'Cautious' Lending Climate Dominates Seniors Housing
NIC reported a “significant slowdown” in construction requests in Q1.
Lending for seniors housing is following the trends seen in many other commercial real estate asset classes – it’s declined greatly – as it faces similar challenges from tightening lending standards and wider spreads.
New permanent debt issuance reached a time series low for senior housing and a near-record low for nursing care, according to NIC Analytics’ 1Q 2023 NIC Lending Trends Report.
“Credit conditions have changed dramatically because of the Federal Reserve’s efforts to slow economic growth to stem inflation through a series of interest rate hikes since March 2022,” according to NIC’s report by Beth Mace and Omar Zahraoui.
NIC called Q1 “a cautious lending climate,” for seniors housing development “with a significant slowdown in construction requests.”
It added that the caution surrounding new construction financing and the elevated delinquency rates “will persist” given that the broader economic landscape is characterized by relatively high interest rates and inflation.
This could result “in further tightening of lending standards and an ongoing preference for short-term loans over permanent ones,” the authors expressed.
NIC said it would not be surprising if the resiliency and adaptability of seniors housing operators is demonstrated again.
“Opportunities exist for funds looking to acquire underperforming assets at discounted rates,” according to the report.
Q1 ‘Notably Weak’
Loan closings for new construction were “notably weak” in Q1 compared to historical standards. Only in Q3 2022 and Q1 2021 had they fallen this much.
Meanwhile, issuance of construction debt for nursing care was virtually non-existent for the lenders sampled in NIC’s report – extending a multi-year pattern.
Of those deals made, borrowers are seeking flexibility through mini-perm/bridge debt issuance, though it fell nearly 50% in the quarter and was largely unchanged for nursing care.
Loan delinquency increased overall, by 68.9% in seniors housing and by 16% in nursing care, but it’s not at the levels of Q3 2020.
NIC said most loans in Q1 were extended to existing clients.