The senior housing/healthcare industry may be on a roll, but this doesn’t mean borrowers will not be required to thoroughly explain their business plans and motives to their lender of choice.
Cambridge Realty Capital Companies Senior Vice President Brent Holman-Gomez says borrowers seeking capital in the years ahead will find that successful lenders still have a seemingly insatiable appetite for information.
“The market outlook has improved dramatically in recent years. But lenders may still be forced to give borrowers news they’d rather not hear,” he says.
Cambridge is one of the nation’s leading senior housing/healthcare lenders, with more than $4.5 billion in closed transactions. Mr. Holman-Gomez says the company has consistently ranked among the nation’s leading FHA-approved HUD lenders.
“No one wants to hear that the capital sources they’ve relied upon in the past no longer are available. Also, the market appears to be progressing nicely, with loans moving through the process more quickly.
“But lenders may still demand more descriptive information and data than has already been provided,” he says.
Mr. Holman-Gomez explains that in the current cycle, popular HUD financing remains the lending product of choice for many senior housing/healthcare borrowers. Effectively, these loans have a two-tiered underwriting process –by the FHA-approved HUD lender initially and later by HUD during the application process.
“There’s a continual need to move forward with current information,” he says.
For the lender, the primary underwriting concerns are occupancy totals and the historical cash flow provided by the operator. Typically, 12 months of trailing financials are needed, and occupancy must be at acceptable standards as defined by HUD.
Up until the time the application is submitted, financial and occupancy data must be monitored and updated. Numbers for the most recent trailing 12 months are needed to support the loan request.
Mr. Holman-Gomez says a debt service coverage ratio for the property also must be met. And there should be an upward trend for these numbers as well as for occupancy.
If a state survey result shows any deficiencies, a plan of correction must be submitted. Proof of insurance that meets the HUD standard must also be presented.
To guide borrowers, Cambridge provides a checklist of documents needed on its corporate website, he added.