Why Senior Housing Sponsors Should Look to HUD for Financing

Russell Phillips of Regions Bank on how the agency has moved to meet the market.

Russell Phillips
Russell Philips

Demand for senior housing remains heightened in part due to what many reference as the “silver tsunami’ or “age wave.”  With the country’s Baby Boomer population entering golden years, the number of octogenarians and beyond is expected to expand substantially between 2023 and 2030, with a 3.7 percent uptick anticipated in 2024 alone, according to NIC. The industry will not only need to step up delivery of new units over coming years but will also need to consider that seniors today are living longer. With this, housing supply must meet an increase in care and acuity needs.

Finance availability for senior facilities is a critically important component to serving today’s aging population. As with other real estate asset classes, loan availability and terms are influenced by current interest rates, market fundamentals, the sponsor’s proven experience (which is especially true for senior facilities), and the performance of the community in question. The good news is that, despite elevated interest rates, the sector’s performance has continued a path of recovery following Covid-19.

Senior housing fundamentals relatively strong

The senior housing sector continues to improve following the substantial distress at the height of the pandemic. In January, NIC Map Vision released 2023 fourth quarter data revealing key performance metrics. NIC noted that the senior housing occupancy rate has increased for 10 consecutive quarters. Five additional takeaways included: primary market fundamentals are on track for occupancy recovery during the second half of this year; the occupancy in secondary markets has already recovered to pre-pandemic levels; occupied units are continuing to climb; growth in inventory is moderate; and new construction activity in most markets is still slow.

Of course, operators do still face challenges. Some oversee property portfolios with some assets performing significantly better than others. Labor challenges also persist. There’s a continued ongoing shortage in qualified staff and, in turn, wages have increased. Increasing insurance rates are another common complaint. For operators whose occupancy hasn’t fully recovered following the pandemic, it’s difficult to offset these increased costs.

HUD, a primary finance source

On a positive note, financing remains available through HUD. Loan options serve sponsors owning facilities with or without a mix of skilled nursing, memory care and assisted living facilities (note that Fannie Mae and Freddie Mac also finance memory care and assisted living communities). Communities that offer a continuum of care, meaning the facility includes a component of skilled nursing, assisted, memory, and limited independent, tend to have stronger demand and are increasingly attractive to HUD.

Last year HUD announced that, in certain cases, only six months of net operating income providing for a minimum 1.45x debt service coverage ratio would need to be proven for a loan application to be submitted. With this change, HUD signaled its awareness of some volatility within facility operations income. Previously, HUD’s mandate had been 12 months of proven net operating income, and it had become increasingly harder for sponsors to meet the requirement. Many sponsors were left in a waiting period, unable to submit their loan applications. The situation had also substantially reduced the HUD queue for loans. By changing the requirement, many additional sponsors have been able to apply for loans and HUD activity is buzzing again, with the queue back to its norm of about three to four months.

If seeking HUD financing

Patience is key with HUD financing. Your loan application is your one shot to put HUD permanent financing on your facility with a 35-year term and amortization. Thus, it’s imperative to work with an experienced and trustworthy HUD lender that will help you navigate the process. Additionally, it is advised to determine the right timing for proceeds from bridge financing before taking an application to HUD.

Russell Phillips is managing director of Real Estate Capital Markets for Regions Bank, a senior housing and multifamily real estate lender. Visit Regions Real Estate Capital Markets online at


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