Skilled nursing facility operators are scrambling to find a “Plan B” when denied conventional loans for building, renovating, or upgrading. It is an issue that is becoming increasingly more common, according to Cambridge Realty Capital President Andrew L. Erkes, and it’s not just happening in Illinois, but also across the US.
“Conventional lenders have begun ‘red flagging’ these types of properties,” says Erkes. The biggest factor influencing their decision is the fact that the cost of delivering health care services is rising faster than inflation, making skilled nursing facilities a poor investment in the eyes of conventional lenders. In recent years, inflation has been rising approximately 2-4% annually, while the cost of healthcare is growing by about 3-5% each year.
“For the conventional lender, there is no altruism. It is strictly about numbers and bottom lines,” Erkes states.
The worst-case scenario is that skilled nursing facilities, which are also being strained by a shortage of skilled workers in the labor market, may be forced to close. Erkes believes that this is still a long way from happening, but the problem facing skilled nursing facility owners is, nonetheless, a very real one.
Some facility owners are responding to the issue by weaning these types of properties from their portfolios. Others are making deeper budget cuts or turning to managed Medicare and Medicaid to try to mitigate rising operating costs.
However, there may not be a need to panic. Erkes is quick to remind skilled nursing facility owners that HUD funding remains a very viable option for such properties. While HUD lenders still have an investment in the bottom line, there is more altruism in HUD funding than in conventional lending.
HUD (“Housing and Urban Development”) is a government agency which was established in 1965 by the federal government. The Department of Housing and Urban Development Act, signed by President Lyndon Johnson, was enacted to help provide “fair and equal” access to housing in the United States.
The establishment of HUD was designed to carry into the future the spirit of providing housing for Americans that dates as far back as the post-war years. Then, the US government provided funding to build homes for war-effort workers and soldiers returning home from the war.
Today HUD is involved in a variety of funding efforts, including low-income housing development, rental assistance, supportive housing for seniors, housing rehabilitation, homelessness assistance, and many other programs. The funding of skilled nursing facilities falls under HUD section 232 and continues to be granted regularly throughout the United States
Though the HUD system isn’t perfect, it still operates today with the same mission it carried when its predecessor built homes for war workers. “Its goal has been and remains to provide safe, affordable housing for all Americans, regardless of their financial status,” notes Erkes.
Some skilled nursing facility owners have eschewed HUD loans due to a perception of an arduous application process and long wait times. These concerns do have some historical grounding, according to Erkes. However, the introduction of HUD LEAN, a processing protocol that significantly streamlined the application process, has shortened wait times.
Still, the application process can be tedious, particularly for borrowers who have never applied for HUD funding before. However, working with an experienced HUD loan provider like Cambridge can streamline things even more. Cambridge has more than 30 years of experience providing HUD loans. That experience goes a long way when it comes to getting through red tape quickly, anticipating issues before they become a problem, and ultimately get the funding needed in a timely manner.
When you consider the appealing features of HUD funding, its low interest rate, and its minimum credit score requirement (both of which are significantly lower than those of conventional loans), HUD funding becomes a feasible and attractive “Plan B” when conventional lenders say “no.”