A newer housing building depicts senior housing finance challenges and opportunities

Best bets for senior housing finance

Borrowing for senior living commercial construction? Consider your options.

When building a senior housing facility, whether in the Coulee Region of La Crosse/Onalaska or Rochester or beyond, financing is among the first and most critical considerations. And under our current lending environment, it’s more important than ever. Interest rates, risk-averse regional financial institutions, debt service calculations for bridge/short-term loans, don’t always work in the borrower’s favor.

Agency lending a senior housing finance option for real estate investors and developers

But senior housing developers seeking financing solutions do have other options. These days, there’s growing interest among industry borrowers in Federal Housing Administration (FHA) backed loans as well as Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs). These are commonly known as agency lending for commercial real estate investors. If agency financing is a new approach for you as an owner/developer, it can seem daunting. In truth, you may face obligations over other financing options, but there are also potential benefits over conventional bank loans. Let’s take a closer look at the specifics.

Agency financing: Is it right for your senior housing development?

When weighing the benefits and drawbacks of agency financing, there are many factors to weigh. Agency lending can offer terms that borrowers find favorable, including low-interest rates compared to conventional bank loans — no small consideration in our current economic environment. They also typically offer longer amortization periods than other commercial lending options. Both factors can make agency lending an attractive option for developers looking to build senior living communities in Wisconsin or Minnesota.

Additionally, agency lending allows borrowers to take out a loan and lock in on a favorable interest rate for long-term financing — rather than waiting for interest rates to drop or go the route of shorter-term loans as so many feel compelled to do today. Depending on the type of product they leverage, borrowers may even be able to refinance when market interest rates fall, which is possible with some FHA loans, for example.

It’s important to note there can be some perceived drawbacks to agency financing as well. Borrowers must plan for a comparatively long application process, even half a year, before locking in on a loan rate. Also, a sizeable investment in time and money may be expected up-front, encompassing legal expenses, deposits, due diligence, and much more.

Depending on the scope of your project and your cash flow, certain agency lending products may work better for your commercial build, so it’s important to work with a team of professionals who understand the complexities of the agency lending process along with an asset manager you trust to ensure compliance with the loan requirements. Changes after closing may need approval through the agency, so working with an asset manager who understands these requirements and how to present them to an agency is essential for securing those approvals.

When it’s time for your next senior housing build, we’re here for you.

Some say timing is everything, but in reality, everything depends on financing. Whether commercial bank financing is the right route for you or you plan to pursue agency lending, there are many options for securing funding for building your next senior living community. If you’re ready to take the next step toward building senior housing here in the 7 Rivers Region, contact us and start taking advantage of the many benefits of the design-build construction model  today.