Owners of multifamily, nursing homes, assisted living facilities, and hospitals have long preferred traditional bank lenders over FHA-based financing. The usual reason is the difficulty and frustration of dealing with FHA versus the relative ease of dealing with sophisticated lenders. Due to the changes from the real estate market crash, the wave of bank consolidations, and the reluctance of the remaining banks to return to lending, owners should reexamine their traditional views of FHA financing.
Traditional financial institutions no longer securitize senior multifamily and health care loans, thereby eliminating the availability of conduit financing for these projects. We have not yet seen the end of the foreclosure crisis and if banks incur addition losses, bank financing for these types of projects will be almost impossible to obtain.
FHA, on the other hand, has improved its process dramatically. FHA-based financing has always offered several significant advantages over traditional bank and conduit lending sources if one was willing to deal with the red tape. Much of that red tape has now been removed or streamlined and programs to finance hospitals have been added. The most obvious advantage to FHA is continued credit availability that is unaffected by the subprime fiasco. Additional advantages are lower fixed rates, nonrecourse loans, and long-term fully-amortizing debt.
FHA loans do not contain the numerous covenants contained in traditional lending documents and specifically do not contain a debt service coverage requirement. As markets evolve and Medicaid and Medicare reimbursement methodologies are revised, a manager’s ability to maintain a stable and predictable debt service coverage is continually challenged. FHA-based financing will prove especially valuable.
Charles Kendall 773-259-7074
Scott Kendall 847-903-7578