SNF loan competition intensifies as ‘core group’ return after year on the sidelines
While the types of financing available to retirement homes have remained relatively constant throughout the pandemic, the number of lenders has fluctuated, capital providers said.
In recent months, competition has returned to the skilled nursing market, Tony Ruberg, senior managing director of VIUM Capital, told Skilled Nursing News, with larger players ready to be active again after a focus on asset management in 2020 and early 2021.
“It’s back to the core group of competitors that we’ve seen for many years, those who have always had a healthcare specialty or a group that specializes specifically in space,” Ruberg said.
Institutional funds tied to real estate investment trusts (REITs), private equity and family offices have returned to healthcare, Ruberg said, but clients tend to serve low-acuity residents more frequently in assisted living and independent living.
“NFS is still a very complex operational activity. I think it sometimes disguises itself as a real estate game, but in reality it really comes down to basic operations on the ground,” Ruberg said. “It’s only getting more complex, not less.”
While Columbus, Ohio-based VIUM was formed at the start of the pandemic, its leaders have more than 60 years of collective experience in senior housing and healthcare. Ruberg said the group took the opportunity to fill a funding void left by more established names taking a “wait and see” approach.
VIUM firm on 25 transactions totaling more than $750 million in its first year, including bridge, FHA/HUD and tax-exempt bond financings. About 75% of Vium’s transactions are in the SNF space, Ruberg said.
Lenders wary of SNF’s acuity
Lenders are being more cautious about re-entering, which potentially means more business for established lenders like Capital Funding Group (CFG) and VIUM in the SNF space.
“We have gone to support the industry in the best way possible and have had banner years in 2020 and 2021,” said Erik Howard, executive general manager of business development and marketing for CFG.
CFG funded more than $3.8 billion in 2021, doubling the company’s annual funding goals for 2020. The funding included 70 bridging loans and 85 Housing and Urban Development Department (HUD) loans, it said. CFG in a press release.
In 2021, CFG expanded its operations and diversified its portfolio into the multi-family housing and senior housing sectors, a “natural extension” of the existing presence in the long-term care sector.
Bridge loans are among the top three sources of capital available to the industry: accounts receivable financing and permanent financing are the other two common sources of skilled nursing financing.
HUD loans are a subset of permanent financing — operators and owners seek this type of financing once their facilities are relatively stable, Howard said. HUD has continued to be an excellent partner for the industry over the past two years in a “very difficult” underwriting environment.
“If there were any noticeable changes in the lending dynamics and landscape over the past two years, one of them would be our actual significant presence in this bridge space to fill the void, with many lenders who left or just sat on the sidelines,” Howard said.
HUD loans, Ruberg added, have “played their part” in capital markets and really got into the industry thanks to COVID.
The reliability of these loans continues through 2022, with transactions such as Walker & Dunlop’s $77 million refinancing of two skilled nursing portfolios in Utah and California. The Cascades and Rollins-Nelson portfolios total 10 SNF properties with 848 units.
“Usually these bridge loans are expensive. Your interest rate is cut in half when you go to HUD, which is cash savings for landlords who have to pay people and do everything else to manage properties,” said Kevin Giusti, General Manager of Walker. & Dunlop, based in Bethesda, Maryland. . “HUD did what it was supposed to do, be there in the toughest times.”
Walker & Dunlop used financing from HUD, a regional bank and finance company to refinance the Cascades portfolio and worked with borrower Rollins-Nelson to refinance an existing HUD loan.
The “silver tsunami” will replace the liquidity of the PRF
The government’s response in 2020 and 2021 in favor of care homes has shown lenders the importance of the industry to the continuum of care as a whole, Howard said, while reiterating what established lenders have known all along. .
Pandemic-related financial support won’t last forever, however – Howard believes occupation gains and the “silver tsunami” still brewing will replace cash infusions via Provider Relief Funds (PRFs).
Lenders like VIUM have invested in leadership with deep ties to policy makers; these connections have evolved from an added value to a crucial part of decision-making, with the PRF carrying some operators through the worst times of the pandemic.
The team brought in Scott Tittle last fall, former executive director of the National Center for Assisted Living (NCAL).
“Part of the reason we brought him in was just to have a voice and an advocate for the industry,” Ruberg added. “I know other people who have made similar investments to try to take the pulse.”
Ruberg, who has worked in banking for 20 years and focused on healthcare for seven, said he hasn’t seen a tougher underwriting landscape due to the uncertainty surrounding the relief. of the pandemic in the SNF industry.
Operators that have historically been successful in securing funding will continue to be funded, Ruberg added.
Pandemic ‘shock’ fades, inexperienced lenders return
Lenders new to healthcare and nursing homes have also returned in recent months with lower leverage, after the initial shock of the pandemic sent them back to industries with which they had a better understanding. .
Leverage refers to loan proceeds – if a buyer trying to buy a facility for $10 million only gets a loan of $6.5 million, or 65% of the purchase price, whereas historically, the banks granted a loan of 7.5 million dollars, or 75% of the purchase price. , this lender uses lower leverage.
“There were people there who might not have realized it when they first dipped their toe in the water. They thought it was just an extension of other types of commercial real estate, and it’s actually much more of an operating business that happens to be secured by real estate,” said Ruberg said.
The trend isn’t anything new in the skilled nursing space, according to CFG’s Howard.
Baltimore, Maryland-based CFG has witnessed these shocks before, with similar reactions from inexperienced lenders. The lender has been in the SNF space for over 30 years.
“During those times, if you go back to the financial crisis of 2010, you even go back to 9/11, you go back to 1997 when they changed the underlying Medicare reimbursement system, what we find is that the lenders that can’t know the space very well…when these types of shocks happen, they can move very quickly out the door, out the door,” Howard said.
Howard has seen some of these lenders re-enter the space over the past 12-18 months, but with less leverage, and limiting their activity to a handful of industry borrowers. Banks that used to lend at 75% to 80% are now lending at 60% to 65%.
“Capital, while appearing to be back to where it was even at the start or before the pandemic, I don’t think the resources are still there for borrowers like they were before the pandemic,” Howard said, referring mainly short-term financing as a bridging program.
Jeffrey Davis, president and CEO of Chicago-based Cambridge Realty Capital Companies, said private lenders come to mind when imagining new sources of capital rushing into the SNF space.
“I think the private lenders have given the banks running for their money at this point, but the banks are still a good source of capital for some of these deals,” Davis said. “[Private lenders are] more flexible than any agency, especially when dealing with skilled nursing facilities and, to a lesser extent, residences for the elderly. They mainly do existing refinances.