HEALTH , HOSPITALITY ,
AND HOME
Seniors housing developments can range in living arrangements they offer , from those for an active lifestyle to more care-focused spaces .
Housing and Urban Development . HUD will finance nursing care , assisted living , and memory care , with no more than 25 percent independent living . These loans can go to 80 percent LTV with 35-year fixed rates . It can be difficult to work through the 9-to 15-month process , but it ’ s worth it considering the favorable terms .
Commercial Banks . Debt capital from banks can be applied to all projects including new construction , acquisition financing , and other banking needs . These loans are 65-75 percent LTV with 3-7 years fixed / floating recourse . Commercial banks are great for small to midmarket locations .
Commercial Finance / Mezzanine Lenders . These loans are higher leverage for a higher yield / interest rate that will loan to less-established owners and operators .
Life Insurance Companies . These lower leverage loans focus primarily on high-quality properties and borrowers , with
Growth in 75-Plus Population by Select Cohorts
2018 to 2040 *
75 to 82 83 to 87 88-Plus
10 %
8 %
6 %
4 %
2 %
0 %
2018 2019
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* Forecast : 2022 to 2040 Source : U . S . Census Bureau Projects , 2017
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65 percent LTV and 10- to 15-year fixed rates .
SBA / USDA . The Small Business Administration and USDA are viable options , but you have to know where to find financing .
KEYS TO SUCCESS Much like the key to real estate is location , location , location , the important lesson to remember for seniors housing is operator , operator , operator . The people running the facility are critical in the success of any investment . Typically , real estate developers will need to partner with an operator who can provide the housing , hospitality , and health care required by the residents . CRE professionals can put together deals , secure financing , and get shovels in the ground , but the complexity of seniors housing often necessitates bringing in someone to run the daily operations .
A lot of factors go into successful operators . In addition to meeting the varied
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2040 needs of residents , they must also be able to control costs while maintaining a level of satisfaction . One of the first questions from someone looking at a location is , “ How ’ s the food ?” This is one example where the operator must run a successful commercial kitchen for dozens of people while sticking to a budget .
Additionally , operators are the ones collecting revenue from Medicare , Medicaid , private insurance , and private payors . A revenue stream from the federal government can be a great source of income , but until it ’ s up and running , the difficulties involved in procuring payment in a complete and timely manner are many .
The business is complex , but the potential is attractive . The margins of the business change depending on how much care is provided . Independent living and assisted living have margins somewhere between 25-30 percent because they don ’ t provide as much health care as a nursing home , while skilled nursing facilities hover around 12 percent as an average .
For CRE professionals , plenty of opportunities are available to get involved in seniors housing . Whether as a direct investor in a partnership or as a CRE expert in consulting with larger operators , seniors housing is a growing submarket of the robust multifamily sector .
Editor ’ s note :
This article was based on CCIM Institute ’ s course , “ Senior Housing : Fundamentals and Benchmarks ,” which is available in an online format . Visit www . ccim . com / education for more information .
Richard Lynn Seniors Housing Specialist with RML Capital LLC Contact him at rick @ rmlcapital . com .
FALL 2022
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