Senior living and care-related lending was relatively weak in the second quarter, likely due to yet another 0.25 percentage point rate increase from the Federal Reserve and significant disruptions among regional banks. That’s according to a report released Wednesday by the National Investment Centers for Seniors Housing & Care.
“The higher interest rate environment since March 2022 has limited the availability of debt and driven borrowing costs significantly higher,” NIC Principal Omar Zahraoui wrote in a blog post. “Federal Reserve data tracking senior loan officers’ observations of credit conditions across the US showed tighter lending conditions in the second quarter of 2023 in construction, multifamily and commercial and industrial (C&I) loans.”
The issuance of new permanent debt for senior living, according to NIC, hit an all-time low in the second quarter, based on the six years since NIC began tracking debt. Meanwhile, the volume of new permanent loans closed for skilled nursing surpassed that for senior living for the first time since 2018. Nursing care saw a 75% increase in permanent debt issuance, whereas senior living saw an 8% in loan volume from the previous quarter.
The issuance of mini-perm/bridge debt declined by 52% from the prior quarter and 76% from late 2022 levels, Zahraoui said.
“Concurrently, nursing care mini-perm/bridge loan closings remained relatively very low and on par with pre-pandemic levels. Borrowers are adjusting to the prevailing ‘higher for longer’ mindset, anticipating sustained rates without a potential decline in the near future,” he wrote.
Some short-term options are available for skilled nursing mini-perm/bridge loans, but Zahraoui noted that the costs often are high and require more equity to secure the debt.
Although new construction for senior living was weak in the second quarter, it was virtually nonexistent in nursing care, according to the report.
“In fact, there has been limited development of new nursing care properties and overall inventory has been declining for several years, Zahraoui said.
The second quarter saw a “notable increase” in delinquencies, at least in senior living, according to Zahraoui. Senior living delinquencies increased by 36%, whereas skilled nursing delinquencies declined by 24% from the first quarter.
According to NIC, delinquencies as a share of total loans increased to 2.9% for senior living, up from 2.1% from the first quarter of the year. For skilled nursing, delinquencies as a share of total loans dipped to 0.9%.
“As we look beyond the second quarter of 2023, though inflation has decreased significantly from its peak of over 9% last year, the recent months have seen a halt in progress, with inflation still remaining more than a percentage point above the central bank’s 2% targeted rate,” Zahraoui said.