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Page 18 — Health Care & Senior Housing Quarterly — October 2021 www.crej.com SENIOR HOUSING — FINANCE T he importance of senior housing and skilled nurs- ing facilities continues to be a prominent topic of dis- cussion across the United States health care industry. In fact, it is estimated that the aging baby boomer population will increase from 20 million in 2014 to 33.6 mil- lion by 2029. This rapid change in demographics, coupled with the pandemic’s push to provide more consumer-focused health care ser- vices and the country’s growing interest in social determinants of health, is causing the industry to turn its attention away from the more traditional delivery model toward the outpatient-focused care setting. Accordingly, the health care industry’s interest in collaborating with the senior housing sector is on the rise, and the need for develop- ment and procurement of senior housing and assisted living facilities is more prevalent than ever before. Exactly how, though, are devel- opers managing to finance the development of these much-needed facilities? One popular method of doing so is by securing a loan through the 232/223(f) federal loan program, which is the topic of this article. n What is the 232/223(f) loan? The 232/223(f) loan is a federally backed loan program under the Federal Housing Administration and the U.S. Department of Housing and Urban Development. Specifi- cally, borrowers may apply for the 232/223(f) loan to purchase, con- struct, rehabilitate or refinance senior housing facilities such as nursing homes, assisted living centers, board and care properties and similar projects. Eligible borrowers include investors, builders, develop- ers, public entities (such as nursing facilities), and private nonprofit corporations and associations. The Office of Residen- tial Care Facilities administers and oversees the 232/223(f) loan pro- gram. n Eligibility requirements. Facilities that are eligible to obtain 232/223(f) loan financing are licensed senior housing and long-term care facili- ties, licensed skilled nursing facili- ties, licensed assisted living facili- ties, and licensed board and care facilities. All for-profit, nonprofit and public borrowers are eligible to apply as well. To qualify, such facili- ties must meet a variety of criteria, including the following: • Facilities must accommodate 20 or more residents who need con- tinuous or skilled nursing care and related medical services. • Facilities must not be occupied by independent living by more than 25%. • Facilities must not have com- mercial space that exceeds 20% of income or facility space. n Applying. The 232/223(f) loan generally progress- es through five stages: 1. Application submission; 2. Preliminary underwriting; 3. Third-party verification and performance of due diligence; 4. Receipt of the HUD firm commit- ment letter; and 5. Finalization of the loan docu- mentation and closing. Moreover, the application process for the loan is subject to HUD’s Lean process, which is intended to decrease waste and enhance efficiency in terms of application processing. The Lean process has made applying for the 232/223(f) loan much simpler than in years past, exemplified by the fact that the entire process can take as little as four months to complete (though this estimate can vary, depending on the complexity of the applica- tion). However, though streamlined, the 232/223(f) loan process still con- tains a number of hidden hurdles that borrowers must circumvent in order to be awarded funding. Borrowers must secure the right lender, as HUD Lean lenders are responsible for communicating with HUD and are the only entities with the authority to actually submit 232/223(f) loan applications. n What benefit does a 232/223(f) loan offer a borrower? Financing with a 232/223(f) loan is a secure option for borrowers and devel- opers who want to expand their presence in the senior housing sector or upgrade existing facili- ties with long-term, fixed-rate debt. Specifically, 232/223(f) loans are nonrecourse, consist of high lever- age and typically are available at low interest rates. Additionally, 232/223(f) loans have flexibility, as the minimum loan size available is $1 million and presently there is no maximum. These facts, plus the value of the streamlined Lean process, are just a few of the many benefits 232/223(f) loans can bring to the table. As health care continues to evolve and become more home and community focused, the rapidly increasing interest in senior hous- ing partnerships continues to grow. Those who develop facilities that meet these shifts in long-term care delivery not only will help improve both the quality and coordination of care that elderly patients receive; but also they will be among the first in the industry to meet the housing and development needs of a dra- matically large demographic shift set to occur in the United States over the next 20 years. s Thanks to Gracen Perdue, an under- graduate intern with Hall Render, for her assistance with this article. mblackburn@hallrender.com lpark@hallrender.com Know this loan program for developer financing Marina Blackburn Attorney, Hall, Render, Killian, Heath & Lyman PC Libby Park Attorney, Hall, Render, Killian, Heath & Lyman PC Our Company Our Services •Site selection, acquisition, design, construction & completion with direct, hands-on management •Project underwriting •Project finance origination •Equity & corporate entity formation •Full Service Commercial Real Estate Firm •Development & Construction •Property & Asset Management •Leasing and Investment •A leader and innovator in the health care industry •A team of experienced professionals T AKING P ROJECTS FROM C ONCEPT TO C OMPLETION www.pinecroftrealty.com 713-870-6369