NIC Analytics released the 2Q 2023 NIC Lending Trends Report today. The quarterly report, available complimentary to NIC constituents, includes data trends over seven years for senior housing and nursing care construction loans, mini-perm/bridge loans, and permanent loans from 3Q 2016 through 2Q 2023. 

Second Quarter 2023: Market Forces Recap

The lending environment continued to tighten through the second quarter of 2023. The Federal Reserve nudged rates higher by another 0.25 percentage points (pps) in May 2023, bringing the federal funds rate to a target range of 5.00% – 5.25%. This was the tenth rate hike since the Federal Reserve’s adoption of a hawkish stance to tame inflation in March 2022. Inflation, as measured by the consumer price index (CPI), has decelerated since June 2022. By June 2023, the rate had slowed for a twelfth consecutive month to 3.1%, marking a considerable decrease from the previous year’s high of 9.1% in June 2022.

The higher interest rate environment since March 2022 has limited the availability of debt and driven borrowing costs significantly higher. Federal Reserve data tracking senior loan officers’ observations of credit conditions across the U.S. showed tighter lending conditions in the second quarter of 2023 in construction, multifamily, and commercial and industrial (C&I) loans. These observations align with the trends identified in the most recent NIC Lending Survey.

Additionally, the disruption to the banking system in the second quarter of 2023 following the failures of Silvergate, Silicon Valley Bank, and Signature Bank, and the sale of First Republic Bank to JP Morgan Chase raised concerns about potential contagion among regional banks.

Takeaways from the 2Q 2023 NIC Lending Trends Report

The issuance of new permanent debt for senior housing hit a new low within the time series during the second quarter. Factors adversely limiting the issuance of permanent debt include the disruption in the capital markets, limited debt availability, tightening lending standards, higher interest rates, inflationary pressures, troubles in the banking system, widening spreads (i.e., the amount charged over the risk-free rate to compensate for risk), and reduced loan proceeds. For the sample of lenders in the NIC Lending Trends Report, the volume of new permanent loans closed for nursing care surpassed that for senior housing for the first time since 2018, reflecting a 75% increase versus a decline of 8% for senior housing loan volume from the prior quarter.

The issuance of mini-perm/bridge debt for senior housing dropped further through the second quarter of 2023, and was down by 52% from the prior quarter and 76% from late 2022 levels. Concurrently, nursing care mini-perm/bridge loan closings remained relatively very low and on par with pre-pandemic levels. Borrowers are adjusting to the prevailing “higher for longer” mindset, anticipating sustained rates without a potential decline in the near future. While short-term debt options are limited, those available often come with increased costs and additional credit enhancements e.g., the need for more equity or a repayment guaranty.

New construction loan closings for senior housing remained weak in the second quarter of 2023 compared with historical patterns. Notably, senior housing construction starts remained relatively low in the second quarter of 2023, and the number of senior housing units under construction in the 31 NIC MAP Primary Markets remained near its lowest level since 2015, according to data released by NIC MAP Vision.

As for nursing care, the issuance of construction debt was virtually non-existent for the lenders sampled in the NIC Lending Trends Report. This aligns with the observed pattern of limited debt financing for new nursing care property construction since NIC began data collection in 2016. In fact, there has been limited development of new nursing care properties and overall inventory has been declining for several years.

The total balance of delinquent senior housing loans saw a notable increase, although the balance was still lower than the high levels seen in the third quarter of 2020 in the immediate aftermath of the COVID pandemic. Senior housing delinquencies rose by 36% in second quarter 2023, while nursing care delinquencies declined by 24% from the prior quarter. Delinquencies as a share of total loans rose to 2.9% for senior housing, up from 2.1% in the first quarter of 2023. For nursing care, the delinquency rate edged down to 0.9%. Note that loans in forbearance are reported in the delinquent loan data for some debt providers. Also of note, foreclosures were reported for this quarter’s sample of lenders for both senior housing and nursing care, at $14.7M and $71.4M, respectively.

From the Field: 2Q 2023 Survey Comments

For the past two quarters, NIC Analytics has reached out to our network of contributors, asking them questions about the lending environment for senior housing and nursing care. We are asking about their strategies in response to changing capital market conditions, lending patterns with respect to existing versus new clients, and any notable trends they are observing in the market.

