HUD Help Is Here

March 28, 2008
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Even though it’s been a few years since the Department of Housing and Urban Development has insured a mortgage for a local nursing home, an intermediate care facility, a board-and-care home or an assisted-living complex, that type of financial assistance is still available to health-maintenance service providers.

Section 232 insures mortgage loans to help with the construction and rehabilitation of those types of facilities by covering losses that a HUD-approved lender might sustain if a borrower defaults on a mortgage.

The maximum loan amount for new construction and rehab projects is 90 percent of the estimated value of the physical improvements and major moveable equipment. For existing projects, it’s 85 percent. But nonprofits can add another 5 percent to those maximums and apply for project loans of 95 and 90 percent, respectively.

In addition to financing new construction or rehab projects, HUD-insured mortgages can help buy or refinance a facility or install fire safety equipment in one. An insured mortgage almost always results in a lower interest rate for the borrower. But for a nursing home to qualify for the coverage, it must serve at least 20 residents who require skilled nursing care and has to be awarded a Certificate of Need from the state.

Louis Berra, acting field office director of the HUD bureau in Grand Rapids, said the last time an insured mortgage was granted to a local nursing home was in the early 1970s, which was also the last time the state issued a CON for one in the metro area.

John Straatsma, a supervisory project manager for the HUD development division, said the region’s last assisted-living complex that was awarded a HUD-insured mortgage was the Appledorn Living Center in Holland, and that happened a few years back.

But Berra added that the local HUD office has been involved with assisting other projects in other parts of the state and has done so fairly frequently.

“The people who are in the business of providing this type of care are fully aware of our program, and there are some existing operators who are considering coming to us for some refinancing,” said Berra.

Straatsma said a recent trip he made to the Detroit field office leads him to believe that a provider with 14 facilities in the state will be requesting some refinancing assistance within the year.

“For those people who may have mortgages out there and higher interest rates in what is today’s marketplace, it would make sense to do that because they can lower their operating costs,” said Berra. “But it doesn’t appear that we have anybody new coming on the scene.”

Straatsma pointed out that even though the metro area has a lot of aging nursing homes, the HUD program can still help.

“We can do a straight refinance of a nursing home, which will allow the owners to do a bunch of repairs with that. Or we have a program that would be a purchase, refinance and a rehabilitation program that helps with significant rehabilitation. That’s important to owners because if they have a facility that costs them less, they can take care of some of those things under our program,” said Straatsma.

Straatsma said during the past fiscal year, HUD refinanced only four facilities across the state; two were assisted-living centers and two were nursing homes.

Although the number of nursing homes in the market has remained stagnant here, Berra said he has witnessed a growth in assisted housing locally for those not needing the degree of care that a nursing home offers. He felt those facilities over the past 10 years have nicely met the needs of seniors in the market who can’t live independently anymore but don’t need 24-hour medical supervision.

Berra has also seen another change in the market pop up in the last decade or so: Some in the care industry have made more options available to seniors.

“There is a big difference in the type of services someone gets from facilities that don’t require any kind of government assistance — by that I mean, private pay. Someone can get a level of service there that is kind of like choosing whether you want to drive a Cadillac or a Chevrolet,” he said.

“When you get into government subsidies and require that to make your programs work, and if the government subsidy decreases over the years, that puts a real strain on your operations. As we know when we see the news reports, the government is looking at cuts in various areas. Sometimes, they cut an area that supports nursing homes.”

Straatsma said one of the most recent applications he has received came from an assisted-living complex in Northport, which applied for a refinancing mortgage with HUD. Some people might not think that a facility in a small town in Leelanau County could eventually have an impact on nursing homes in this area, but Straatsma said it very well could. One day, residents will need more care than is provided in their area, and many of them will likely be transferred to nursing homes in a larger metro area. Multiply all the similar facilities in remote settings like Northport, and the populations of nursing homes in more urban areas, like West Michigan, could increase dramatically.

Another slice of the market is the continuing care facilities. Here a senior buys into a retirement village that offers assisted living and then, eventually, nursing care as a resident’s physical or mental condition worsens. Some religious denominations offer this type of facility. Berra said HUD right now is a bit reluctant to offer insured mortgages to the complexes. He said 20 years ago, many industry experts thought continuing care was where the market was headed, but that hasn’t been the case, so HUD has shied away from insuring those mortgages.

One example of why continuing care hasn’t always met with the success that was predicted decades ago comes from a former facility in Indianapolis. It turned out that residents lived quite a bit longer than the business model had forecast, which made it impossible for the complex to be financially successful.

“The average age was supposed to be X before they left this world. But it turned out to be X-plus, and they didn’t have the stream of income to make it work,” he said. “I think that has changed now with the new rules.”

That means the resistance HUD has displayed toward insuring a mortgage for continuing care facilities may also change in the near future.

“I think that there has been some movement that I see coming out of Washington that we could look at refinancing some of those. I think that is still kind of in the pipeline yet,” said Straatsma.

The local HUD office covers the western half of the state and the Upper Peninsula. But Straatsma, who is based in the Grand Rapids field office, has all of Michigan as his territory. HUD also has field offices in Detroit and Flint.

According to HUD, the agency insured mortgages for 222 projects with 24,945 beds nationwide for fiscal year 2006. The mortgages totaled $1.3 billion. HQX

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