Financial leaders were generally more optimistic at the beginning of the year in terms of a capital market forecast. Now, however, that outlook has changed due to perceptions of economic instability and the threat of potential federal Medicaid cuts.

Now, for facilities to succeed at raising funds for additions or improvements, possession of liquidity and speciality services matter more than ever, given a continued rollercoaster of policy and reimbursement uncertainty.

Executives in the nursing home space still characterize capital markets in the sector as uncertain, even as census has been rebounding. Suburban markets are generally doing better than urban and rural markets in attracting capital, Pat McCormick, partner with Plante Moran specializing in senior care and living, told Skilled Nursing News.

Suburbs across the country have been better at building census, McCormick said, especially since there are more wraparound services in these areas and visitation is more viable for families in these markets. On the other hand, both urban and rural markets have had problems with staffing, including shortage of transportation staff, which in turn has affected census for these areas deeming them as more riskier investments.

“[Operators were] starting to do some more planning on capital-related projects, looking at debt capacity and those sorts of items,” said McCormick. “[However], the tone has changed, particularly over the last month.”

A NIC Map Vision chart detailed an increasing number of markets have no projects under construction even for seniors housing between 2006 and 2024. Washington D.C. and San Jose, Calif. had the most construction as percent of inventory between 2021 and 2024, according to the chart.

Now, there’s concern over instability in the economy, and potentially the federal government’s contribution to Medicaid as evident from the recently passed budget reconciliation legislation. Potential rate cuts either through changes in federal match to Medicaid or changes in the provider tax could reduce funding, McCormick noted.

This translates to more caution with lending, McCormick said. And, an emphasis on strong liquidity from bankers and other clients of Plante Moran.

Unique service offerings, or ancillaries, become more important too, along with federal policy incentives and wider influences like tariffs and inflation, according to Josh VanderPlaats, managing director at VIUM Capital.

Moreover, technology, appears to have differing importance to lenders in today’s skilled nursing capital market.

McCormick and VanderPlaats said it’s not top of mind among skilled nursing lenders they deal with, while Kimberly Green, COO with the operator Diakonos Group in Oklahoma said it’s been a huge ask among lenders.

This is all against a backdrop of uncertainty with the new federal administration, the financial experts said.

“I almost look at this as what was happening right before Covid hit,” said McCormick. “There was a period of time, a month or two where we didn’t know exactly what Covid was going to look like. The first cases were coming in, but there was undertone of, this could be a really big issue. I feel like it’s the same thing.”

Policy incentives influencing capital market

Capital markets are looking at the new presidential administration and one party controlling the Senate and House as well, with the domination of conservative policy incentives, said VanderPlaats.

All eyes are on tariffs and inflation as well, VanderPlaats said of the current capital market landscape.

“The Fed cut rates about a point last year, but I think the expectation is they’re going to stay put for the first half of this year, at least until they start seeing inflation come down, back within their 2% guidance,” VanderPlaats told SNN.

And yet, for some providers, the lending for SNFs is impacted by other factors besides influences from federal actions or financial well-being of the operators.

While federal policies, inflation and tariffs are factors that remain unclear, Green said that based on last year’s lending environment, ever-evolving capital markets aren’t just looking at cash flow and census for nursing home operators anymore.

“They’re diving very deep into our tech capabilities, specialty programs, and environmental impact. They want to know before they’re willing to put any money in. It’s a really deep dive, and it’s really surprising that banks – not just my investors – have been asking some of these questions,” Green told SNN.

Operators and lenders in the skilled nursing sector don’t know what Congress will choose to do, so there’s a lot of contingency planning underway as well, McCormick said.

Having enough reserves, cash flow and liquidity to weather the storm should be top of mind for operators, McCormick said. It will also serve them well to have unique service offerings like ventilation units and bariatric programs.

“Unique service offerings definitely create a play. We were working on a due diligence project with a provider that had a bariatric program and vents, and it was getting reimbursed at a much higher rate … a really unique program. It was providing a strong, immediate cash flow,” said McCormick.

Also, groups that have a really strong nurse practitioner group have a leg up in today’s skilled nursing capital market as well.

Technology influence in capital market landscape

McCormick hasn’t seen much in terms of technology moving the needle in skilled nursing capital markets right now. That’s more of a factor in seniors housing capital markets, at least in the Midwest. But that’s not what Green has seen in Oklahoma.

VanderPlaats echoed this sentiment on technology though, adding that through their joint venture with a lender, VIUM hasn’t seen technology requests in dealmaking.

“What I would say is, credit committees are always evolving. Their hot button issues change from time to time, depending on market and regulatory factors,” said VanderPlaats. “If you’re working with a lender for the first time, you should build in a little bit of cushion in your timeline, just because every lender has a couple questions on their diligence checklist or that their credit committee is focused on, that’s going to be new and unique.”

The presence of medical directors, who make use of technology in terms of monitoring residents, outcomes, and their medications, is deemed a winning move with lenders, said McCormick.

Because skilled nursing is more acute than seniors housing, McCormick said vendors haven’t really bridged the gap in providing AI at the level needed; more effective technology – technology that could give an edge in today’s skilled nursing capital market – deals with data analytics, he said.

If an operator has any hope of funding for various improvements, or to close on M&A, they must have a treasure trove of data at the ready, from technology capabilities to specialty programs, along with an expected environmental impact, said Green.

“If you’ve done deals in the past, realize it’s quite a different layout now,” said Green, with a nod in particular to specialty programs. “Private equity investment in specialized care like memory care and behavioral health, people are looking for that, and they’re asking those questions because of the data that’s out there.”