Following several years with interest rates scraping rock bottom, it now appears that the pendulum has swung dramatically in the opposite direction.
Cambridge Realty Capital Companies Chairman Jeffrey A. Davis says the capital markets have experienced the most dramatic rise in interest rates in the last 25 years, with U.S. 10-year Treasuries climbing more than a full percentage point since the November election.
“As this trend plays out, HUD 232 funding programs could become more attractive to senior housing/healthcare borrowers than they’ve been at any time in the current century,” he says.
Cambridge is one of the nation’s leading senior housing/healthcare lenders, with more than $5 billion in closed transactions. The company acquires senior care properties through its Cambridge Investment and Finance Co. subsidiary.
“As interest rates climb, senior housing/healthcare borrowers should continue to be motivated to lock in the long-term interest rates popular HUD programs provide. Many will find the extra effort they are asked to make to secure long-term HUD financing will be well worth the time and energy expended,” he said.
Mr. Davis points out that the capital needs of the industry are unlikely to diminish.
“For one thing, healthcare properties continue to age. Currently, about 80 percent of physical plants were built in the 1970s or earlier, and some are now functionally obsolete. Owners have made capital improvements to keep up their plants, but neither Medicaid nor Medicare has subsidized these improvements.
“Typically, capital improvement spending has been based on need as opposed to improving the comfort and cosmetic appeal of the facility. But this may change in a more competitive environment,” he predicts.
Mr. Davis says assisted living facilities continue to be built in most states. Most assisted living is not subject to certificate of need requirements and provides major competition for skilled nursing.
The features, advantages and benefits of HUD funding programs have never had more appeal, Mr. Davis believes.
“HUD offers 30 to 35-year terms and amortizations in a 100-percent non-recourse loan. The loans have a long-term, non-adjustable fixed rate and there is no balloon or call feature.
“Though rates have increased, we expect HUD 232 loans to remain popular with skilled nursing home operators over the next 36 months,” he added.
