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Fannie Mae Financing: Reap the Benefits

Efficiency. Timeliness. Certainty of execution. Those three points perfectly capture the essence of Fannie Mae Seniors Housing financing. In this article, we provide an overview of Fannie Mae Seniors Housing financing and profile several successful case studies. In addition, we detail a few lesser-known options offered by the agency.

Program Characteristics

Fannie Mae Seniors Housing financing provides intermediate and long-term fixed or variable rate non-recourse loans in a timely and cost efficient manner for the refinance or acquisition of stabilized properties. Eligible property types include independent living (IL), including those providing supportive services, assisted living (AL), including special care for Alzheimer’s, and combinations thereof. Skilled nursing beds within a seniors housing campus are considered provided their net operating income contribution is less than 20% of the total net operating income.  Terms range from five-year balloon maturities up to 30-year fully amortizing maturities, and interest only is considered on a case-by-case basis.

To be eligible for Fannie Mae Seniors Housing financing, properties typically evidence average occupancy of 90% over the previous 12 months for IL or 15 months for properties with skilled nursing beds, with exceptions considered on a case-by-case basis. Buildings must be fully equipped with sprinkler systems. In regard to escrows, a replacement reserve account and monthly impounds for taxes and insurance are typically required.

One of the most attractive benefits of Fannie Mae Seniors Housing financing is the timeliness. Rate lock can typically be achieved in less than 45 days from loan application, with early rate lock options also available. Extended rate locks of up to one year are available in advance of closing, subject to Fannie Mae approval.

Triumphant Transactions

In a recent example that typifies the efficient Fannie Mae Seniors Housing financing process, Walter Bowen and his affiliated management company, BPM Senior Living Company (BPM), obtained a $5.25 million loan to finance Royalton Place, a 70-unit, 79-bed AL and memory care (MC) facility located in Milwaukie, Oregon. The project was purchased by Walter Bowen in 2005 and converted to its current acuity mix in late 2014.

BPM manages several IL, AL, and MC communities in the western U.S.  Walter Bowen was seeking a timely permanent financing solution for Royalton Place. Fannie Mae Seniors Housing financing was the ideal structure as it offered the desired speed of execution while allowing the borrower to extract equity from the project. During the underwriting process, a planned change in management (switching from third-party back to in-house management at BPM) occurred. Despite that challenge, however, the borrower still wanted to move very rapidly from engagement to closing to eliminate interest rate risk. The result was a successful and efficient transaction that went from engagement to closing in under 60 days. In addition, Walter Bowen was able to extract the desired amount of equity from the transaction. The successful closing positions Royalton Place well for the future and provides the sponsor funds for future business opportunities.

“It was a remarkably smooth process as we were able to get from engagement to closing in just two months,” said Walter C. Bowen, CEO of BPM Real Estate Group. “The Fannie Mae Seniors Housing financing proved to be an ideal financing solution due to its efficient and timely execution which allowed us to avoid interest rate risk.”

In another example, ownership of an AL and MC facility located in Omaha, Nebraska, was looking for funding to refinance the facility’s existing Fannie Mae debt as well as fund important repairs and renovations. Working with its lender, the facility’s ownership actively considered conventional bank financing and obtained multiple bids from local banks. Ultimately, Fannie Mae Senior Housing financing was chosen to refinance the facility’s existing debt as ownership had been pleased with its existing Fannie Mae financing and wanted to stay in the program. The result was an $11 million loan with a low fixed interest rate and a 10-year term. In addition to refinancing the existing debt at a lower rate, the transaction provided approximately $3 million in equity for renovations and to expand other service lines.

In another recent transaction, Sterling Senior Communities completed a $19 million refinance of Tanner Springs, a 115-bed AL and MC facility in Oregon. The transaction refinanced an existing U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) loan of $10.5 million and included a reimbursement of $8.2 million for previously incurred cap expenditures.

Also out west, Cornerstone Assisted Living Communities recently completed a $14.5 million refinance using Fannie Mae Seniors Housing financing. The 110-bed AL facility, located in northern California, was able to refinance $9.6 million of existing debt and include a reimbursement of $4 million for previously incurred cap expenditures, with the remaining loan amount used to pay transaction costs.

As the examples above demonstrate, Fannie Mae Seniors Housing financing can be an optimal solution in the right situation. In addition to its seniors housing financing program, the agency also offers several unique options discussed below.

Bulk Delivery

Fannie Mae Multifamily provides a bulk delivery structuring option that allows borrowers to arrange flexible financing terms for a group of properties, with property substitution, supplemental financing, and expansion capabilities. One of the key benefits of the bulk delivery option is the fact that it is a mortgage-backed security (MBS) execution that allows for ultimate flexibility in portfolio management. Supplemental financing is available in order to recognize portfolio improvements and the pre-negotiated loan documents provide for certainty of execution and fast closings for facility expansions. Further, the expansion feature allows for the easy addition of properties and borrowers are able to retain favorable interest rates with property substitutions. In addition, the program features flexible prepayment options, including partially pre-payable debt, yield maintenance and declining prepayment premium.

Credit Facility

Fannie Mae Multifamily also provides a credit facility execution that allows borrowers to arrange flexible financing terms for a portfolio of properties on a cross-collateralized and cross-defaulted basis, with property addition, property release, property substitution and borrow-up capabilities for all asset classes. This option allows for the opportunistic sale or release of properties. Similar to the bulk delivery option, it allows for ultimate flexibility in portfolio management, the easy addition of properties and flexible prepayment options.

Supplemental Loans

Fannie Mae’s Seniors Housing Mortgage Business offers subordinate financing options for properties with an existing Fannie Mae fixed-rate or adjustable-rate mortgage loan. Bond credit enhancement transactions are also eligible pending prior approval from Fannie Mae. Benefits include lower costs than a typical refinancing, access to additional capital, flexible term lengths and streamlined underwriting.

As demonstrated by the program details and case studies above, Fannie Mae has an array of options that can be an ideal fit in the right circumstances. With benefits such as timeliness, competitive pricing and certainty of execution, the Fannie Mae offerings are financial solutions well worth consideration.

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