News of a major HUD loan default by Rosewood Care Centers has filled senior living operators with questions. Plagued with issues for years, Rosewood has been missing payments since 2013 when it stopped paying the mortgage on its flagship property just a year after acquiring it. Yet, experts agree, only a very small percentage of SNF borrowers default on HUD loans, and, says Cambridge Realty Capital President Jeffrey Davis, “a tight underwriting process, such as Cambridge utilizes, would detect red flags that indicate a borrower is at risk for defaulting.” Davis added, “HUD is a vibrant program with excellent terms and numerous advantages for senior living operators and, ultimately, the residents who benefit from the care.”
While the greatest benefits of HUD funding are realized by the borrower, the original mission of the federal government in creating the HUD program was to ensure that citizens would be able to access affordable housing and care when necessary. Statistically speaking, about 7 out of 10 people who turned 65 in 2019 will require some type of long-term care in their lifetimes. The HUD program was designed to foster circumstances in which the ongoing need for care is consistently met and remains flexible throughout the years as demand fluctuates and policies change.
Scores of operators were blindsided by the onset of the COVID-19 pandemic and had to work swiftly to adapt to changes that happened virtually daily in the very beginning. “No one saw this coming,” said Davis. As of mid-February 2021, COVID-19 has killed at least 163,000 residents and staff members of US care homes. “COVID-19 clearly came out of left field and nobody could have ever been able to anticipate the pain and speed with which it spread,” Davis contended. “Some owners fared well and others not so well.” Fortunately, many of these issues that arose at the onset of the pandemic have since been addressed and new measures implemented to keep COVID-19 out of America’s care facilities while the public awaits the mass distribution of a vaccine.
For its own part, said Cambridge Partner Hymie Barber, “Cambridge stepped up to the plate by helping borrowers access funds to make mortgage payments during the COVID crisis. We also jumped into action to reduce mortgage payments through Interest Rate Reduction and (a)(7) programs.”
Davis and Barber both believe wholeheartedly in the efficacy of the HUD program. “What I can attest to,” Davis proclaimed, “is that Cambridge has always regularly reviewed and edited its underwriting process in order to bring any new or changing areas of concern to the forefront, be it changes to Medicare or Medicaid or a global pandemic. What is true today may not be true tomorrow, and so we are constantly flexing and adjusting to whatever the current ‘norm’ is in order to ensure that our operators are in the best position to succeed.”
Cambridge Partner Hymie Barber pointed to Cambridge’s 100 percent success rate in closing HUD loans over the last five years as an indicator of its experience, skill and intuition. “Cambridge carefully vets its clients at the front end, even before paperwork is signed and money is exchanged. Cambridge’s Signature Experience was designed, in part, to do just this,” he stated.
So, will Cambridge make changes to its underwriting policies in response to the Rosewood default? “Perhaps,” said Davis, “but because Cambridge is proactive in its underwriting process reviewing, we would spot red flags early on.” He noted that Rosewood had a number of issues that Cambridge would have flagged as problematic were they to have appeared in the portfolio of a Cambridge borrower. He reiterated that Cambridge’s underwriting criteria are constantly reviewed and changed and that “we are highly confident in our ability to detect potential issues long before deals are ready to close.” To this Barber added, “Cambridge is a consistent and trusted advisor to HUD, having been one of the first exclusively-healthcare advisors. With the additional scrutiny and underwriting challenges, our mantra has now been updated from ‘measure twice, cut once’ to ‘measure thrice, cut once.’” That, they say, is another reason to work with a provider like Cambridge Realty Capital. “Borrowers should be scrutinizing lenders just as closely as lenders scrutinize borrowers,” said Davis. “Experience matters. Skill matters. And all of this is reflected in a lender’s past performance.”