and 1990. The property features 24 indepen- dent living units, 19 assisted liv- ing units, and 270 skilled nursing beds spread across 132 units, mak- ing it one of the largest facilities in the Tucson area. The operators have invested in newly redesigned therapy center and are installing LED lighting to reduce energy consumption. The HUD 232/223(f) loan enabled the borrowers to replace bank debt with low-rate, long- term financing, recoup their capi- tal expenditures, and retire partner debt. Hybrid models emerge One emerging construction and permanent financing opportunity for HUD lenders is the fledgling affordable assisted living sector, according to Kennedy. Lancaster Pollard recently pro- vided Gardant Management Solu- tions and Horve Builders with a $19.9 million construction loan to build Heritage Woods of Nobles- ville, which will be a 124-unit affordable assisted living facility in Noblesville, Indiana. The loan features a low, fixed interest rate and 40-year term. The permanent financing allows Gar- dant, a repeat client of Lancaster Pollard, to focus on operations and avoid interest rate risk in the midst of a rising rate environment. Once complete, Heritage Woods of Noblesville will serve the com- munity's need for affordable assisted living. Indiana historically has not been a big player in the affordable assisted living space, but the state has continued to make changes to its Medicaid waiver program to accommodate the need, according to Kennedy. "Now there is a growing market for those kinds of projects in that state. There are folks within Indi- ana, and in other states such as Illi- nois, that know that product well, know how to build those type of units and know how to operate them successfully." Housing & Healthcare Finance recently closed a $55 million HUD-insured loan to refinance a four-property portfolio of sup- portive living facilities in Illinois, a transaction that Gehl describes as "exciting and challenging." Sup- portive living facilities (SLFs) in Illinois provide long-term care for persons in need of assistance with activities of daily living. Illinois developed the Support- ive Living Program as an alterna- tive to nursing home care for low- income, older persons and persons with disabilities under Medic- aid. SLFs can accept both private pay and Medicaid residents. The SLF program also has a program for adults ages 22 to 64 who have physical disabilities or who are blind. The state has also created a pilot program for licensed SLF dementia units. Two of the facilities in the four-property portfolio were for the disabled and processed as HUD board and care facilities. The two facilities for the elderly were processed as assisted living communities. What keeps them up at night? Gehl acknowledges that the seniors housing industry is facing several headwinds. In the assisted living sector, overbuilding con- cerns persist in certain markets. Meanwhile, the skilled nursing industry is grappling with several issues, including the continued shortening of the length of stay, a shift to Managed Medicare from Medicare, and labor shortages. And now there's another potential problem looming for the skilled nursing sector. "We see more of the bigger players reducing their portfolios, while the smaller regional players are absorbing more assets," observes Gehl. "I am becoming more con- cerned that growing too fast will be an added problem in the space." Fenton of PGIM Real Estate Finance says that staffing issues at seniors housing communities can keep lenders up at night. "A lot of good owner/operators are having difficulty finding and retaining good quality employees, from the executive director on down. As skilled nursing commu- nities need staff, they often turn to high-priced nurse agencies. That cuts directly into the bottom line." n Lancaster Pollard provided a $19.9 million construction loan to Gardant Management Solutions and Horve Builders for Heritage Woods of Noblesville, a 124-unit affordable assisted living facility in Noblesville, Indiana.

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