Bankers monitoring financial health of senior care facilities
Coronavirus concerns have led bankers to step up efforts to monitor relationships with senior care facilities more closely.
One of the highest-profile outbreaks took place in a nursing home and retirement complex in the Seattle area where at least 13 virus-related deaths have taken place. In response, Washington's governor implemented new rules for overseeing visitors and protective equipment, among other safeguards.
The situation has lenders worried about the financial health of senior living communities in other markets.
“In view of the outbreak, we need to pay close attention to occupancy trends across the senior living and care sector in general, and independent living facilities especially," said Henry Alonso, a senior banker at the $145 billion-asset KeyCorp.
It is possible that negative headlines will spur some people to leave senior communities, or delays decisions to move in, exacerbating aleady declining occupancy rates, Alonso said. Vacancies have been rising, with Alonso predicting that an expected "silver tsunami" of new baby boomer residents remains at least another seven years away.
“Where people make a mistake is concluding we’re at the zenith of that elderly wave, but we’re not," Alonso said.
Lenders, in anticipation of a zenith, have put considerable resources into the senior care sector.
Read more: Complete coverage of the coronavirus impact
Argentum, a trade group that represents senior living facilities, estimates that the industry’s direct and indirect financial impact was $247 billion in 2019. Loans for senior housing projects, made under a popular Department of Housing and Urban Development program, rose by nearly 3% in fiscal 2019 from a year earlier, to $3.7 billion.
A number of lenders, including the $27 billion-asset Investors Bancorp in Short Hills, N.J., have been expanding in the sector.
Investors' clients "have put measures in place to protect residents as well as their health care professionals and the entire staff,” said J. Andrew Phelps, a senior vice president hired last month to oversee the Short Hills, N.J., company's health care growth plan.
Still, Phelps warned that coronavirus concerns could result in a "slower intake of patients in the short term,” which could pinch cash flows for facilities and their investors.
“In the short term, I think the situation will, quite honestly, affect individual decisions to move from at-home living to group home solutions," said Mike Peretz, housing finance practice lead for consulting firm Capco.
Lenders could also respond by tightening underwriting standards, Peretz said.
Investors, for its part, doesn't plan on pulling back in health care, a business that accounts for $700 million of its overall loan portfolio and has had minimal losses over the past decade. Rather, the company is planning to make health care a national business.
Outside its home markets in New York, New Jersey and Pennsylvania, Investors plan is to particiapate in deals originated by strong senior care lenders with deep market knowledge.
"We’ll look at deals all around the country," said James Vincenti, head of Investors health care lending team. "We really are running a full, national platform, but again, working with like-minded banks in a participation capacity — at least to start."
The $12.9 billion-asset United Community Banks in Blairsville, Ga., is also expressing confidence in the quality of its $600 million senior care portfolio.
"We have full confidence in our clients and operators maintaining as their highest priority the health and safety of residents and employees," said Dennis Rowlen, who leads United Community's senior care lending group.
"Senior housing operators are no stranger to infection control and illness prevention," Rowlen added. "Their experience and attentiveness to providing quality care in all circumstances will continue to make senior housing a reliable and trusted housing provider."
United Community has reached out to all of its clients to understand the virus’ impact, Rowlen said.
"The responses are overwhelmingly detailed regarding the enhanced health and safety measures prioritizing the wellness of all residents," Rowlen said.
James Balda, Argentum's president and CEO, is urging everyone to remain calm.
“It’s too early to know how or if [coronavirus] may impact occupancy across senior living,” Balda said. “We know that senior living continues to offer support, where in-home care may not, and would encourage residents and families to consider those supports when making decisions regarding long-term care."