The importance of senior housing and skilled nursing facilities continues to be a prominent topic of discussion across the United States health care industry. In fact, it is estimated that the aging Baby Boomer population will increase from 20 million in 2014 to 33.6 million by 2029. This rapid change in demographics, coupled with the pandemic’s push to provide more consumer-focused health care services and the country’s growing interest in social determinants of health, is causing the industry to turn its attention away from the more traditional delivery model towards the outpatient-focused care setting. Accordingly, the health care industry’s interest in collaborating with the senior housing sector is on the rise, and the need for development and procurement of senior housing and assisted living facilities is more prevalent than ever before.
Exactly how, though, are developers managing to finance the development of these much-needed facilities? One popular method of doing so is by securing a loan through the 232/223(f) federal loan program (the “232/223(f) Loan”), which is discussed in further detail below.
What Is the 232/223(f) Loan?
The 232/223(f) Loan is a federally-backed loan program under the Federal Housing Administration and the U.S. Department of Housing and Urban Development (“HUD”). Specifically, borrowers may apply for the 232/223(f) Loan to purchase, construct, rehabilitate or refinance senior housing facilities such as nursing homes, assisted living centers, board and care properties and similar projects. Eligible borrowers include investors, builders, developers, public entities (such as nursing facilities) and private nonprofit corporations and associations. The Office of Residential Care Facilities administers and oversees the 232/223(f) Loan program.
What Are the Eligibility Requirements for a 232/223(F) Loan?
Facilities that are eligible to obtain 232/223(f) Loan financing are licensed senior housing and long-term care facilities, licensed skilled nursing facilities, licensed assisted living facilities and licensed board and care facilities. All for-profit, nonprofit, and public borrowers are eligible to apply as well. To qualify, such facilities must meet a variety of criteria, including the following:
- Facilities must accommodate 20 or more residents who need continuous or skilled nursing care and related medical services.
- Facilities must not be occupied by independent living by more than 25%.
- Facilities must not have commercial space that exceeds 20% of income or facility space.
What Is the Application Process?
The 232/223(f) Loan generally progresses through five stages, including:
- Application submission;
- Preliminary underwriting;
- Third-party verification and performance of due diligence;
- Receipt of the HUD firm commitment letter; and
- Finalization of the loan documentation and closing.
Moreover, the application process for the 232/223(f) Loan is subject to HUD’s LEAN process, which is intended to decrease waste and enhance efficiency in terms of application processing. The LEAN process has made applying for the 232/223(f) Loan much simpler than in years past, exemplified by the fact that the entire process can take as little as four months to complete (though this estimate can vary, depending on the complexity of the application). However, though streamlined, the 232/223(f) Loan process still contains a number of hidden hurdles that borrowers must circumvent in order to be awarded funding. For example, a critical piece involves finding the right lender, as HUD LEAN lenders are responsible for communicating with HUD and are the only entities with the authority to actually submit 232/223(f) Loan applications.
What Benefit Does a 232/223(f) Loan Offer a Borrower?
232/223(f) Loan financing is a secure option for borrowers and developers who want to expand their presence in the senior housing sector or upgrade existing facilities with long term, fixed-rate debt. Specifically, 232/223(f) Loans are non-recourse, consist of high leverage, and are typically available at low interest rates. Additionally, 232/223(f) Loans have flexibility, as the minimum loan size available is $1,000,000 and presently have no maximum. These facts, plus the value of the streamlined LEAN process, are just a few of the many benefits 232/223(f) Loans can bring to the table.
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As health care continues to evolve and become more home and community focused, the rapidly‑increasing interest in senior housing partnerships continues to grow right along with it. Those who develop facilities that meet these shifts in long-term care delivery will not only help improve both the quality and coordination of care that elderly patients receive; they will also be among the first in the industry to meet the housing and development needs of a dramatically large demographic shift set to occur in the United States over the next twenty years.
If you have additional questions or would like to discuss 232/223(f) Loan procurement or development strategies concerning senior housing and assisted living facilities, please contact:
- Marina Blackburn at mblackburn@wp.hallrender.com or (317) 977-1470;
- Jerimi Ullom at jullom@wp.hallrender.com or (317) 977-1488;
- Andrew Dick at adick@wp.hallrender.com or (317) 977-1491; or
- Your primary Hall Render contact.
Special thanks to Neema Patel, law clerk, for her assistance in preparing this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
