Seniors housing lenders returning but under more conservative terms
LONDON: Roughly half of seniors housing and care lenders say they are now lending on new construction, but the maximum loan-to-cost percentage, spreads and recourse requirements have become more onerous since the second quarter.
That’s according to results of the latest quarterly lender survey jointly released Tuesday by specialty investment banking firm Ziegler and the National Investment Center for Seniors Housing & Care.
The survey was sent to 98 lenders, including banks and finance companies/alternative lenders. A total of 22 organizations participated, Ziegler said. The current report reflects findings from the second quarterly survey period for 2020, representing third quarter data collected between Oct. 19 and Nov. 13.
Roughly one-third of lenders taking part in the survey also indicated they are not yet lending for new construction projects. In addition, about half are requiring debt service reserve funds. For those that require such funds, the overwhelming majority require 12 months of reserves, according to the survey.
“As more clarity surrounding the COVID-19 pandemic has emerged, lenders have become somewhat more comfortable extending loans with higher maximum Loan-to-Value percent, though borrowers are having to pay for this additional leverage through higher credit spreads,” said report author Lisa McCracken, director of senior living research and development at Ziegler. “This trend was consistent across all property types, though it was most extreme within the majority independent living asset class and for spread ranges with the entrance fee life plan community assets.”
In terms of third-quarter deals, the largest proportion of lenders indicated average deal commitments between $16 million and $40 million. Total volume was fairly similar to the second quarter, with most reporting aggregate volume of less than $100 million.
“While it’s believed that more lenders are returning to the space and are expected to continue to do so into 2021, it appears the terms that they’re offering may be more lender-friendly than borrowers are used to,” McCracken said. “It will be interesting to see when competitive forces cause these conservative trends to ease.”
