Banks more ‘bullish’ on nursing home lending heading into 2022

LONDON: The skilled nursing market was anything but quiet in 2021 and some of the top lenders in the space expect that activity to continue despite persisting staffing challenges that operators now face.

“We’re definitely seeing more bridge lending, especially if the owner-operator is proven. As far as new construction, we are seeing an uptick in interest among bank lenders,” VIUM Capital Executive Managing Director Steve Kennedy said.

Just recently in the transaction pipeline, Northland Networks, a debt placement agent that finances senior living projects through a network of community banks, arranged financing three SNFs in southeast Michigan totalling 250 beds.

The loan’s attractive terms are indicative of community banks’ swelling cash deposits amid COVID-19 stimulus, Northland Networks Managing Director Seth Kahn said in the news release.

“Community banks across the country are sitting on record sums of cash with nowhere to put it,” he added. “Participating in senior living loans is an attractive option for many of these banks who, in the past, have had minimal exposure to this asset class. Such loans offer strong yields and diversification benefits.”

After some banks took a cautious approach to the skilled nursing market when the pandemic first struck, others have launched their own senior care specific funds to hone in on the market.

In November, KeyBank Real Estate Capital and Welltower announced a $750 million unitranche loan program that will be active in the seniors housing and skilled nursing spaces. A month later, OptimumBank announced plans to enter the skilled nursing lending space with a new loan program for smaller operators.

Kennedy continues to see a lot of value in the skilled nursing market heading into the new year.

“There continues to be solid mergers-and-acquisitions activity and rates aren’t going down and so a lot of providers have taken advantage of locking in low interest rates,” he said. “I think bank and non-bank lenders are no doubt more aggressive and we’ve seen spreads tighten a bit.”

Low-interest rates continue to drive the market.

“I would say that interest rates have created an interesting environment where a lot of capital can be accessed very cheaply and actually has caused a lot of sellers to decide to exit their positions and a lot of buyers to enter into new ones,” Chris Utz, a managing director on Ziegler’s health care investment banking team, said.

He said over the last year buyers have remained pretty bullish on the market, evidenced by the purchase prices seen over the past 12 to 24 months.

“A lot of people are betting on the fact that there’s going to be a change in reimbursement and a change in valuation,” Utz said. “When it came to new buyers coming into the market, I think they were mostly chasing yield as well as putting together cheap capital to enter into the marketplace.”

In his view, banks are healthier and have renewed interest in the skilled nursing sector heading to the new year as competition on the market is back to 2019 levels.

“I would say we’re anticipating a very active year in skilled nursing mergers-and-acquisitions in 2022,” Dan Revie, managing director and co-head of Ziegler’s senior housing and care finance practice, added.

Lisa McCracken, director of senior living research and development for Ziegler, indicated that the number of freestanding, not-for-profit nursing homes continues to shrink as they are actively being acquired by private sector buyers on a regular basis.

“Skilled nursing in not-for-profit senior living care is largely part of a continuum and is increasingly so,” she said. “What we are increasingly seeing is consolidation, specifically in that freestanding nursing home space, those numbers continue to shrink and those [facilities] are actively being acquired by private sector buyers.”

Kennedy said VIUM is currently doing about a 50/50 split in terms of refinancing and acquisition loans in the skilled nursing space.

“The ability to recapitalize and maybe structure the debt to more permanent financing is, I think, something that owners/operators are motivated to do when you see interest rates starting to creep up and you look at forecasts,” he added.