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Monday, April 01, 2013 9:13:28 PM
Elizabeth Ecker | April 1, 2013 | Comments (0)
Coming off a big year for agency financing in the senior living lending environment, 2013 looks to be no different in terms of the participation of the Federal Housing Administration, Fannie Mae and Freddie Mac in the market.
Some areas may even be positioned for growth.
Last year, the Department of Housing and Urban Development made headlines—and set records—for logging $5.5 billion in senior housing loans through its Section 232 LEAN program. The agency far surpassed its previous high of $3.3 billion recorded in 2011.
While it is not expected to trump its previous record by the same scale as in 2012, HUD’s participation in the market will still be strong, say those in the market for senior housing finance. Fannie and Freddie, too, will likely see stable volume this year.
Fannie Mae and Freddie Mac with their promise of quick turn times and non-recourse debt, counted 2012 as a landmark year with FNMA counting $1.2 billion in its senior housing business over the course of the year and a collective $3 billion over the past two years.
There may be an opportunity for non-government lending to make inroads on the horizon, but the senior housing industry does not appear to be headed in that direction just yet, says Michael Vaughn, senior vice president, FHA finance, for Walker & Dunlop.
“In 2012 the whole fiscal year counted 715 applications [for HUD financing],” Vaughn estimates. “This year if you annualize it, it’s at a rate of over 1000. That’s up significantly. They’re having trouble getting it all done—they’re starting to run a queue again.”
Additional pressures on HUD as a result of budget cuts will not help the processing capabilities, Vaughn says, as demand rises.
“They could gear it up a bit more, but the government is not giving them more people,” he says.
The market could be in for another record year if the levels are sustained, echoes Cambridge Capital Chairman Jeff Davis.
“The year is off to an excellent start,” Davis says. “Borrowers continue to find value in refinancing existing loans, with HUD’s 232 Lean program particularly active at this time. It’s early, but last year’s record-setting pace for FHA-approved HUD funding programs could be eclipsed if the current trend continues.”
Likewise, the GSEs are not slowing down in their appetite and capacity for senior housing projects in 2013.
“We have seen business pick up significantly over the past few months and were very busy in 2012,” says Bob Simpson, Vice President, Seniors and Affordable Multifamily Mortgage Business at Fannie Mae. “As busy as we are today, one of our competitive strengths is execution and response time.”
Fannie Mae says it is looking for growth opportunities through new partnerships in the coming year. It may mean more work with regional or mid-sized operators, and not just those that have existing relationships with the corporation.
“We are looking to establish relationships with borrowers who may not have used Fannie Mae financing in the past,” Simpson says. “A lot are emerging borrowers and may not have thought FNMA was interested. There are a lot of opportunities in this middle part of the market.”
Those potential operators are often regional, with communities in one state or a few states in a small geographic footprint, says Chris Honn, director of Fannie Mae’s seniors housing group.
“Typically they have at least two properties they own and operate with up to 30 to 50 properties in their portfolio,” he says. “One of the key items for us is identifying how much experience they have in this industry.”
With HUD and GSE financing expected to remain strong, a question remains of whether other financing sources are seeking expansion in seniors housing.
Real Estate Investment Trusts (REITs) have been very active in acquiring senior housing portfolios following the housing crisis and the market is seeing more competition from life insurance companies, say the Fannie Mae reps.
With slowing demand for debt financing, GSE activity could begin to taper off as well, says Nick Gesue, chief credit officer at Lancaster Pollard.
“Fannie and Freddie had very good years [in 2012],” Gesue says. “Volume was down relative to historic volume but both agencies were fairly pleased with the volume. Interestingly it has been curtailed a lot by two factors in particular, probably the biggest being REIT activity, and the elimination of need for debt financing. That’s the biggest eroder of their volume.”
Yet REITs are likely to continue as a strong financing source.
“They still have a lot of cash and a strong appetite for properties,” Gesue says. “One thing that will be interesting is seeing how much they get into short term lending, whether mezzanine or true first mortgage debt to bridge acquisitions, or as a way to deploy some of the cash they have at a better return.”
Written by Elizabeth Ecker
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