The capital markets have encountered some tough sledding in the last 12 months. As interest rates rise at unprecedented rates to cope with equally unprecedented inflation, the economy has been unpredictable — and unpredictability is the enemy when it comes to loans. Seniors Housing Business spoke with top lenders in the industry regarding what the situation looks like on the ground, what the future holds and how they’re coping with the current state of the capital markets.
Seniors Housing Business: How are you adjusting to the historic run-up in interest rates over the last year?
Michael Gehl: There are certain products that are just no longer feasible to offer clients, such as HUD (a)(7) loans and loan modifications, as interest rate savings are no longer there. For higher-end assisted living deals — where we used to be loan-to-value constrained — we are now constrained by debt-service coverage ratios (DSCRs), which has not happened for some time with the run-up in rates.
Some adjustments that we have been making:
- While paying slightly higher interest rates, some borrowers are opting to take a lighter prepayment penalty — so if rates do come back down, the loan modification or (a)(7) will be less punitive.
- When feasible, borrowers have been examining Green Mortgage Insurance Premium (MIP) requirements, which can, depending on the program, bring down the annual MIP and lower the upfront MIP.
(This is an excerpt from the lender's roundtable 'Capital Keeps Flowing in Uncertain Times' written by Jeff Shaw that ran in the April issue of Senior Housing Business.)