Prior to 2008, nonprofit senior living (NPSL) providers commonly used tax-exempt bond financing for funding new money projects and refinancings. At the time, it often provided the lowest cost of capital.
Nonprofits took advantage of their 501(c)(3) tax status to save money while fulfilling their mission. The tax-exempt cost of capital for NPSL providers averaged 2 to 4 percentage points lower than for their for-profit senior living (FPSL) peers, providing nonprofits a competitive advantage for capital financing.
But that was then and this is now. Historically low interest rates have diminished the relative savings from tax-exempt funding, making taxable debt worth another look. Additionally, tax-exempt financing often includes costs, reserves and covenants that are often not required in a taxable financing, including taxable financing through the Office of Housing and Urban Development (HUD)/Federal Housing Administration (FHA).