Lending in Limbo as Skilled Nursing Finance Companies Adjust to a New Reality

The financing of skilled nursing facility deals has taken a backseat to emergency health concerns amid the coronavirus crisis, but some transactions are still moving along — while the long-term state of the M&A landscape, along with the rest of the U.S. economy, remains unclear.

Over the past week, Skilled Nursing News reached out to multiple players in the skilled nursing lending space, including those that specialize in Department of Housing and Urban Development (HUD)-backed financing and bridge loans. There’s no general consensus about the state of the market other than the fact that procedures have changed, and resident care should remain paramount.

“There’s a lot that’s in limbo right now,” Colleen Blumenthal, chief operating officer of real estate advisory and valuation firm HealthTrust, told SNN on Thursday.

A blanket federal ban on all non-essential nursing home visits means that appraisers can no longer perform the detailed inspections typically required for new loans, potentially throwing a wrench in transactions that had been in progress prior to the start of the coronavirus crisis.

Earlier this week, HealthTrust CEO Alan Plush released a rundown of some of the high-level trends that the Sarasota, Fla.-based company had been seeing in the lending and appraisal space, including HUD’s acceptance of exterior photography along with a “virtual tour” of properties conducted by staff members.

Commercial lenders, meanwhile, have generally been allowing owner-provided interior pictures — in conjunction with exterior photos — in order to work around the lack of direct access to facilities, according to HealthTrust.

“In general, the lending community is adjusting real-time to keep all constituents safe while allowing business to continue,” Plush wrote.

Two spokespeople from HUD did not respond for a request for comment this week.

Because the early stages of a deal can be largely handled remotely, Senior Living Investment Brokerage (SLIB) managing director Matthew Alley predicted that some work can still be completed, though there may be hangups down the line.

“Transactions that are in the initial phases should still be able to proceed almost as normal, with most of the due diligence and legal documents being done offsite,” Alley said. “However, for the more advanced transactions, there may be a delay in the formal due diligence that the lender may require.”

When reached Thursday, Blumenthal noted that the logistical challenges extend beyond access to the buildings themselves: As airlines pare back their flight schedules, and municipalities encourage or require businesses to suspend all non-essential work and travel, even performing exterior inspections of facilities will become difficult.

“As new assignments come in, a high number of them are being cancelled within two or three days of coming in,” she said. “So there’s definitely going to be an impact.”

In addition, deals that require a Project Capital Needs Assessment (PCNA) may also see closing delays, as those require extensive access to a building’s key systems such as plumbing and electrical equipment.

As of Friday, Isaac Dole of Birchwood Healthcare Partners said lending timelines remain on track from his view, at least for now.

“We closed on an acquisition on 3/1, thankfully, and are now awaiting HUD and conventional refinancings,” Dole said via e-mail. “Their intent is still to close.”

But Dole also predicted that the coronavirus situation will have a longer-term effect on dealmaking in the space as owners and operators abandon all considerations other than keeping residents safe.

“I definitely think M&A activity will slow down, but primarily due to buyers focusing inward on how to contain this,” he said. “Sellers will still want to close, but everything else is getting dropped at the moment by buyers to train up staff and escalate protocols.”