The issuance of new permanent debt reached a time series low for senior living — and a near record low for skilled nursing — in the first quarter, based on the six years since the National Investment Center for Seniors Housing & Care began tracking it.

That’s according to the group’s most recent lending trends report, released this week. The analysis looked at construction loans, mini-perm/bridge loans and permanent loans.

“The marked decline in permanent financing reflects tightening lending standards, widening spreads (i.e., the amount charged over the risk-free rate to compensate for risk), and lower loan proceeds,” Beth Burnham Mace, special adviser to NIC, and Omar Zahraoui, a principal at NIC, wrote in a blog post written in conjunction with the quarterly report. “Credit conditions have changed dramatically because of the Federal Reserve’s efforts to slow economic growth to stem inflation through a series of interest rate hikes since March 2022.”

The issuance of mini-perm/bridge debt for senior living fell 50% in the first quarter from late 2022 levels, the experts noted. Nursing care mini-perm/bridge loan closings remained relatively low and on par with pre-pandemic levels.

“Despite the slowdown, there remains a market for mini-perm loans as some borrowers prefer and need financing structures that offer flexibility — i.e., short-term loans over permanent ones for certain deals — amid these challenging times and moderately low occupancy rates,” Mace and Zahraoui wrote.

New construction loan closings for senior living were “notably weak” in the first quarter, they noted. Only the first quarter of 2021 and the third quarter of 2022 rivaled the low level of construction loans seen in the first quarter of this year. And the issuance of construction debt for skilled nursing was “virtually non-existent” for the lenders sampled, they said.

“This aligns with the observed pattern of limited debt financing for new nursing care property construction since NIC began data collection in 2016,” according to the authors. “In fact, there has been limited development of new nursing care properties for several years.”

Delinquencies

The first quarter saw an increase in delinquent loans among long-term care providers. Senior living delinquencies increased by 68.9% quarter over quarter, and skilled nursing delinquencies increased by 16% during the same time period.

According to NIC, delinquencies as a share of total loans rose to 2.1% for senior living, up from 1.3% in the fourth quarter of 2022. For skilled nursing, the delinquency rate edged up to 1.2%.