Lancaster Pollard closed 70 loans — totaling $619.1 million — that were insured by the Department of Housing and Urban Development (HUD) in fiscal 2018.
Of the total closed through the program, the Columbus, Ohio-based lender logged 35 for skilled nursing facilities, for a total value of around $349.4 million and an average bed count of 125 per facility.
The loans were part of the HUD Lean program, which finances senior housing properties and generated 317 loans — for $3.6 billion of loan volume — in the most recent government fiscal year, which ended September 30. Out of those deals, 215 were for SNFs.
For SNFs looking for long-term, fixed rate financing, HUD is the only option, Kass Matt, the president of Lancaster Pollard, told Skilled Nursing News. But there has been an uptick in the presence of assisted living in the space, a trend coinciding with an increase in development, he told Skilled Nursing News.
The rising interest rate environment isn’t as much a cause for concern among providers as might be expected, he added. For one thing, interest rates may be going up, but they are still at or below historical averages.
“When you see significant volatility of interest rates, we find that causes more concern than when we see a gradual rise in interest rates, where they can plan for it,” Matt said.
HUD activity in the SNF space has been driven by a number of factors, notably the ongoing regionalization in the space. Major real estate investment trusts (REITs) have become net sellers of skilled assets, a factor that led to several deals — and since the REITs don’t have debt on their assets, buyers looking to put HUD debt on their purchases are likely to go the route of bridge-to-HUD, Mark Myers of Institutional Property Advisors told SNN earlier this year.
Lancaster Pollard has done about 20% of all HUD deals that been closed since 2010, Matt told SNN. But it expects its market share to continue to grow with the backing of parent company Orix Corporation USA, which bought Lancaster Pollard last fall.
“One thing that comes with the relationship with our new parent is the ability to provide more direct bridge financing than we had been able to do as an independent investment bank,” Matt said. “Having the relationship with Orix is helping us to drive more HUD activity.”
That, combined with the amount of assets that are changing hands and the need for bridge financing in that environment, gives the firm a good idea of what the pipeline will look like. Another positive has been increased efficiency by the government.
“We are continuing to see HUD improving their processing times,” Matt told SNN. “So we’ve been able to get deals through the system quicker than we have historically.”
Written by Maggie Flynn