In the face of changing capital market conditions, the responses in second quarter 2023 continued to indicate that lenders are reacting to these changing conditions by focusing on strong sponsorship and credits. This trend reflects a reaction to a jump in the SOFR and 10-year Treasury rates, leaner loan proceeds as measured by lower loan-to-value (LTV) ratios, higher equity requirements and tighter spreads. Nevertheless, there was some level of lending activity as shown in the data derived from this survey.

The second quarter of 2023 also saw a focus on long-term relationships with many lenders extending loans predominantly to existing clients. Tightened lending standards and the increase in interest rates and inflationary pressures affected the industry, resulting in fewer new clients being onboarded.

The second quarter of 2023 also witnessed a series of market-shaping events, including Fannie Mae’s revised guidelines focusing on lower leverage loans and higher DSCR requirements, respectively, posing challenges in identifying financing opportunities that fit within debt-service-constrained loans and contributing to a cautious lending environment.

The ongoing rise in interest rates prompted a stronger focus on stabilized senior housing and nursing care properties in proven markets with limited new construction and with proven stability and strong sponsors, as opposed to “riskier” or non-stabilized properties in tertiary markets. Considering these factors, the lending environment is expected to continue tightening throughout the latter half of 2023.

Looking Ahead. As we look beyond the second quarter of 2023, though inflation has decreased significantly from its peak of over 9% last year, the recent months have seen a halt in progress, with inflation still remaining more than a percentage point above the central bank’s 2% targeted rate. The Federal Reserve implemented a 0.25 percentage point increase to 5.25% – 5.50% in July 2023, maintaining stability since then and at its most recent meeting on October 31-November 1. However, the Fed has left open the possibility of another hike, potentially in December 2023.

Download the complimentary 2Q 2023 NIC Lending Trends Report for full details on these and other trends in senior housing and skilled nursing lending. 

Note: These data are not to be interpreted as a census of all senior housing and skilled nursing lending activity in the U.S., but rather reflect lending activity from participants included in the survey sample only. 

The 3Q2023 NIC Lending Trends Report is scheduled for release in mid-February 2024.

Interested in participating? The NIC Lending Trends Report helps NIC Analytics to deliver on NIC’s mission to enable access and choice by further enhancing transparency of capital market trends in the senior housing and care sectors. We very much appreciate our data contributors. This report would not be possible without them. 

If you would like to participate and contribute your data, please contact us at analytics@nic.org. As a courtesy for providing data, data contributors receive this report early before publication on the website. The information provided as part of the survey will be kept strictly confidential. Individual answers will be combined with the answers of all other respondents. Data acquired from this survey will only be reported in the aggregate, and therefore, the resulting aggregated data will not be attributed to you or your company upon distribution. 

NIC MAP Vision released its latest Skilled Nursing Monthly Report on November 2, 2023.  The report includes key monthly data points from January 2012 through August 2023.   

Here are some key takeaways from the report:

Occupancy 

Skilled nursing property occupancy increased 59 basis points from July to end August at 82.3%. Occupancy is up 142 basis points from one year ago in August 2022 as it continues to recover since the pandemic low of 75.0% set in January 2021. Occupancy hovered around 81% from January 2023 through July 2023. August 2023 represents the first-time occupancy was over 82% since April 2020. However, challenges do persist with staffing shortages that continue to create difficulties within skilled nursing properties limiting the ability to admit new residents in some markets. The current occupancy trend over the past year does suggest that demand for skilled nursing properties is recovering. Occupancy remains low compared to February 2020 pre-pandemic levels of 89.1% (6.9 percentage points). 

Managed Care 

Managed Medicare revenue mix increased 19 basis points from July to end August at 11.8%. It has declined 68 basis points since its recent high of 12.5% in February 2022, but it is up by 262 basis points from the pandemic low set in May 2020 of 9.2%. Expectations are that it will continue to increase over time with the continued growth of managed Medicare. Meanwhile, Managed Medicare revenue per patient day (RPPD) declined 0.6% ending August at $487 and it is down 0.1% from last year in August 2022.  It has decreased $122 (20.1%) since January 2012 and continues to pressure some operators’ revenue as managed Medicare enrollment grows around the country. However, some operators see managed Medicare as an opportunity for growth in patient volume. 

Medicaid 

Medicaid patient day mix decreased 13 basis points to 67.0% in August. It has increased 397 basis points from the pandemic low of 63.1% set in February 2022. In addition, Medicaid revenue mix decreased in August, but still represented over half of property revenue at 53.8%. It has increased 472 basis points from the pandemic low of 49.1% set in February 2022. Meanwhile, Medicaid revenue per patient day (RPPD) decreased to $277 in August. It increased 2.6% from $270 one year ago in August 2022. 

