A demand for financing assisted living facilities is emerging as a result of an aging population and advances in medicine. Many business owners are turning to private or direct lending because traditional banks are hesitant to issue these healthcare loans. On the other hand, private commercial real estate lenders and happy to help. Here are some of the top reasons why direct CRE lenders are dishing out more senior living loans than ever before.
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1. Dependence on Management & Government Programs
Healthcare related properties like assisted living facilities or hospitals are commonly viewed as risky investments by traditional lenders. This is largely because healthcare properties are management-intensive, meaning there is a lot of oversight, and the asset class is extremely dependent upon – what else? – management. While apartment and office buildings are relatively easy to manage, healthcare facilities require lots of hands-on involvement.
As a result, it can be challenging for healthcare properties to find fast financing. The success of the facility and the borrower’s subsequent ability to pay back the loan depend on the strength of management. The lender has to be very confident in the team’s capacity to run the business. And the lender has to be pretty involved in the business to grow this confidence, which can be a lot of work that frankly many people don’t want to deal with.
Government programs, however, specialize in long-term loans for healthcare facilities. These programs – like Fannie Mae and Freddie Mac – can increase the number of take-out options. This is one reason that some bridge lenders, like iBorrow, are ready and willing to take this risk. These companies realize that, while healthcare facilities may seem like high-risk borrowers, the industry itself has a pretty secure contingency plan in the event that a borrower cannot pay back the loan.
2. Baby Boomers & Increasing Demand
It’s no secret that folks are living longer these days, so assisted living facilities are needed now more than ever. So much so that the state cannot be relied upon alone to meet this growing need. Non-traditional lenders such as private bridge lenders are playing an important role in financing nursing homes. It is not only needed by the property owners but it is also a wise investment for lenders as the Baby Boomer generation ages.
Private funders can provide loans at competitive rates in ways that traditional forms of lending often fail to compete with. It’s easier, and quicker, for assisted living facility owners to turn to private financing to meet the demand that their properties currently face.
3. Desirable Locations
Assisted living facilities are location-driven since retirees tend to congregate in certain areas. California, Arizona, and Texas have some of the largest growing elderly populations in the US. These states are also favored by private CRE bridge lenders, like iBorrow, because they are non-judicial foreclosure states. This means that if a borrower defaults, the case will not go through a court hearing. iBorrow recently closed several assisted living facility deals in California, including Pasadena, Anaheim, Culver City, Oxnard, and Long Beach.
The security of government-funded take-out options, increasing demand from an ever-growing population, and geographic concentration is making assisted living facilities more attractive for bridge lenders like iBorrow every day. This is great news for property owners as more funds are freeing up for senior living without compromising the quality of care. The option of private lending is especially attractive for these healthcare facilities when needing a bridge for capital until arrangements are in place for permanent financial help from government funding.