The Reality of Healthcare Real Estate Financing

The financing landscape for healthcare and seniors housing is complex, nuanced, and continually evolving. While these sectors share similarities as operational businesses, they also differ in meaningful ways that shape deal structure, underwriting, and permanent debt solutions. Over the past few years, higher interest rates, pandemic recovery, and varying levels of government support have created distinct challenges and opportunities for both.

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To better understand where healthcare real estate financing intersects with seniors housing, and how each sector is adapting, Connor Zierden, Managing Director at VIUM shared insights. In this conversation, Connor comments on deal structure, permanent debt options, and the market trends shaping today’s lending environment. He also outlined how VIUM navigates regulatory shifts, positions clients for long-term success, and prepares for the supply-and-demand pressures that will define the next decade.

How does healthcare real estate financing intersect with seniors housing? 

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VIUM has expertise in both healthcare and seniors housing financing. However, over the last few years, with higher interest rates exiting the pandemic, we have found skilled nursing deals more favorable to underwrite. We have still executed on quite a few seniors housing deals over this time, but healthcare transactions can have more cash flow at higher leverage points (i.e. higher debt service coverage). Healthcare facilities also received more governmental assistance during the pandemic, as stimulus dollars flowed into the space to assist facilities and help retain limited available staff. Seniors housing received less assistance and has taken a little longer to trend back toward pre-pandemic occupancy and margins. Over the last 6-12 months, we have seen strong momentum in both rental increases and census growth in the sector. Combined with more stable interest rates and reasonable leverage expectations, VIUM has found success in getting seniors deals done.

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What are the differences in structure and/or permanent debt solutions?

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We view them similarly in that at the core, as they are both operating businesses. On the other hand, there are significant differences in reimbursement, expense structure, perceived risk, and regulatory barriers, which impact our underwriting, deal structure, and permanent debt options. Our bridge platform is largely used to provide short-term (less than three years) financing for properties to eventually permanently finance through a HUD mortgage insured loan, whether seniors housing or healthcare. HUD deals are constrained to 80% LTV and 1.45x DSCR, provide a non-recourse 35-year term and amortization, and the property’s independent living unit mix must be no more than 25%. VIUM will provide bridge financing for refinances, recapitalizations, and acquisitions. The standard LTV (LTC for acquisitions) constraint is 80% and our only performance covenant is tied to Debt Service Coverage. To be creative on tighter senior deals, we look at interest rate caps and funding in tranches. In addition to the balance sheet lending via our capital and JV partner, Merchants Bank, we have a couple of debt funds that offer more unique financing structures and lower recourse at higher rates. We typically see healthcare and middle-market seniors assets more interested in HUD as a permanent financing solution, while Class A and B seniors assets typically prefer Fannie, Freddie, and Life Company financing. Of note, the GSEs have historically had relatively quick execution, which outpaces HUD. However, HUD rolled out its “Express Lane”, which is open for deals that are 70% LTV or less and cover debt service at greater than 1.6x. There are other sponsor-related requirements as well, but the point is that HUD is committing to shorter processing times to approval. The Express Lane shortens the HUD process to be reasonably competitive with the GSEs for buildings without a significant independent living mix.

How does VIUM navigate the opportunities and challenges within the sector?

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We strongly believe in being experts in the space, which includes fully understanding state reimbursement and budgeting at a granular level, quality of care and CMS data, national and statewide trends (i.e. occupancy, staffing, etc.), and forming relationships with owners, operators, and advocate groups. These are operating businesses and there are large variances between healthcare and seniors housing assets. It is vital to understand existing regulation, operations, and the market. 

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Regulation is important in terms of governmental policy as well as changes and oversight in HUD. We have strong relationships with various organizations that play a large role in the space. The following positions are held by members of VIUM:

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• Steve Kennedy, Executive Managing Director of VIUM, Mortgage Bankers Association’s Board of Governors for Commercial and Multifamily, and a member the American Health Care Association’s Non-Profit Council
• Kass Matt, Executive Managing Director of VIUM, Board DEI Committee Member with NIC and Executive Board Member of American Seniors Housing Association
• Alison Lemle, Senior Managing Director and Chief FHA Underwriter of VIUM, President of the Healthcare Mortgagee Advisory Council 

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These positions and organizations enable VIUM to stay on top of regulation and policy impacts, advocate for our borrowers and operators, and continue a strong relationship with HUD to maintain understanding of changes in real time. VIUM believes in being an expert in the sector and advocating for clients. By executing on these two goals, VIUM will be ready to take advantage of opportunities by knowing where to focus resources. For example, if we understand state reimbursement granularly and know where and when Medicaid rate increases are happening, we can guide clients the right way in terms of debt structure. In fact, our originations platforms are set up regionally where each originator is ingrained in their market and knows them in and out. In addition to being ready to take advantage of the opportunities, VIUM is equipped to solve problems when they arise. 

What will this sector look like in 5-10 years, specifically as it relates to supply and demand?

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This is being discussed at virtually every conference. Net demand has grown over the last couple of years and is expected to take off over the next five years as the Baby Boomers age. Data shows that the pace of development is still below pre-COVID levels. Currently, replacement cost is higher than acquiring well-positioned assets, which makes it a hard sell to develop. However, the gap seems to be closing, and eventually it will invert with the heightened demand and limited supply. The sponsors that position themselves now and develop over the next five years to be ready for the inflection point will benefit greatly. 

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Ultimately, I am interested in seeing what solutions are created in the next decade. The tailwinds are clear, but there are certainly challenges that arise if supply and demand expectations play out. Staffing is already tight; AI is being implemented where possible and proves to be extremely valuable, but what are its limitations in a person-to-person-based business? How will this trend impact care, expenses, and rental rates? In addition to staffing, there is a need for a middle-to-lower market seniors housing asset. I envision this being figured out at some point, but it may not be until the pressure is truly on.

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The financing needs of healthcare and seniors housing may share a foundation but diverge in critical ways that impact underwriting, deal structures, and long-term debt solutions. With healthcare historically benefiting from more reliable cash flow and government support, and seniors housing now regaining momentum through rising occupancy and stabilized interest rates, both sectors are positioned for meaningful growth in the years ahead.

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What remains clear is that success requires deep expertise, strong relationships, and a proactive approach to regulation and market trends. VIUM continues to bring this expertise to the table, helping owners and operators navigate challenges, seize opportunities, and prepare for the shifting dynamics of supply and demand.

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As the next decade unfolds, VIUM Capital’s focus on advocacy, innovation, and tailored financing solutions will remain central to supporting clients in building sustainable, thriving communities. Contact us today for more information.

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