Medicare 

Medicare revenue per patient day (RPPD) increased from July to end August 2023 at $592. It has increased 2.9% since September 2022. Most of this increase in reimbursement is likely a result of the increase in Medicare rates to skilled nursing properties for fiscal year 2023 and potentially higher acuity patients, which also increases RPPD to care for more complex patients. Meanwhile, Medicare revenue increased slightly from July to end August at 17.3%. However, it is down from one year ago, decreasing 419 basis points from August 2022.  

NIC MAP Vision clients with access to NIC MAP data can access the Skilled Nursing Monthly Report. The report provides aggregate data at the national level from a sampling of skilled nursing operators with multiple properties in the United States. Talk to a product expert to learn more about NIC MAP Vision.

NIC is continuously seeking operators to contribute data featured in the NIC MAP Vision report on a monthly basis. Operators who are interested in participating can complete a participation form here. NIC maintains strict confidentiality of all data it receives. 

NIC MAP Vision clients, with access to NIC MAP® data, attended a webinar in mid-October on key senior housing data trends during the third quarter of 2023. Findings were presented by the NIC Analytics research team. Key takeaways included the following: 

Takeaway #1: Market Fundamentals on Track for Occupancy Recovery 

• The occupancy rate for senior housing—where senior housing is defined as the combination of the majority independent living and assisted living property types—rose 0.8 percentage points to 84.4% from the second quarter of 2023 to the third quarter for the 31 NIC MAP Primary Markets. This marked the ninth consecutive quarter of occupancy increases.  
• At 84.4%, occupancy is 6.6 percentage points above its pandemic-related low of 77.8% recorded in mid-2021 and 2.7 percentage points below its pre-pandemic level of 87.1% of the first quarter of 2020.   
• Demand in the third quarter as measured by the change in occupied inventory, or net absorption, totaled 7,853 units in the 31 Primary Markets, which was nearly three times the 2,806 units that arrived online during that same period. Demand has been positive over the past 10 quarters, which has helped occupancy to improve.    

Takeaway #2: Majority Independent Living Occupancy Gains Accelerated in Third Quarter 

• In the third quarter of 2023, the occupancy rate for assisted living increased by 0.9 percentage points to 82.6%. Meanwhile, after hovering around the 85% range for three consecutive quarters, the occupancy rate for independent living in the third quarter jumped by 0.7 percentage points to 86.1%.  
• Despite this jump, this was still the ninth consecutive quarter (i.e., the entirety of the pandemic recovery thus far) in which occupancy gains were stronger for assisted living than for independent living. As a result, the occupancy gap between the two stood at only 3.5 percentage points in the third quarter, which was smaller than the 4.9 percentage point gap recorded before the onset of the pandemic.  

Takeaway #3: Annual Inventory Growth Remained Low 

• In the chart below, we show annual inventory growth as a percentage of existing inventory.  
• By property type, annual inventory growth in the third quarter for independent living was 1.2%, below its pre-pandemic average of 1.6%. 
• Assisted living in the third quarter grew by a slightly higher amount at 1.5% year-over-year, which was a slight uptick from the prior quarter. Still, this year-over-year growth was less than half the typical growth recorded for assisted living before the onset of the pandemic, which was 3.2% annually. 
• This slower inventory growth stems from the slowdown in construction starts that we experienced during the height of the pandemic, a trend that occurred for both independent living and assisted living.

Takeaway #4: A Growing Share of Inventory is 25 Years or Older 

• With inventory growth slowing, it is interesting to evaluate how senior housing inventory has aged in recent years. In the chart below, we illustrate the distribution of stabilized properties in the first quarter of 2020 and the third quarter of 2023. 
• As shown at the bottom of the chart, the share of properties that are 25 years or older has grown from 34% to 41% in the past three and a half years. This older cohort has one of the largest shares of properties with occupancies that are 80% or lower, which may be driven by several factors, e.g., older floor plans that no longer meet consumer needs in terms of the size of units or the unit mix. 
• Meanwhile, the share of properties that are 10 to 17 years old has shrunk slightly from 13% to less than 11%. This younger cohort has the highest share of occupancy rates at 90% or higher, which could be indicative of having an established team in place and perhaps some brand recognition. 

Interested in learning more?

