Whether cash-strapped or eager to reinvest as a means of conducting a census, owners of more skilled nurses are exploring HUD-backed loans as alternatives to traditional commercial products.

Already, skilled nursing providers account for more than two-thirds of loans issued under the Department of Housing and Urban Development’s Section 232 program, which supports financing, refinancing, construction, improvement and loans for operating losses. Currently, the program is providing just over $ 37 billion in loans on 3,823 mortgages in the residential care sector, according to a presentation by the agency last week.

Jeffrey Davis, chairman of Cambridge Realty Capital Companies, believes that qualified nurses’ interest in HUD options could continue to explode.

Rising operating costs for vendors, especially for personnel, exceed the rate of inflation, a trend that Davis believes is not expected to abate over the next few years. What remains to be seen, however, is how many eligible borrowers may have already refinanced during the pandemic.

“HUD has been very, very active over the past two years,” said Davis, whose company is among the top 15 HUD lenders in the country. “This is a very important program to bring money to nursing homes, which obviously keeping these properties in operation is a huge imperative for the government.”

Sarah Schumann, co-chair of the American Health Care Association’s Independent Homeowners Council, presented HUD-backed loans at the association’s annual conference earlier this month. A former recipient of a HUD loan, she wants others to know about the variety of HUD services and requirements.

“With interest rates at their lowest and spending in other areas increased, it’s really important for vendors to have options,” said Schumann, director of operations for the Brookside Inn in Castle Rock, CO. McKnight’s. “As an individual operator, we usually don’t have a large finance department. It’s usually just the owner… HUD has worked very well with suppliers during the pandemic.

Cut through the bias

Some providers have long shunned HUD loans, seeing them as loaded with bureaucracy that adds another layer of government oversight to operations and finances. The agency requires periodic physical inspections, a process it is reviewing, as well as additional financial reports in order to qualify for a loan and receive some optional benefits.

Underwriting time can also be long, acknowledges Don Pelligrino, CEO and owner of Bridgeway Senior Healthcare with four properties in New Jersey, one of which was refinanced through HUD. But finding the right loan requires knowing the lending environment and balancing rates, risks, and regulatory oversight, Pelligrino noted.

When he built his most recent skilled nursing facility in 2012, Pelligrino said he decided not to fund HUD due to a wage clause governing the construction. But he added that he would likely turn to the agency again if he wants to refinance. He enjoyed a useful relationship with Lument, his former HUD lender, who conducted extensive analysis to prove the cost benefits, even with mortgage insurance and HUD’s cash reserve requirements.

Davis said it often falls on lenders with experience in the industry to help first-time HUD borrowers see old biases and navigate a new environment of qualification and compliance.

Cambridge has facilitated $ 802 million in debt financing since the start of the pandemic. Over 80% of his business has been done with HUD in the past 18 months, Davis said McKnight, and the company has shifted its resources to helping customers navigate.

Some have been directed to HUD refinancing options, including interest rate reset and the 232 (a) (7) program, which requires less underwriting. He predicted these options would remain attractive in the current environment – often undercutting commercial interest rates by 1% to 2% – unless rates start to climb overall.

Documents for the partnership

When it comes to compliance and additional documentation issues, HUD officials are quick to point out why they and their lending partners are monitoring finances so closely and asking for meaningful plans if performance drops. The Residential Care Facilities Program recorded a 0.22% net claim rate in the past fiscal year, Philip Head, director of HUD’s residential care facility asset management office, said during a webinar on Thursday.

“Our team is committed to avoiding claims, mitigating losses to ensure the integrity of the insurance fund, but that doesn’t stop at the bottom line,” Head said. “Ultimately, when a facility fails, the losers are all of us, the operators, the borrowers, the lender and the HUD, and more importantly, the patients and residents that these programs serve, and the communities that serve. surround them. ”

Schumann said compliance tradeoffs can be helpful if it means vendors have a willing lending partner when commercial banks are showing disinterest or simply overcharging.

“In a time of unprecedented stress, financial loss and challenges, if there is a way to put tools in the hands of providers to help them save resources that they can then spend on staff or supplies… (they need) any means possible to get money. to be able to serve their elders and their staff, ”said Schumann.