The Section 232/223(f) program is HUD’s primary refinancing program for existing skilled nursing homes, assisted living facilities and memory care centers. It provides long-term, fixed-rate financing with a maximum 35-year amortization. Loans are underwritten to the lesser of 80% market value, a 1.45 debt service coverage ratio, or the cost to refinance. These loans have proven to be a reliable take-out of short-term bridge debt used to acquire or recapitalize existing facilities.
In recent years, the “bridge to HUD” has been wide open, with projects financed with short-term debt smoothly transitioning to HUD for long-term financing, in many cases in less than 2 years after the closing of the bridge loan.
However, the recent spike in interest rates, and tightened operating margins, largely the result of the pandemic, have in many cases dampened the environment for bridge lending, and/or reduced bridge loan proceeds. How has this impacted the bridge to HUD?
Many projects with existing bridge loans that have filed HUD refinance applications are not performing as underwritten, holding up reviews until performance improves. They are stuck on the bridge.
In other cases, projects with short-term debt can’t get on the bridge to HUD for the same reason – performance needs to be improved.
We believe this is a temporary condition, and as operating metrics for healthcare and senior housing communities improve, as they have been, albeit slow and steady, traffic on the bridge to HUD will flow smoothly again.
When is the right time to get your project on the bridge? While trailing 12 months of operations is a key underwriting metric for HUD-insured loans, there are ways to start the process sooner. How much sooner?
Contact us to find out!