Seniors Housing Business

FEB-MAR 2018

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

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44 www.seniorshousingbusiness.com Seniors Housing Business n February-March 2018 By Bendix Anderson Many lenders are more cautious than they were just a few years ago when it comes to construction of new seniors housing. But determined developers can still find the capi- tal to build — they just have to work a little harder. Many of the largest, most experienced lend- ers are making smaller loans and focusing on experienced developers and operators. At the same time, however, some local and regional banks are still bidding aggressively to finance new construction. Debt funds, often run by pri- vate equity fund managers, offer extra leverage to developers. The result is that developers may have far fewer financing options for their projects, but choices nonetheless. "The construction market has changed in the last 12 to 18 months," says Aron Will, vice chairman and co-head of national senior hous- ing debt and structured finance in the Houston office of CBRE Capital Markets. "It is now a three-term-sheet market," he says. In other words, a developer today might get three serious offers — term sheets — from lenders to finance a construction project. "That's compared to the eight-term-sheet mar- ket back in 2013," says Will. Pressure rises on borrowers Some lenders have become more wary as developers deliver more new properties than the market can immediately absorb in some of the biggest seniors housing markets (see sidebar). Overbuilding has hurt the odds that a new seniors housing property will be able to increase its rents. In addition, the cost of hiring qualified staff is also rising. These factors cut into the net operating income produced by a property and shrink the pot of gold that inves- tors and developers hope to get at the end of a successful construction project. Long-term interest rates are also likely to eventually rise. The higher cost of capital will also cut into the yield that equity inves- tors receive from their investments in seniors housing. The yield on the benchmark 10-year Trea- sury bond has already inched higher in early 2018. From Jan. 2 to Feb. 2, the 10-year Treasury yield climbed from 2.46 percent to 2.84 percent, nearly 40 basis points. "Eventually rising interest rates are going to make deals harder to buy," says Ari Adlerstein, managing director for Meridian Capital Group, based in New York City. Worries like these are making some lenders cautious as they make more construction loans. But so far developers are still finding financing to build new projects. Lenders are paying close attention to both market supply and the experience of the spon- sors, "but there is definitely financing available for experienced developers and operators with a quality opportunity," says Russ Dey, a vice president with Walker & Dunlop headquar- tered in Bethesda, Md. Dey is responsible for the origination of new seniors housing debt Lenders Rein In Construction Financing n Finance Capital still flows to seniors housing developments, though overbuilding concerns have led to stricter underwriting. Florida-based Trez Forman Capital Group provided a $44.8 million loan for the construction of The Floridian Club of Sarasota, a 309-unit active adult community in Venice, Fla. Sarasota Floridian is developing the property. Cushman & Wakefield arranged $20.6 million in construction financing for Clearwater at Sonoma Hills, a 90-unit assisted living and memory care community in the Sonoma County metro of Rohnert Park. PNC Bank provided the loan.

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