Discussing Senior Housing Financing Issues With KeyBank

An increased and more effective use of technology and an affordable assisted living model are among the trends we’ll likely see in the sector, according to Carolyn Nazdin.
Carolyn Nazdin, senior vice president & healthcare mortgage banker, KeyBank Real Estate Capital. Image courtesy of KeyBank
Carolyn Nazdin, Senior Vice President & Healthcare Mortgage Banker, KeyBank Real Estate Capital. Image courtesy of KeyBank

The current and ongoing global situation has seriously impacted the senior housing sector, as its residents are among the most vulnerable in the face of the new coronavirus. In the wake of the outbreak, demand for senior housing immediately plummeted, and occupancy has been greatly impacted.

“The outbreak has caused many senior housing properties to suffer severe declines in occupancy and sharp increases in COVID-19 expenses,” said Carolyn Nazdin, senior vice president & healthcare mortgage banker at KeyBank Real Estate Capital. “Some owners had to sell under distressed circumstances, while others decided to wait for a better, post-COVID-19 sales environment,” she continued.

Nazdin has more than 25 years of experience in the senior housing financing industry. In the interview below, she narrows down the ways in which acquisition financing for senior housing assets has changed over the past 12 months, as well as lenders’ expectations for the market to evolve this year.


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What are the main financing sources for senior housing investments nowadays?

Nazdin: Traditional financing sources such as national and regional banks, the government-sponsored enterprises, The United States Department of Housing and Urban Development and some life insurance companies still exist for senior housing. However, since the start of the pandemic in March, the terms have become more conservative in the face of uncertainty related to how properties will manage the spread of COVID-19, and thus how the properties will perform. Some smaller community banks and nontraditional financing sources have stepped up into the opening created by the larger lenders who are temporarily less active.

How has acquisition financing for senior housing properties changed over the past 12 months?

Nazdin: Acquisition financing continued to be available throughout 2020, however, it was more limited and conservative in nature—for example, imposing lower maximum loan-to-value ratios, higher minimum debt service coverage ratios, debt service reserves and recourse. Acquisition activity itself was heavily affected by COVID-19.

The dual effects of lower revenue and higher expenses depressed cash flows, which in turn created a perception of lower property value to buyers. Some sellers renegotiated their prices in order to consummate the sales. Other sellers simply pulled their properties off the market, believing they would be better off waiting to sell after occupancy returned to pre-COVID-19 levels and COVID-19-related expenses normalized.

What are the main challenges when it comes to financing senior housing projects?

Nazdin: In the current environment, the challenges of underwriting a new loan reflect our unique times. Some have likened it to catching a falling knife. Will the increased levels of insurance costs continue or are they temporary? What level of additional expenses will be needed to manage COVID-19 for the foreseeable future? How does one underwrite a stabilized occupancy level when it is currently at a historic low due to COVID-19, when property tours are allowed only in a virtual format, and when prospects are hesitant to move in because the value proposition of congregate living is nonexistent?

How do lenders expect the senior housing market to evolve this year?

Nazdin: Lenders expect the sector to improve in conjunction with a successful and timely rollout of the vaccine to communities and nursing homes. The main problems affecting the sector—low occupancy and additional expenses related to COVID-19—should be resolved significantly by late 2021.

We know the midterm impact of COVID-19 on the senior housing sector. What are your expectations for the long term?

Nazdin: As long as vaccinations are successfully implemented throughout the country, the long-term impact on the sector should be negligible. Within 12-15 months, we will likely start to see pent-up demand for senior housing that materially improves occupancy and bottom lines.

Do you expect loan volume in senior housing to increase or decrease going forward?

Nazdin: Loan volume should increase as the sector improves. Acquisition activity in the few years prior to COVID-19 was at the highest levels ever experienced in the industry. However, COVID-19 severely curtailed acquisition activity during 2020. Going forward, acquisitions are expected to be greater in 2021 and 2022 than in 2020, following the rollout and implementation of the vaccine.

Please tell us about major trends in the senior housing industry.

Nazdin: Major trends in the senior housing industry involve two broad concepts: first, greater and more effective use of technology to maintain and improve the health and well-being of residents, to coordinate care with health-care providers, and to be more efficient with design, and to find cost savings, and second, development of an affordable assisted living model that offers primarily private-pay housing and care to elderly persons of modest means. 

Another trend especially relevant to skilled nursing is how staffing and building design and layout can better protect the frailest elderly residents when there are outbreaks of disease. The large number of seniors who died in nursing homes due to COVID-19 has generated ample discussion about these topics.

Considering your extensive background in financing, what is your advice for senior housing operators during this difficult period? What are the greatest opportunities for business growth over the next 12 months? 

Nazdin: Once we see a successful and timely rollout of the vaccine to communities and nursing homes, lenders expect the sector to improve, and the related issues—low occupancy and additional expenses related to COVID-19—should be resolved significantly by late 2021.