Fixed-rate and Variable-rate Loans for Independent Living, Assisted Living, Memory Care, and Limited Skilled Nursing Properties
The senior housing market in America has always been consistently active. For any investor looking to finance a project in this niche market space, a Freddie Mac Seniors Housing Loan could be a great way to acquire funding. Freddie Mac Senior Housing Loans have a wide variety of uses, allowing both the acquisition and refinancing of Independent Living, Assisted Living, Skilled Nursing, and Memory Care properties, including facilities for Alzheimer's disease and dementia patients.
Freddie Mac Senior Housing Loans offer terms of five to 10 years for variable-rate loans and up to 30 years for fixed-rate loans. They have a loan-to-value (LTV) ratio of up to 75%, and debt service coverage ratios (DSCRs) as low as 1.30x. In addition, this form of financing is non-recourse and is fully assumable with lender approval and a 1% fee.
Sample Freddie Mac Terms for Seniors Housing Loans
Size:
- Varies, determined by LTV and DSCR requirements
- Most loans are $5 million or more
Use: Acquisition or refinance of senior housing properties
Terms: 5 to 10 years (up to 30 years for fixed-rate loans)
Amortization: Up to 30 years, with interest-only payment options
Independent Living Properties:
- 5- to 7-year Loans:
- Amortizing: 75%/1.30x
- Partial-term Interest-only: 70%/1.30x
- Full-term Interest-only: 65%/1.40x
- 7-year Loans:
- Amortizing: 75%/1.30x
- Partial-term Interest-only: 75%/1.30x
- Full-term Interest-only: 65%/1.40x
- 7-plus Year Loans:
- Amortizing: 75%/1.30x
- Partial-term Interest-only: 75%/1.30x
- Full-term Interest-only: 65%/1.40x
Assisted Living Properties (50%+ units):
- 5- to 7-year Loans:
- Amortizing: 70%/1.45x
- Partial-term Interest-only: 70%/1.45x
- Full-term Interest-only: 60%/1.55x
- 7-year Loans:
- Amortizing: 75%/1.40x
- Partial-term Interest-only: 75%/1.40x
- Full-term Interest-only: 65%/1.50x
- 7-plus Year Loans:
- Amortizing: 75%/1.40x
- Partial-term Interest-only: 75%/1.40x
- Full-term Interest-only: 65%/1.50x
Skilled Nursing Properties (Maximum 20% of Net operating income [NOI]):
- 5- to 7-year Loans:
- Amortizing: 70%/1.50x
- Partial-term Interest-only: 70%/1.50x
- Full-term Interest-only: 60%/1.65x
- 7-year Loans:
- Amortizing: 75%/1.45x
- Partial-term Interest-only: 75%/1.45x
- Full-term Interest-only: 65%/1.55x
- 7-plus Year Loans:
- Amortizing: 75%/1.45x
- Partial-term Interest-only: 75%/1.45x
- Full-term Interest-only: 65%/1.55x
Recourse:Nonrecourse with standard “bad boy” carve-outs
Prepayment Options: Defeasance for fixed-rate loans. Yield maintenance options also available. Four main prepayment options are available for floating-rate loans, and prepayment premiums are waived for the final 90 days of the loan.
Eligible Borrowers:
- Eligible borrowers include limited partnerships, limited liability companies (LLCs), corporations, or tenancies in common (TICs), and typically must be a special purpose entity (SPE)
- While most borrowers must be a single-purpose entity (SPE), borrowers may be able to be single asset entities instead on loans less than $5 million
- For TICs, each member needs to be an SPE, although TICs are generally not recommended
Eligible Properties:
- Independent Living properties
- Assisted Living properties
- Memory Care properties, including Alzheimer's and dementia care
- Properties with a limited amount of skilled nursing capped at a maximum of 20% of the property's net operating income
- Any combination of the above
Refinancing Test:
No Refinance Test is necessary if the loan has an LTV ratio of 55% or less and an amortizing DSCR of:
- Independent Living: Greater than or equal to 1.45x
- Assisted Living: Greater than or equal to 1.55x
- Skilled Nursing: Greater than or equal to 1.60x
NOTE: All partial-term interest-only loans must pass the Refinance Test
Assumability: Loans are typically assumable with approval and a 1% fee
Timing: Most loans typically close between 60 to 90 days after the prescreening process begins. Loans may close in between 30 to 60 days for repeat borrowers if using the same lender
Advantages:
- Very competitive interest rates
- Up to 75% LTV for some properties
- Loans are nonrecourse
- Supplemental loans allowed
- Early Rate Locks (for fixed-rate loans) are available for extended periods, including Freddie Mac’s standard early rate-lock and index lock options. Extended rate locks allow borrowers to lock rates between 45 and 365 days before closing
- Eligible mixed-use properties permitted (Seniors Housing properties must derive no more than 20% of their Effective Gross Income from commercial uses or have more than 20% of overall square footage set aside for commercial space)
Disadvantages:
- Requires replacement reserves
- Requires third-party reports including Phase I Environmental Assessment, Appraisal, and Physical Needs Assessment; Seismic Report may be required for properties in Seismic Zones 3 and 4
- Seniors Liability Assessment also typically required
- Estimated Lender Fee of $25,000 for third-party reports
- Estimated Lender Legal fee of between $17,500 and $25,000
- Freddie Mac Application Fee of $5,000 or 0.15% of the loan amount (whichever is greater)
- 2% rate lock fee required (refunded after closing)
- Subordinate financing not permitted