Sign On
  • KeyNavigator
    Sign On Form is Loading
  • CIS Online Brokerage Sign On

Key Takeaways

  • With more options, Boomers aren’t filling senior care facilities as anticipated.
  • Skilled nursing facilities have strong interest from investors.
  • Stand-alone memory care facilities are a weak spot in the market.
  • Fannie and Freddie are hungry for deals and aggressively pushing innovative lending strategies.

Growth in the seniors housing market has been robust and capital financing remains strong, but with occupancy rates falling, some signs of softness are emerging.

John Randolph, a vice president for KeyBank Real Estate Capital, and a panel of other seniors housing finance specialists discussed market changes at the annual Interface Seniors Housing Southeast conference.

Where is the influx of Baby Boomers?

Several factors are dampening the forecast for senior housing operators. The competitive landscape has intensified. New construction has been robust, and owners of existing facilities are reinvesting in expansions and renovations to remain competitive. Hoping to capture more of the high-need senior population, more facilities are converting assisted living units to memory care units or adding new memory care wings. While rental rates have generally increased across the senior housing sector, vacancy is a bigger concern than it appears. Aging Boomers have more options to choose from, and concessions and giveaways are fairly common to get people in the door.

Healthcare reimbursement changes are also influencing occupancy rates. Hospitals are under immense pressure to reduce patient care costs and improve quality outcomes. One impact of this has been a reduction in the average length of stays at skilled nursing facilities (SNFs) creating pressure in maintaining a consistent level in overall occupancy. In addition to this new reality, any potential cuts to Medicare and Medicaid would create another significant headwind to the SNF sector; panelists expect to see a big correction in the market if that occurs.

In the meantime, however, SNFs continue to draw strong investor interest. A recent example of this is the Kindred divestiture. That organization recently sold its entire skilled nursing portfolio to BM Eagle Holding, a joint venture led by Blue Mountain Capital Management, for roughly $700 million.

Weakness in memory care

Stand-alone memory care facilities present their own set of unique concerns. Generally speaking, these types of facilities aren’t filling up as quickly as anticipated and borrowers are now being more cautious about their projections. Defining market competition and risks in the memory care space has become challenging, since new supply is often opening up inside existing facilities that are renovating or expanding to include memory care.

Healthy financing options, for now

All of the panelists agreed that there is a strong flow of capital coming into the seniors housing sector, particularly for borrowers with strong operational experience. Even with the softness in occupancy and headwinds facing the industry, there is a revolving door of financing options supporting a healthy loan environment. While some banks have taken a somewhat more conservative underwriting approach, there has been a steady flow of new capital providers to enter the space.

On the permanent loan side, Fannie Mae and Freddie Mac are hungry for deals and pushing innovative new lending strategies, although they are doing their due diligence to better understand the competitive market dynamics. The U.S. Department of Housing and Urban Development (HUD) is also getting more creative with loans to help recoup some of the market share it lost in recent years. For example, HUD introduced changes last year that made it faster and easier for some borrowers to take advantage of attractive fixed-rate terms by relaxing its two-year debt seasoning window for cash-out transactions.

Panelists had mixed reviews on the type of deals they will finance, although everyone is proceeding fairly cautiously with new construction. Randolph believes that “our bank’s capital, for example, can be best put to use financing acquisitions, recapitalizations, projects at or near stabilization or turnarounds in order to be more relevant to our clients in the senior housing space.”

To learn more or discuss the contents here, reach out to John Randolph at 770-510-2119 or For more expert content, go to