Decoding 2Q 2023: Senior Housing Finance Unveiled

In the ever-changing world of senior housing finance, staying informed is not just a good idea—it's crucial. The recently released NIC Lending Trends Report for 2Q 2023 acts as our guide through the complexities of rate changes, credit shifts, and market uncertainties. There’s no question the industry has undergone numerous changes in the face of adversity, which is all the more reason to stay informed with the current industry and market trends.
One of the biggest senior living events of the year - the Fall NIC Conference - recently took place and was a fantastic opportunity for the SR team to connect and share insights. We left the Windy City with many great takeaways regarding trends, occupancy, and the financial status of the industry.  

Understanding the Landscape: Riding the Waves of Change

When it comes to the financial health and future of the senior living landscape, it’s important to start with the Federal Reserve's tenth-rate hike in May 2023. This meant the target range was 5.00% - 5.25%, setting the tone for the quarter. As inflation slowed to 3.1% in June 2023 from its 9.1% peak in June 2022, higher interest rates made borrowing a bit trickier. Unexpected disruptions in the banking system following major bank failures added an extra layer to the financial story.

Key Findings from NIC Lending Trends Report: A Closer Look

  1. Evolution in Loan Volume:
In the intricate landscape of senior housing finance, a pronounced dip in new permanent debt issuance has been observed. This can be attributed to disruptions in capital markets, a constrained availability of debt, and the impact of inflationary pressures. Conversely, nursing care has taken the lead, showcasing a remarkable 75% surge in new permanent loan volume, juxtaposed with an 8% contraction in the senior housing sector.
  1. Perspectives on Construction Financing:
Navigating a challenging environment, mini-perm/bridge debt for senior housing has witnessed a significant decline, plummeting by 52%. This downturn suggests an environment that demands a strategic and measured approach. Meanwhile, nursing care mini-perm/bridge loans have remained at a low ebb, signaling a prudent stance on short-term debt.
  1. Challenges in Construction Dynamics:
A notable downturn in senior housing construction starts and units under construction, reaching their lowest levels since 2015, underscores a diminishing trend in new developments. Parallelly, the issuance of construction debt for nursing care has been nearly non-existent, aligning with the limited financing available for new nursing care properties.
  1. Effective Delinquency Management:
In the realm of loan delinquencies, senior housing has witnessed a 36% uptick, reaching 2.9% of total loans. Contrastingly, nursing care delinquencies have seen a favorable trend, declining by 24% from the preceding quarter. Although the total balance of delinquent senior housing loans has increased, it remains lower than the peaks observed in the post-COVID era in 2020.

Looking Ahead: Charting the Course for the Future

As we peer into the future, change remains constant. While inflation has decreased, recent months suggest stabilization rather than a significant decline. The Federal Reserve, having implemented a 0.25 percentage point increase to 5.25% - 5.50% in July 2023. This leaves the door open for another hike in December 2023. Brace for a continued tightening of the lending environment as we close out 2023 and kick off the new year. 
In these challenging financial waters, having an experienced guide is crucial. Sherman & Roylance, with decades of real estate experience and a keen understanding of senior housing trends, is ready to help navigate your course. Connect with us for a deeper understanding of these trends and how they shape the future of senior living investments.