Skilled Nursing Lenders Still Operating, But Expect Delays — and Focus on Existing Clients Over New Ones

A group of senior housing and care lenders on Thursday emphasized that financing remains available in the space, but buyers and sellers shouldn’t expect business as usual when trying to complete deals during the COVID-19 pandemic.

“There is capital out there, but I would say it is definitely a more limited supply and not nearly as aggressive as we saw this time last year, or six months ago,” KeyBank head of commercial and health care mortgage production Matthew Ruark said during a webinar presentation hosted by the National Investment Center for Seniors Housing & Care (NIC).

Ruark and his fellow panelists emphasized that the financial side of the senior care equation is currently in uncharted waters along with the rest of the industry — and the economy at large.

“There is still financing available, but the volatility — even since the spring NIC — has changed the landscape for sure,” Ruark said, referring to the spring investment forum held at the start of this month.

For skilled nursing owners and operators, M&A activity has largely taken a backseat to the more imminent concern of keeping residents safe and protected amid the spread of the novel coronavirus. But for the deals in progress, lenders and their third-party partners are running into a host of logistical issues caused by widespread government efforts to contain COVID-19.

“There’s no doubt that the logistics of getting a transaction has gotten more difficult,” Ruark said. “Day by day, there are new things that are popping up.”

Local governments may have shuttered their recording offices, Ruark noted, making it difficult or impossible to file the proper paperwork for new mortgages.

“If they’re not set up for e-filing, you’re at a standstill,” he said.

In Pennsylvania, issues with the secretary of state’s website prevented KeyBank attorneys from conducting routine lien and title searches, while general travel restrictions have prevented such standard practices as appraisals and inspections.

The barrier is especially high for skilled nursing facilities, which are currently under a blanket ban on all non-essential visits due to the extremely high risk of mortality among elderly and frail residents. Many lenders have begun to accept exterior inspections in conjunction with owner-provided pictures of the interior, as SNN reported last week, but all of the uncertainty and workarounds mean patience will become paramount.

“The important thing to remember is: things will take more time, and we need to be able to find ways to manage some timing expectations,” Ruark said. “The due diligence is critical. It’s prudent. It’s a thing we need to be doing.”

For its part, the Department of Housing and Urban Development (HUD) — which backs billions of dollars’ worth of loans related to skilled nursing facilities — has made several COVID-related concessions, including the temporary suspension of all routine inspections of facilities associated with existing loans.

“Additionally, in the underwriting process, HUD is working with lenders regarding potential alternative sources for information typically gained through on-site visits/inspections,” the department wrote in a FAQ on coronavirus protocols released earlier this week.

The agency also offered a 30-day extension on all borrower entity submissions with due dates of March 31 and April 30; that paperwork will now be due on April 30 and May 30, respectively.

At MidCap Financial Services, president for real estate Kevin McMeen said his team is putting a pause on working with new clients for now, both to focus on its existing portfolio and to avoid some of the uncertainty currently facing the industry.

McMeen in particular pointed to worries about dealing with the transfer of ownership or management during a COVID-19 outbreak at a skilled nursing facility, a scenario where resident care is paramount and both the clinical and economic impact on a building could be devastating.

“That’s another unknown that we look at and say: You can’t assess what the risk of that is in this marketplace,” McMeen said.

For now, MidCap is content to work with its existing clients, potentially working out solutions to prevent further financial distress — such as loan modifications, covenant resets, and forbearance agreements.

“As we get clarity, and get some sense as to what we can do in terms of projecting forward what the economy might look like, what the senior housing and skilled nursing business might look like, what the situation is with the virus, once we have some level of clarity and have some foresight — that’s when we’ll look at getting back into originating new business,” McMeen said.