Strong near-term headwinds have led to lower lending volumes for the U.S. Department of Housing and Urban Development’s (HUD) Lean Financing Program for senior housing in 2022, but some major industry players say May opportunities arise next year.
For 2022, the overall Lean program volume dropped to $2.89 billion across 243 transactions. For perspective, this is the lowest dollar volume seen since fiscal 2016, when $2.84 billion was seen in the space after two strong years in 2020 and 2021.
In the fiscal year ending Sept. 30, 2022, the federal agency’s overall transaction volume fell 32% and overall dollar volume fell 35% from fiscal 2021, data shows. of the HUD.
Greystone led all lenders in closed deals and total amount, at $35 and $418.5 million respectively, followed by VIUM Capital with 30 deals for $351.6 million in total and NewPoint with 23 loans for 354, $7 million, according to HUD data.
For VIUM, a relatively new player in the HUD lending space, 2022 has been in line with expectations, according to Executive Managing Director Steve Kennedy.
In the short term, he said borrowers are feeling the pinch of rapid increases in the cost of capital, which he called a “shock to the system” of tax returns for owner-operators who were “already battling” the high, inflation-induced labor costs. increased expenses.
“I think the answer is ultimately, it’s a good time to go to HUD like anybody and now I think borrowers are starting to feel the pain of these increased variable rates,” Kennedy told Senior Housing News. . “I think we as a lending community want to continue to work collaboratively with HUD management to ensure that we get these quality assets with quality operators into HUD as soon as possible.”
Looking back to 2022, Greystone’s Scott Thurman, FHA’s healthcare production manager, said the year has gone “better than expected” given the headwinds of rising interest rates. interest.
“It’s still one of the best years we’ve had in healthcare, and our overall healthcare volume even on the multifamily side, which was down, it’s still one of the best five years. we’ve had,” Thurman told Senior Housing News.
Inflation remains a big challenge for lenders in the space and it is compressing yields, which has resulted in a pinch in net operating income (NOI), Thurman said. This ultimately led to players being more constrained by debt servicing.
The areas that could feel the most pressure could come from assisted living and memory care agreements, he said.
However, in the long term, Thurman predicted opportunities for lenders, noting that acquisitions will be plentiful to follow the “demand curve” as more people enter seniors’ communities nationwide. and that operators are preparing for the baby boomer generation.
“There will still be a good number of transactions. I think there will be a lot of selling opportunities,” Thurman added. “The demand curve is closer than it has ever been.”
And while the opportunities for acquisitions may be plentiful, owners looking to hit the market with stabilized, top-notch assets should have no problem finding a suitor.
Over time, Kennedy felt the pressures would ease “a little slower” as landlords recover occupancy and margin losses from the Covid-19 pandemic. In 2023, Kennedy said he expects to see new HUD loan volume this year in the form of 232 and 223(f).
This could mean volume similar to that seen in 2022 and down from previous highs.
“But the speed and the tempo will really pick up in the second half,” Kennedy said in reference to 2023.