Senior housing construction loans grew at the fastest pace since 2017

Construction loans jumped in the second quarter of 2021 in senior housing and nursing, according to the latest loan trends report from the National Investment Center for Seniors Housing & Care (NIC).

In senior housing, banks closed on more than $ 395 million in the quarter while in nursing, they loaned more than $ 118 million, with increases of over 46% and 70% compared to the previous quarter, respectively.

In senior housing, this is the largest increase since the fourth quarter of 2017.

Banks are (cautiously) opening their taps again, NIC chief economist Beth Burnham Mace told Senior Housing News.

“I think it’s because we’re seeing lenders getting a little more comfortable with the development business,” Mace said.

She noted that banks were nervous during the pandemic as occupancy rates fell in the second, third and fourth quarters of 2020.

There was a “world of uncertainty” at the height of the pandemic, Mace said – but in 2021 banks were cautiously optimistic about improving market fundamentals.

Now, as many people in the United States become eligible for a Covid recall, Mace said occupancy is starting to improve and operators are reopening.

“NIC CARD [Vision] the data suggests we are past the low point in occupancy rates, ”Mace said. “The moves are starting again as the operators welcome new residents to their properties. “

Despite this, lenders need to do their homework. They need to look at competition and land rights, Mace told SHN. And, she thinks refinancing existing loans is still an “easier lift” than new construction loans.

The amount loaned in the second quarter was the highest since the first quarter of 2020, when banks loaned more than $ 700 million for the construction of senior housing for the second quarter in a row.

The return of residents to communities may not be the only reason lending increased this quarter. Outside economic factors may have impacted the numbers and may continue to do so in the future.

“We are facing inflation numbers that we haven’t faced in 30 years,” Mace said.

There are delays that weren’t there before the pandemic that banks and investors are likely considering when lending money or giving capital to developers, according to Mace.

“I think the ROI has probably changed because of the supply chain issue we’re facing,” Mace said. “It’s hard to get the materials and labor you need to get a job done on time. “

Many industries other than senior housing face inflation, labor shortages and supply chain issues. These external factors impacting construction costs raise the question of whether recent price increases are transient or permanent, which is an issue the Federal Reserve grapples with in determining its interest rate strategy.

Interest rates are still generally low, which could motivate lending activity as borrowers seek to lock in favorable rates, Mace told SHN, noting there was talk of the Federal Reserve moving towards higher rates in the course of 2022.

In reality, the price increases can be moderate but won’t be entirely transient, Mace said: “It’s probably somewhere in the middle. “

  • Overdue loans improved for senior housing for the third consecutive quarter. After a record peak of 3.8%, delinquencies as a percentage of total senior housing loans stood at 1.2% in Q2.
  • Nursing-related delinquencies fell from 0.8% in the first quarter of this year to 1.6% in the second quarter.
  • For the second consecutive quarter, senior housing reported foreclosures after nine consecutive quarters without. Foreclosures this quarter totaled nearly $ 62.7 million.
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