The data featured in this article derives from NIC’s analysis of NIC MAP Vision’s Senior Housing Market Fundamentals Data Release. NIC MAP Vision clients with access to NIC MAP data also receive an exclusive invitation to a market fundamentals webinar led by NIC’s Research team where they review each quarter’s trends in context with historical data and current events. To get a better idea of what’s covered, watch an abridged version of the webinar. To learn more about NIC MAP data, powered by NIC MAP Vision, and accessing the data featured in this article, schedule a meeting with a product expert today.

NIC Academy has gone live this week with The Fundamentals of Underwriting Senior Housing and Care certificate program. This certificate program stands out as the industry’s premier certification program designed to train investment and finance professionals. Upon completing the program’s six courses, graduates will earn a certificate in the Fundamentals of Underwriting Senior Housing & Care and the professional designation of ‘CSHIP’ – Certified Senior Housing Investment Professional. The CSHIP designation is the first and only professional certification tailored specifically for investment and real estate professionals in the senior housing and care industry. This comprehensive 90-day program is offered online in a self-paced, asynchronous format to maximize convenience for learners. The program is available multiple times a year and not only saves you time but also money by bundling relevant courses together. 

In the senior housing and care industry, the significance of hiring is growing due to shifting demographics in the United States, evolving consumer preferences, the introduction of innovative technologies, and the increasing demand for novel housing solutions. Hiring and retaining skilled, well-trained employees will be imperative as the industry prepares for expansion. 

Traditionally, the senior housing and care industry, known for its niche and unique nature, has relied on on-the-job training (OJT) methods to onboard new hires in real estate or investment-based roles within the sector. While OJT methods have their advantages, they also come with various challenges. For instance, many OJT training methods lack standardization of quality control, offer limited exposure, and often result in a loss of productivity among teams responsible for managing new hires. These challenges prompted the NIC Academy team to reconsider how best to prepare the next generation of industry professionals, ensuring they are equipped with all the tools for success. 

NIC Academy’s Fundamentals of Underwriting Senior Housing and Care certificate program provides a viable solution by enhancing the training and onboarding process and acting as a strong supplement or replacement for OJT training methods. 

I recently had the opportunity to speak with Zach Bowyer, MAI, Senior Managing Director at Cushman & Wakefield. As an executive in the senior housing and care industry, he effectively balances the demands of his executive role with the essential task of training new hires. Bowyer explained, “Attracting top talent and equipping them with the necessary expertise as swiftly as possible has always been a top priority for us. I’m excited to learn about NIC Academy’s Fundamentals of Underwriting Senior Housing & Care Certificate Program, and I am confident it will be a game changer in this regard.” 

Properly training new hires is vital for the growth, success, and long-term sustainability of any organization. It not only equips employees with the necessary skills and knowledge but also fosters a positive work environment and a professional culture, ultimately leading to improved business outcomes. 

Promoting the pursuit of professional designations will help the senior housing and care industry grow by ensuring standardization, credibility, quality, ethical standards, and by facilitating career advancement and increased collaboration. Professional designations benefit professionals by fostering a culture of excellence and continuous improvement. The NIC Academy team is confident that the CSHIP designation will establish a new ‘gold standard’ for the senior housing and care industry moving forward, becoming the foundational requirement for hiring and training new employees. This designation offers new industry entrants and career changers an equal opportunity to succeed in the ever-evolving senior housing and care industry. 

Learn more about The Fundamentals of Underwriting Senior Housing and Care certificate program.

Capital is available, but solving the financing puzzle nowadays takes some out-of-the-box thinking. Tony Marino has seen the market’s ups and downs over time and knows how to get deals done.  

Marino is managing director at Cambridge Realty Capital, an FHA/HUD approved lender. Marino recently talked about the firm’s approach with NIC Senior Principal Bill Kauffman. Here is a recap of their conversation with key insights on how to get to “yes” by creating win-win transactions for all parties.  

Kauffman: Can you give us some background on your professional career and your current focus? 

Marino: I’ve been with Cambridge for 26 years. I started here as an intern in college. Cambridge is one of the nation’s oldest and most trusted healthcare capital providers for senior housing and healthcare facilities. We are an FHA/HUD-approved lender and service our loans in-house. 

I’ve worked on every segment of the loan process from origination, underwriting, closing and asset management. I’m a HUD approved underwriter. I focus on origination and underwriting. I mainly work on new business and with borrowers as the liaison between the borrower and the underwriting team. I also do some asset management work to make sure borrowers are getting their needs met. We build long-term relationships with our borrowers. They are our focus.  

