Consolidation pushes nonprofit NFCs out of space as lending market heats up
Banking and finance company executives have seen Skilled Nursing (SNF) facilities not only change hands more and more over the past year, but also move from tax-exempt and purpose-built status. non-profit to a for-profit institution.
This is according to comments collected during a survey of leaders published by specialist investment bank Ziegler and the National Investment Center for Seniors Housing & Care (NIC).
Don Husi, managing director of the housing and aged care finance team at Ziegler, said the shift from non-profit to for-profit NFCs via transactions is a trend that has been brewing for five years. years, but like many industry trends has been accelerated by the pandemic.
“The driver of this is the inability to find workers, as opposed to just declines in occupancy. It’s so hard to find workers and agency costs have really skyrocketed – it’s hurting a lot of nonprofit providers,” he added.
What Husi calls “sponsorship transitions” have also been happening for some time, when one nonprofit organization sells to another nonprofit entity, consolidating that part of the industry to begin with.
The survey also found nursing homes were in the middle of the pack in terms of active loans between the fourth financial quarters of 2020 and 2021, behind assisted living/memory care and independent living.
Continuing Care Retirement Communities (CCRCs) and active adult apartment living sectors saw less lending activity than SNFs.
All sectors saw a decline in lending between the fourth quarter of 2020 and the fourth quarter of 2021, according to the survey.
Still, long-term care lending has “significantly picked up” in the second half of 2021, executives said, as more banks feel comfortable enough to return to the market. Marlet.
One respondent, who submitted anonymous feedback with their survey responses, noted a $100 million difference in closed deals between 2021 and 2020 as the lending environment became more competitive.
Participants were able to leave anonymous comments as part of the survey.
“Our activity in 2021 doubled from 2020 as market acceptance and awareness of the impact of COVID stabilized,” another respondent said.
In terms of challenges in the lending environment, executives named inflation – as it relates to new construction – labor shortages and rising interest rates across the long-term care continuum. duration, among the current concerns.
A closer look at operating margins is also likely in the future, according to the comments, as occupancy continues to stabilize.
“We will not know how these labor markets and [personal protective equipment, or PPE] costs and everything else is going to impact stabilized margins for a while, until we see some of the data,” Husi said. “The different accounting rules, how and when they counted PEP funds or healthcare provider funds… not everyone did it the same way.”
It appears lenders are also looking at debt differently, with different methods of underwriting expenses and income related to COVID-19, the researchers said.
Lenders exclude all Covid-related income and expenses, excluding income but including expenses, or including all pandemic-related income and expenses.
“Covid-specific expenses are increasingly difficult to separate – things like PPE can be standardized, but side effects such as increased labor, supply and food costs are considered as potentially permanent and must be subscribed,” said one respondent.
It is difficult for lenders to determine what will be stabilized expenses in the future, said another participant, when underwriting loans. “Little weight” is given to these expenses, said one respondent, with more attention given to how a facility operates with less Covid pressure compared to pre-Covid.
“One of the things I found interesting was just the very different ways people underwrite Covid income and expenses and how that equates to assessments; it seems to be all over the place,” Husi said.
Ziegler partnered with NIC to conduct an industry-wide study assessing the lending climate for providers across the long-term care continuum.
Respondents included major banks and financial firms that lend to long-term care communities, including Skilled Nursing (SNF) facilities. Of the 131 lenders to respond, the majority of participants being regional banks and finance companies.
The survey includes results for the second half of 2021 versus the fourth financial quarter of 2020; the most recent data was collected between January 13 and 28 of this year.
Although most respondents are regional, more than half said they cover the national landscape. About 44% reported lending to the private and tax-exempt sectors, 44% only lent to private sector owners and operators, while 12% only loaned to the tax-exempt sectors.
For skilled nursing facilities (SNF), loan-to-value (LTV) percentages were highest among independent living, assisted living/memory care and new construction at 76% to 80%, depending on the ‘investigation.
The LTV is the maximum amount a bank is willing to finance based on the appraised value and cost of a new construction project.