Lending to Senior Care Facilities

By Taylor, Mary Jo | The RMA Journal, October 2011 | Go to article overview
Save to active project

Lending to Senior Care Facilities


Taylor, Mary Jo, The RMA Journal


[ILLUSTRATION OMITTED]

As the population ages, the demand for facilities that provide care to older adults is increasing. Accordingly, financial institutions are seeing more loan applications from providers of senior care services. Lending to this industry can be profitable, but banks need to perform due diligence.

Jack Dwyer, owner of CFG Community Bank, Baltimore, has considerable experience in this area. He was interviewed recently by Mary Jo Taylor, a member of The RMA Journal Editorial Advisory Board.

Taylor: Senior housing is a growth industry. Why haven't the credit markets been receptive to this industry in recent years?

Dwyer: Many banks have put their toe in the water with respect to independent living and assisted living because those industries are funded privately There is more reluctance to fund the nursing home segment because Medicare or Medicaid reimbursements pay for about 70% of the cost of caring for the patients. Each state has its own Medicaid system that gets partially funded--about 50%--by the federal government. The states are responsible for the rest of it.

Lenders view those reimbursements as riskier because of state budgetary issues. But government reimbursements are a sure form of payment. Clients receiving Medicare and Medicaid represent a guarantee that the operator will be repaid. These facilities represent a much more certain form of payment than a non-age-restricted apartment building, where occupancy rates can be determined by market conditions.

Taylor: Historically, the issue with government receivables is that it's extremely difficult to ensure that the payment comes through to the bank.

Dwyer: Payments may lag, but you're ultimately going to get paid. It's just a matter of time until the provider of the service at the facility gets paid by Medicare and Medicaid. There are different aspects and different asset classes of risk in an apartment building versus a nursing home. I'm much more comfortable with senior facilities than with the market risk attached to apartment buildings.

Taylor: Are there permanent financing sources?

Dwyer: Yes. Even though they're government controlled now, Fannie Mae and Freddie Mac are probably the leaders in the assisted living and independent living space. They don't finance nursing homes, unless it's a small aspect of the project. But HUD [Department of Housing and Urban Development] has a great program for long-term financing for nursing homes, which is predominantly made up of nonrecourse loans with terms of up to 40 years at a fixed interest rate. The interest rate is a function of the GNMA mortgage-backed security market, and today it's probably in the low 4% range.

As an FHA-approved lender, I can request that HUD insure my loan. I can then issue GNMA mortgage-backed securities to ultimately fund the loan. The current 4% interest rate, coupled with the HUD annual mortgage insurance premium of 50 basis points, equates to a rate of approximately 4.5%, which is a great fixed rate. The ultimate goal would be to get most providers on long-term fixed-rate financing because that's what has worked best in the nursing home space. Frequently, though, we provide bridge loans for acquisitions, with the understanding that our ultimate goal is to put the provider, or the owner of the real estate, on a fixed-rate mortgage.

Taylor: We have clients who come directly into the bank for nursing home financing.

Dwyer: Yes, they can go directly to banks. The difference is that banks typically do only five- to seven-year loans. Most providers or owners of the real estate on nursing homes or assisted living are looking for long-term fixed-rate loans. Some are comfortable with a five- to seven-year loan, similar to those for an apartment building or office building. Either is a good financing mechanism; it's just not as broad for apartments or office buildings, and banks haven't gotten completely comfortable with it yet.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Lending to Senior Care Facilities
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?