Kauffman: Can you give us an overview of Cambridge Realty? 

Marino: We are a privately-owned firm that was co-founded 40 years ago by the President, Andy Erkes, and Jeff Davis. Cambridge has been involved in virtually every type of financing available to the healthcare industry including agency (HUD), conventional bank and unconventional, non-bank, CMBS, life insurance and sale-leasebacks with both public and private REITs. We have closed more than $6.7 billion in HUD transactions and have a sizeable servicing portfolio. Cambridge has enjoyed a 99% HUD closing rate in the last five years and has consistently been ranked among the top HUD senior housing lenders for many years.  

Kauffman: How big is your team? 

Marino: Cambridge has a team of five originators on the front line. We have four team members in underwriting, two in loan servicing and a support staff. Our staff averages about 15 years of experience with the company. We’re a tight knit group and work closely together. We don’t put people in boxes. Our team understands each lending program’s requirements and underwriting guidelines to properly assess loan options and discuss them with borrowers. I’m the team’s one-stop shop for questions and answers.  

Kauffman: Is it important in today’s market to lock down interest rates? 

Marino: It’s the borrower’s decision. We like to say our crystal ball is in the shop. The decision depends on the borrower’s goals. Some borrowers want the best rate available at that time and want to take risk out of the mix. Other borrowers are willing to ride the ebbs and flows of the interest rate market. 

Some deals are more sensitive to interest rates, which can affect the purchase price. The borrower may need the highest amount of proceeds to fund the acquisition or necessary repairs. It’s a matter of what the borrower wants. We try to meet their needs and let them decide.  

For certain borrowers and deals that qualify, we offer an early rate lock option. We recently had several borrowers take advantage of this option to get significantly lower rates than what the current market is offering. 

If they ask for our opinion, we tell them what we’ve seen in the past. Like I said, we don’t have a crystal ball to predict the future. But we work with the borrower to develop a sensitivity analysis to make sure they are informed and educated. The more comfortable and knowledgeable borrowers are, the more likely they are to work with us again. We encourage borrowers to call and consult with us, we’re happy to be a sounding board and source of information.   

Kauffman: What other options do you offer in place of a bridge loan? 

Marino: We see a lot of owners who are ready to cash in and move on, and we work with many bridge lenders. But a bridge loan is not always the best fit. Bridge loans are a lot tighter now in terms of coverage restrictions and underwriting. So, we look at ways to get deals done.  

We’ve had success working with the seller in a purchase situation by creating a unique structure such as assuming existing debt from the ownership. It’s a win-win situation. The seller gets the best price because the buyer may not be able to finance as much with a traditional lender. We can underwrite that kind of deal, so the borrower gets more proceeds. It works out for all parties. 

The bigger regional companies may have access to financing, but loan terms may be too punitive for small companies. That puts a lot of pressure on the borrower. We’ve also found that it’s best to work with those who understand the industry. There are a lot of nuances between states and markets, such as differing reimbursement rates. Senior living is a unique business. 

Kauffman: Do you concentrate on a certain segment of senior living? 

Marino: We finance all types of healthcare properties: assisted and independent living, memory care, skilled nursing, if it’s financeable, we can find a home for it. 

Kauffman: What is your outlook for the rest of the year and the capital markets?  

Marino: We’re seeing rates go up lately, but my experience leads me to believe we’re coming to a peak. We may see a dip in rates after the Federal Reserve’s late October/November meeting. In an election year, the Federal Reserve tries to take a hands-off approach unless a serious event causes a policy change. They don’t want to be accused of meddling in politics. Next year, I think rates will be flat from where they land in December.  

Kauffman: Are deals coming off the table? 

Marino: The healthcare industry is recession proof. There’s always a need and we’re always doing deals. But deals are taking a different shape today. We are creative to get the maximum proceeds for the borrower. Our experience and knowledge allow us to delve deep into the numbers and optimize them to achieve the borrower’s goals and objectives. You have to get into the details to understand the market and the operator. We find unique ways to underwrite deals. 

Kauffman: Any other closing thoughts? 

Marino: The industry is going through some changes post-Covid. This is a time to adapt and explore new opportunities—not only in financing but also in operations. Over the last 40 years we’ve seen many different iterations of the industry, operators are resilient, and Cambridge’s ability to adapt and change with the times is one of our biggest assets.