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Multifamily Viewpoints

What Sellers Learned at the 2016 Seniors Housing Seller Workshop

By Steve Schmidt
Published on July 26, 2016
Steve Schmidt

We held our 2016 Seniors Housing Seller Workshop in Chicago earlier this month.  Nearly 80 Sellers from across the country joined members from Freddie Mac Multifamily’s Seniors Housing team to discuss the loan process from origination to securitization, case studies, and the latest changes we’re making to maximize borrower opportunities.

I enjoyed meeting with so many of you. Here’s a snapshot of some of the key issues we focused on during the workshop to meet today’s and tomorrow’s challenges.  If you’d like to review the presentation materials from this event, they’re posted online here. Want a peek of the event? Check out this 360 degree view.

Outlook

Freddie Mac is committed to supporting the industry’s efforts to meet the country’s demand for affordable seniors housing. Although new supply is keeping up with demand nationally, we estimate annual production levels will have to rise from today’s 25,000 units to more than 90,000 by 2025 to accommodate the expected explosive growth in the 80-year-old-plus population. In 2015, we funded $2.5 billion in seniors housing loans and 2016 is on track to meet or exceed last year’s volume. I’m also proud to report that as of June 30, 2016, there were no delinquencies in Freddie Mac’s Seniors Housing loan portfolio. 

Affordability

A higher percentage of the typical Freddie Mac seniors housing property is deemed affordable compared to a typical Freddie Mac conventional multifamily loan property. That’s important, because greater project affordability means a lower price. To determine affordability, we use a formula based on the number of studio, 1-bedroom, 2-bedroom and other bedroom types in the project.  As we told attendees, “this is why it is critical to have accurate counts prior to a quote submission.”

Underwriting Changes

At the Workshop, we also reviewed several policy and underwriting changes. We now support projects that charge entry fees and we have revised our underwriting protocols to address this unique product offering. And we continue to offer an acuity mix rider, which makes it easier for borrowers to adjust their project’s mix of independent, assisted living, and memory care units to better meet changes in local demand.

Managing Volatility

We all know about the recent Treasury volatility. We offer an index lock option to borrowers who have closed a loan with us during the past 24 months. It allows a borrower to lock in a rate anytime within the first 75 days following application. Combined with our spread hold feature, the index lock enables borrowers to effectively lock in a note rate within one to three days of loan application and avoid any swings in Treasury rates or loan spreads during the underwriting and closing processes. This new ability to effectively lock the rate within a few days of loan application is a game changer that has already proven to be of tremendous value to both borrowers and Sellers.

New Seniors Housing Executions

Additionally, to help borrowers better finance value-creation opportunities, we added three new executions. We now offer a “float-to-fixed” option and a “value-add” option where the loan amount is increased based on the value of planned rehabilitation and upgrades.  The third new execution is a “lease-up” option that lets a borrower lock in a rate and fund a loan before the collateral is fully stabilized.

Securitization

Finally, we covered the rapid growth of Freddie Mac K-Deal issuances that are backed by seniors housing loans. Seniors housing K-Deal issuances represented five percent of our securitizations in 2015.  The result is a firm and steady supply of credit that will enable the industry and Freddie Mac to better accommodate rapidly growing demand without adding significant new taxpayer risk. These securitizations are also educating the capital markets on the strong performance of seniors housing loans, which will help to attract even more capital to the Seniors Housing industry.

In Closing

Once again, thank you to all who were able to join us for this event. I’m thrilled about how our 2016 Seniors Housing Seller Workshop went. Attendance was strong and the feedback was spectacular. We look forward to another seniors housing-focused workshop next year. Meanwhile, I hope to see many of you at the upcoming NIC Conference in D.C., September 14-16 and the Freddie Mac Customer Conference in Miami, October 17-19.

 

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