HUD released production data for the first half of its fiscal year last month, and despite the current rising rate environment, LEAN transaction volume showed that activity has remained fairly consistent when comparing the first half of the past five fiscal years. And Newpoint Real Estate Capital, which acquired Housing & Healthcare Finance in December 2021, reported a strong six months too, securing the second-most initial endorsements with $238 million across 15 transactions representing 3,147 beds/units.
For HUD’s H1:2022, there were 148 initial endorsements totaling roughly $1.7 billion, down slightly from $1.8 billion for H1:2021 and $2.2 billion in H1:2020. However, the number of facilities financed stayed relatively the same over the first half of the past three years – 148 in H1:2022, 150 in H1:2021, and 149 in H1:2020.
Skilled nursing facilities continued to comprise the majority of properties financed in HUD’s H1:2022, at 72%, which is slightly up from H1:2021’s 70% share but down from 80% in H1:2020. Assisted Living communities comprised 22% of the properties financed in H1:202, down from 27% in H1:2021.
Borrowers certainly rushed to make hay while the sun was shining, since around $850 million, or 50% of the H1:2022 volume of healthcare fundings, was (a)(7) activity, which involves the refinancing of an existing HUD loan. As the 10-year Treasury rate rises, that share should decline.
“There is no question that it is going to take a while for HUD/FHA healthcare activity to get back to the pre-pandemic levels seen when low rates coincided with a ‘business as usual’ environment – that is to say, one free from a global pandemic and severe staffing issues,” said Michael Gehl, Chief Investment Officer on the FHA Lending team at NewPoint Real Estate Capital. “The challenging fundamentals are exemplified by the drop-off in the 232/223(f) loan volume which is typically used to refinance bridge loans upon stabilized operations. If we annualize the first half of 2022 closings, there was $1.6 billion in 232/223(f) loan volume, which is less than half of the 2020 volume of $3.6 billion and $3.5 billion in 2019.”
