To borrow a baseball phrase, the rallying cry among lenders in the HUD Lean Section 232 mortgage insurance program used to finance nursing homes and assisted living facilities is “Wait ’Til Next Year.” The combination of rising interest rates and volatility in the capital markets has led to a slump in deal volume, but lenders see this situation as a temporary setback.
Transaction activity has actually been waning the past few years. Deal volume totaled $2.95 billion in fiscal year (FY) 2022, down 25 percent from the prior year...while there are many factors that led to low HUD volume in seniors housing, the increase in interest rates over the past year to fight inflation is No. 1 on most experts’ lists.
“The 223(a)(7) product is interest-rate-sensitive,” says Michael Gehl, chief investment officer for FHA lending at NewPoint Real Estate Capital. “As rates rise, the numbers just don’t work for savings to the borrower — it’s really a math exercise. Throughout the year, as rates continued to rise, the math did not work anymore and the shift from (a)(7)s to 223(f)s moved dramatically.”
(This is an excerpt from the article 'At Mid-Year, HUD LEAN Volume Takes Expected Dip' written by Matt Valley + Jeff Shaw that ran in Senior Housing Business.)