Because it’s not getting any easier, owners and operators of skilled nursing facilities need to thoughtfully identify as many risks to the business as they can, Cambridge Realty Capital Companies Chairman Jeffrey A. Davis advises.
“There are known risks that can easily be identified and others that cannot. Owner/operators must necessarily take whatever measures are needed to anticipate where challenges to the business could conceivably be coming from. And what steps they might take to mitigate risk,” he said.
Cambridge is one of the nation’s leading senior housing/healthcare lenders, with more than $5 billion in closed transactions. The company also acquires senior housing/healthcare properties through its Cambridge Investment and Finance Co. subsidiary.
The Cambridge Chairman points out that these challenges to SNF operating and ownership are everywhere. On the short list are Medicaid, reimbursement challenges, rising interest rates, new reimbursement models and mandated wage hikes. Also in the mix are the property’s aging physical plant, competition from assisted living properties, and the home healthcare option.
“Some risks, like interest rates, can be controlled. But other risks, such as reimbursement, wages and competition, cannot.
“In a period of interest rate volatility and reimbursement challenges, HUD 232 fixed-rate mortgage loans provide major risk mitigation for skilled nursing facility owners,” he noted.
Mr. Davis says HUD 232 loans mitigate risk by providing 25- to 40-year long-term, self-amortizing mortgage loans. These loans do not have a call or balloon or interest rate reset, so they fix the operator’s capital expenses.
HUD loans are always non-recourse and offer a construction permanent loan, which means the long-term rate can be committed upfront.
“Challenges will always be there, but skilled nursing home owners can eliminate capital risk by taking advantage of the unique features offered by the HUD 232 program,” he added.