Get Flexible CMBS Financing for Your Skilled Nursing or Assisted Living Property
Across the U.S., senior living properties have never been in higher demand-- and, with the right strategy, they can make incredibly profitable investments. So, if you’re looking to finance a property intended for senior citizens, a CMBS loan could be the perfect fit.
CMBS loans can finance a wide array of properties intended for seniors, including nursing homes and assisted living facilities for older seniors, to independent and senior living communities for those just entering their golden years. They can also fund highly-specialized facilities, such as Alzheimer's or memory care facilities or intermediate care facilities intended for older individuals recovering from falls, surgeries, or other injuries.
As with all types of CMBS loans, pricing and terms are directly correlated with potential default risk. As actively managed businesses with patients moving in and out, intermediate care facilities, nursing homes, memory care facilities, and assisted living centers will often face higher DSCR requirements and be permitted lower leverage than traditional multifamily properties. In contrast, independent living communities may be offered terms similar to traditional apartment assets, particularly if they’re located in areas with significant populations of senior citizens.
In general, lenders prefer properties that are owned by an investor or investment firm and are managed by a separate company. However, as with most conduit loan terms, this may be negotiable in certain situations.
Common Uses for CMBS Seniors Housing Loans
Acquiring new assets: With 10,000 Americans turning 65 each day, the demand for senior living and healthcare properties continues to grow, and a low-interest, fixed-rate CMBS loan could be the perfect way to acquire one.
Rate or term refinancing: If your senior living property currently carries a high-interest loan from a bank or private lender, a CMBS can be a great way to refinance it. With amortizations of up to 30 years, CMBS can significantly reduce your debt service requirements. The fact that CMBS loans are non-recourse also significantly reduces your personal liability should you default on your loan.
Cash-out refinancing: If you have significant equity built up in your property, many conduit lenders will allow you to take cash out. Due to strict CMBS loan covenants, you might not be able to use those funds to make significant property improvements, but you can use them to improve other, non-CMBS financed properties in your portfolio, or even to put a downpayment on a new property altogether.
Financing property portfolios: Like with other types of conduit loans, CMBS loans for senior housing and assisted living can be offered for both single properties and property portfolios, so if you own multiple properties, you may be able to take out a single portfolio loan instead of going through the hassle of securing financing for each individually. This can save larger investors significant time and money during the financing process.
Bridge financing: In some situations, CMBS can also act as an excellent bridge loan until a senior living property can apply for more attractive financing through Fannie Mae, Freddie Mac, or HUD’s highly-desirable 232 or 232/223(f) loan program, though prepayment penalties can be a burden.
Eligible Seniors Housing Property Types for CMBS Loans
Independent living communities: Independent living communities are generally structured as regular apartment communities designed for individuals who are 55-65+. Unlike traditional apartment complexes, however, they often come with additional amenities and a wide variety of events targeted for residents. They may or may not have an assisted living component, but generally, these communities are intended for residents without significant disabilities.
Assisted living centers: Assisted living centers are designed for seniors with a moderate degree of disability and generally offer a mix of independent living and medical care. They are designed for a wide spectrum of residents, with some being extremely independent and others needing more serious medical care.
Nursing homes: Nursing homes are intended for senior residents with significant medical conditions, and, much like a hospital, provide 24/7 monitoring of patients’ health needs. Residents generally need help with at least some activities of daily living (ADLs), such as dressing, bathing, or taking medication on schedule. Residents generally do not leave these facilities unless accompanied by a family member or healthcare provider.
Memory or Altheimer’s care centers: Memory or Alzheimer's care centers generally offer the highest level of care for senior citizens, and are specifically designed for residents with serious memory disorders, which can often lead to behavioral issues such as confusion or aggression. Like nursing homes, memory care residents often need significant help with activities of daily living.
Intermediate care facilities: Intermediate care facilities are outpatient medical centers generally designed for senior citizens who have recently been discharged from a hospital after suffering a significant injury such as a fall, stroke, heart attack, or other medical problem, and who need significant, but short-term assistance with activities of daily living. Patients will generally stay anywhere from a few weeks to a few months, depending on the severity of their medical issues. Depending on the patient’s condition post-treatment, they may be discharged to a nursing home, an assisted living facility, an independent living community, or even back to their own home.
Continuum-of-care centers: Continuum-of-care facilities generally function of as a combination of several of the above property types, and may contain skilled nursing, independent living, and assisted living areas. This allows patients to stay in the same facility as their medical needs evolve over time.
Prospective Terms for CMBS Seniors Housing Loans
Unlike bank loans or life insurance company loans for commercial properties, or Fannie Mae, Freddie Mac, and HUD multifamily financing for apartment properties, CMBS loans have relatively lenient borrower requirements.
CMBS terms and requirements typically include:
Loan Size: $2 million+, no maximum loan amount
Loan Terms: 5, 7, and 10-year fixed-rate terms, interest-only (I/O) financing available for well-qualified borrowers
Amortization: Generally 25-30 years
DSCR/LTV:
Independent Living: 1.25x -1.35x, 75% LTV
Assisted Living: 1.35-x 1.45x, 70% LTV
Skilling Nursing: 1.40- 1.50x, 65% LTV
Intermediate Care: 1.40- 1.50x 65% LTV
Eligible Properties:
Properties must have experienced management with a strong track record of success
Operators or operating companies must be fully licensed/certified in the state in which they are doing business
Triple net (NNN) or credit-tenant leases (CTLs) are ideal
Loan Pricing: Pricing based on current swap rate or relevant U.S. Treasury rate, LTV and DSCR, as well as asset quality, rate buydowns available in some situations
Loan Assumption: Fully assumable pursuant to master servicer approval and a fee, generally 1%
Prepayment: Yield maintenance or defeasance
Recourse: Generally non-recourse with standard bad-boy carve-outs for issues like fraud, embezzlement, or international bankruptcy
Third-Party Reports: Third-party reports are paid for by the borrower, and typically include:
Full appraisal
Phase 1 ESA (Environmental Assessment)
Property Condition Assessment (PCA) is often required
Rate locks: Available at loan commitment, 30-day rate locks may also be available with lender approval
Replacement Reserves: Typically required and paid for by borrower on a per-year, per-unit basis, may be waived or reduced in some situations, particularly for Class A assets
Lender Legal Fees: Generally $15,000 for smaller loans, larger for larger loans
Origination Fees: Generally 1%, can be higher in some scenarios