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The senior housing
financing industry has evolved quite a bit over the past 20
years. In days gone by, the primary lender for senior housing
financings was the Department of Housing & Urban Development (HUD)
through their FHA/HUD loan insurance program that provided non-recourse
financing for assisted living facilities, dementia care facilities,
nursing facilities and independent living facilities - but not entry-fee
senior housing facilities. Today's senior housing financing
industry has come rely upon HUD so much that the application time frame
now makes a HUD loan too expensive for many developers to utilize
because of the added project carrying costs the HUD process forces
developers and owner/operators to endure. Since a market economy
(such as the United States) will always adjust itself to fill a demand
vacuum, today's developer should be at least acquainted with some of the
alternatives:
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Institutional Private Placements. The developer can turn
to the investment banking industry to undertake a private placement
of construction loan notes that are sold to certain "qualified
institutional buyers" (or "QIBs" - pronounced "quibs").
These placements are typically non-recourse, very competitively
priced and the carrying costs can be significantly reduced.
Unlike the HUD route, the institutional market is not a right of
statute approach - it is purely market-driven so you are
at-risk. This means you need a very hungry investment banking
firm to support the transaction.
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Commercial Bank Originations. The commercial banks are
still providing construction lending, but their focus is typically
on publicly-traded companies that have an investment-grade credit
rating. In the absence of such ratings, the borrower is
typically required to provide credit support (personal recourse) and
hefty collateral that effectively ties the borrower to the lender
for at least the term of the loan. Pricing is very competitive
with HUD loans and institutional private placements and the
processing time is typically less than the institutional
route. If you have the collateral and credit, this could be an
option for you. If you don't, you won't get anywhere with a
commercial bank.
No matter which way you decide to go, senior housing development
projects must provide a comprehensive due diligence presentation
including:
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Market
Feasibility Study. This must include the
demographics-based demand analysis, competitive compendium analysis
of competing facilities in the geographical primary marketing area
and final reconciled demand forecast that is paired to the income
stream projections and facility staffing patterns.
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Financial
Feasibility Study. This must include all phases and all
department schedules together with all empirical assumptions and
notes used to create the 5-year forecast.
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Business Plan
of Operations. This must provide employee class level
tasking for all departments, plus the reporting program and
management oversight accountability.
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Capital Funding
Plan Proposal. This is the key summary that is sent to
every institution for the purposes of generating initial lender
interest in the project.
We hope you select Rainmaker Marketing Corporation to assist you
with your due diligence documentation needs, but the important point
here is that the due diligence must be done and be ready to be provided on
demand by the underwriter.
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