As senior living and skilled nursing residents complete their COVID-19 vaccinations and case counts continue to decrease within the setting, some banks may be getting ready to re-enter the long-term care sector — though under new terms and requirements. That’s one of several findings in the latest lender survey released Tuesday by specialty investment bank Ziegler, in partnership with the National Investment Center for Seniors Housing & Care.
“There appears to be anecdotal evidence that spread ranges may be tightening, thus lowering total interest costs,” Donald Husi, managing director of senior housing and care finance at Ziegler, told the McKnight’s Business Daily. “This signals that banks may be ready to jump back into the market.”
The latest survey includes responses from a total of 35 traditional banks and alternative lenders in the senior living and care space and collected in the second half of January, Ziegler noted. Husi also pointed to survey data indicating that 19 of the 35 lenders revealed that construction loans are available, mostly from regional banks, and with low 50% to 55% loan-to-cost assumptions and creditworthy borrowers. As a result, he said, “we may be seeing some inclination that banks are willing to start opening their construction lending book, but we will need to watch the next few quarter trends.”
Findings also suggested that the vast majority of lenders appear to be migrating toward the Secured Overnight Financing Rate, or SOFR, index, which is replacing the London Interbank Offered Rate, known as LIBOR, by the end of this year. In addition, lenders are demanding full recourse, with 21 of 35 respondents requiring such. Approximately half of the banks are requiring some form of debt service reserve fund.
Husi also noted that skilled nursing bridge loans still are available in the marketplace, but they are priced for the associated risk. In addition, mezzanine debt is readily available from multiple sources for senior living communities and nursing homes. The firm plans to continue to monitor these lender trends as the year progresses, he said.
“The key leading indicators are the number of vaccinated residents and staff in both senior housing and skilled nursing communities, and the impact that will have on increased occupancy,” he said. “As occupancy increases, we should see greater stabilization in the lender universe for all care levels.”