Thinking Long-Term When Seeking Short-Term Funds
Looking for a short-term loan for a seniors housing property? It's not too soon to plan for the permanent loan that the property will eventually need.
“Borrowers can take out a short-term bridge loan that exits smoothly to a permanent loan," said Anthony Alicea, head of bridge loan production for Greystone.
Investors have many options if they are interested in taking out a short-term loan. Banks, insurance companies and private equity funds are all eager to provide capital today.
However, only a few lenders can provide both short-term bridge financing and a long-term permanent loan take-out through Fannie Mae, Freddie Mac or the Federal Housing Administration (FHA), according to Alicea.
Many Options for Bridge Loans
Lenders such as Greystone offer short-term, non-recourse loans that cover up to 90 percent of the cost to buy, renovate and re-position a seniors housing property. In recent years, new debt funds created by private equity fund managers have also become important sources of short-term debt for seniors housing properties, including skilled nursing facilities.
"There are a lot of debt funds out there," said Alicea. “It's highly competitive."
Lenders compete to make loans by offering low interest rates in addition to “interest-only" loans, in which the borrower makes smaller payments that only cover the interest that accrues on the loan. Greystone also allows borrowers to prepay its short-term loans after just six months.
“Most lenders only allow pre-payment after 12 to 18 months," said Alicea.
From Bridge Loans to Permanent Financing
While there are many short-term money options, only a few lenders can offer bridge loans that can transition smoothly to a permanent loan.
Borrowers with Greystone can get a head start in the process of applying for a permanent HUD-insured loan by initiating the application process at the same time as they apply for a bridge loan. Since FHA loans can take as long as six to 12 months to close, it makes sense to begin the FHA process early.
Often used to finance skilled nursing facilities, FHA loans typically offer the lowest fixed interest rates available, and the loans can be amortized over terms as long as 35 years. Alicea says those terms are much longer than what other lenders typically offer, resulting in lower monthly payments that can allow a property to support a larger loan.
A More Efficient Process
Applying for both loans simultaneously can also make the process more efficient — the same third-party appraisals and engineering reports can be used for both loans. “Also, members of Greystone's FHA credit team are on the loan committee to approve bridge loans to facilitate knowledge transfer on any particular deal," Alicea said.
By planning short-term and long-term financing at the same time, borrowers have assurance that their loan is underwritten with the same high standards for both the interim and permanent financing.
“When we size the bridge loan, we size the permanent loan as well," said Alicea. The combined process also gives borrowers more certainty that their permanent loan will close smoothly. “This seamless leads to certainty of execution for the permanent exit."