A declining pool of lenders may have undermined some deals during what was otherwise a rapid quarter for mergers and acquisitions in long-term care and senior housing.
Ziegler on Wednesday released an update of a first quarter survey conducted with the National Investment Center for Seniors Housing & Care, designed to take the pulse of lenders who have historically played a significant role in the industry.
The update focused on what Ziegler called a worrying but “unnoticed” trend: the consolidation of banks and other lending institutions that many elderly care organizations turn to for loans. Over the past 20 years, the investment banking firm estimates that about half of all banks have either been acquired or gone out of business.
“While there is no single data source that tracks all lenders or home and senior care loans, the majority of loans of any size come from around 115 banks and institutions. different credit across the country, ”the report’s authors said. “Our research indicates that from 2019 to today, 25 entities have become 12 dwarfs… This reduction in the number of banks generally means a reduction in the total universe of bank loans available and dollars available to industry, at least to short term. “
Don Husi, chief executive of Ziegler, said the company is concerned the number of bank combinations, especially in recent years and with the brunt of the pandemic, will reduce the supply of potential dollars available to the industry. .
“The impact when banks combine is an additional factor,” said Husi McKnight Long Term Care News Wednesday. “As the supply of banks shrinks and the need for capital increases, this will likely allow supply to dictate terms. The number of bank combinations over the past two years is a bit surprising, and we think we’ll likely see more (consolidation).
Additionally, the investigative report noted that the four of the top 10 banks – Chase, US Bank, Santander, and Citibank – do not have a formal division to purchase housing and senior care. Instead, they often leave credit decisions to local and regional policymakers and teams better versed in commercial, industrial or nonprofit specialties.
Ziegler illustrated how the shortage of lenders is affecting operators.
The company applied this spring for a non-recourse or limited recourse loan, an 80% loan percentage loan secured by two properties with a strong corporate credit profile and above occupancy rates. average emerging from COVID-19.
Although Ziegler received “three very aggressive offers”, the banks refused to issue loans because of recourse requests or because they viewed the properties as “distressed assets.”
“It will be interesting to watch this trend and its impact on lending metrics going forward,” Ziegler said.
Only 16 of the 115 banks or other lenders solicited responded to the survey, which has been conducted quarterly since July 2020.
Of these, 56% reported lending to both the private and tax-exempt sectors, but more than a third said they only lent to private sector owners and operators .
Most respondents also reported having a maximum loan-to-value ratio requirement of 71% to 55% in the majority of property types, with those that lend to organizations with a majority of independent living assets tending to decline. from 60% to 65%.
Other key findings from the survey, the latest data of which were compiled between April 22 and May 10, 2021, include:
Senior stabilized bridging loans and new construction remain the main types of loans.
Deal sizes appear to be increasing in previous quarters, with more lenders reporting loan amounts between $ 16 million and $ 40 million, which could be a sign that the market is rebounding.