HUD loans slow in first quarter as inflation and labor add pressure
The US Department of Housing and Urban Development (HUD) funded significantly fewer loans in the first quarter of this year compared to last year, according to recently released data from Trepp. Factors such as omicron, high expenses and labor shortages have kept companies on the sidelines.
HUD funded 346 loans totaling $6.04 billion for Q1, which was down sharply from the 404 loans totaling $8.92 billion funded in the quarter ending December 2021. For the fiscal year 2021, which ended last September, the agency funded 1,578 multi-family loans with a balance of $29.48 billion, up 55% from the $19.02 billion funded in 2021. fiscal year 2020.
In FY21, Greystone was the most active lender with 157 loans totaling $3.23 billion, followed by Dwight Funding with 157 loans totaling $3.1 billion and Berkadia with 127 loans totaling $2.66 billions of dollars.
In terms of healthcare and senior housing, Greystone had 79 loans totaling $676 million in 1Q22, the company told Senior Housing News.
Lending volume appears to be slowing with the latest data analysis, and those at Greystone have taken notice.
“We’ve seen about half the volume of claims that we saw in the first quarter of 2021,” Scott Thurman, Greystone’s FHA healthcare production manager, told Senior Housing News, as the momentum of the he lending space has continued to change since the start of 2021.
Thurman cited significantly higher interest rates now compared to 2021. Last year, rates started in the low 2% range and rose 40 basis points until they were flat for the rest of 2021. In the first quarter of this year, rates were subdued in the mid -2% range and jumped 100bp at the end of the quarter.
Higher interest rates, combined with increased HUD processing times and variations in individual project performance, while mixed with the dynamic omicron Covid situation, all contributed to the slowdown in loan volume health care, Thurman said.
“While facilities have not been impacted by COVID, staffing shortages/limitations have nonetheless resulted in a decline in financial performance, such that there are a significant number of transactions at HUD that are “on hold” while waiting to reach the subscribed performances”, he added.
With Covid dynamics still flowing across the board, Thurman said he believed the variants were bringing a conservative underwriting to the healthcare sector that hadn’t been seen in 2020 or 2021.
Staffing remains a major challenge for many operators in healthcare and senior living, with Thurman noting that Greystone is seeing increased spending in all areas that the agency says “should be the new normal. “.
“HUD and lenders can no longer assume health care facilities will return to 2019 operating expenses,” Thurman said. “Staff burnout and retirements caused by the pandemic as well as competition from other employers outside of the health care sector are certainly having an effect.”
Still, HUD loans have returned from pandemic lows.
“In fiscal year 2021, nearly 52% of the agency’s output consisted of 223(f) loans,” Trepp’s post said. “That was a 73% increase from the $8.87 billion in production under this program in fiscal year 2020.”
Bridge loans have stepped in to fill the gaps in some cases as borrowers navigate the tedious process of obtaining HUD loans. Hudson Realty Capital recently launched a bridge lending platform focused on senior housing and skilled nursing, and expects $300-400 million in volume over the next 18-24 months.