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Lending Still A Big Barrier For Senior Living Development, Growth In 2025

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At the start of 2025, senior living companies are ready to hit the ground running with new development and construction projects. Lenders are not.

The senior living industry is currently in a “transitional phase” for new development, NIC Senior Principal Omar Zahraoui told Senior Housing News earlier this month. New permanent loan volume for senior living “rebounded to its highest level since 2020” in the second quarter last year, while construction loan lending saw a modest uptick in that time.

Although Zahraoui is cautiously optimistic about the road ahead with regard to lending, current conditions in construction lending and costs suggest that a big development rebound is out of reach in 2025.

That said, operators are still looking to press go on construction and acquisition funding, and are working to entice investors to come off the sidelines.

Patrick Mathews, chief financial officer and chief investment officer with Charter Senior Living, said he thinks the current issues stem from the bad experiences lenders have had during the Covid pandemic.

“You have a lot of lenders that originated loans during that timeframe for development opportunities, and these delayed lease ups during Covid likely are impacting what we see today,” Mathews told Senior Housing News. “Frankly, it’s kept them on the sidelines a bit more than everyone would like.”

Among the operators currently succeeding in securing funding is Dallas, Texas-based Sonida Senior Living. The company has sourced loans from a variety of banks, particularly those it has worked to develop a relationship with, according to Max Levy, chief investment officer.

“The banks are open for business. They’re just being a lot more selective,” Levy said.

‘More twigs than sticks’ in ‘26

Although the senior living industry has high hopes for a construction rebound in 2025, lending is an obstacle that is seemingly not budging. In 2025, “new development activity remains constrained due to both limited access to development capital and elevated construction costs,” wrote NIC Head of Research and Analytics Lisa McCracken earlier this month.

This is likely to temper the flow of senior housing construction starts this year,” she wrote. “The sector is in a better position to advance growth opportunities compared to one year ago, but we might be looking at more twigs than sticks in ’26.”

Despite those difficulties, Charter Senior Living has three communities currently under construction that are anticipated to open between the second and third quarter, with another three to five potentially opening in 2026. The company has leaned on relationships with larger partners to grow.

“I think everyone’s feeling a little more optimistic than they were several years ago,” Mathews said.

Although larger companies can lean on their relationships, scale and history to source new loans, smaller ones have a harder time. According to Caroline Clapp, senior president of research and analytics at the National Investment Center for Seniors Housing and Care (NIC).

Lenders can be spooked by the complexity of senior living, which is why some stick to large national players like Sonida.

“Investing in seniors housing is different than some other traditional commercial real estate investments that they may be used to, particularly in its operational complexities,” Clapp said. “This sector takes some time to fully understand and gather the needed information to make smart investments.”

Clapp is anticipating short-term construction lending to remain difficult throughout 2025, though lending volume could increase compared to 2024.

That said, she sees signs that larger players and new investors are “entering our space and aligning themselves with strong operators and developers.”

Barriers remain in ‘25

The U.S. Federal Reserve cut interest rates three times in 2024, which Levy said led to meaningful improvement in companies’ ability to get new loans.

“The banks had a mandate internally that they were kind of back to playing offense, but with kind of a … higher set of hurdles than they had had in the last cycle,” Levy said.

The senior living industry has grappled with a wall of debt maturities in recent years. In 2025, the senior living industry faces $10 billion in loan maturities, according to data cited by NIC. To that end, senior living companies still have a long road to tread.

Mathews said “people are holding their breath” for the time being in regards to the direction the market might go. The new Trump administration also represents a point of uncertainty for now.

As such, Mathews said he speculates lenders may be less lenient than they have been in recent years, and far less likely to enact so-called extend-and-pretend efforts with struggling properties than in the past.

Debt capital is available but is both harder to get and more expensive, which Levy believes will likely lead to more all-cash transactions throughout the remainder of the year. He said that he doesn’t think construction lending will pick up without a “lower rate environment” that would make those projects a more attractive use of capital for banks.

“It’s hard to say exactly what that catalyst would be to make that happen,” he added.

That said, senior living companies and organizations like NIC still are optimistic that conditions at least get better in 2025.

“Bank lending improved in 2024, and we anticipate that the debt markets will continue to migrate back to the playing field in 2025,” McCracken wrote. “Transaction activity is anticipated to be robust in 2025, building on the increased momentum seen in 2024.”

At the same time, strong demand and limited new communities will likely boost operators’ operating results in the new year.

“These positive factors should help mitigate potential downsides, such as a slower pace of Federal Reserve easing and any adverse impacts from changing administration policies,” she wrote. “While challenges persist for some communities that have struggled in recent years, the sector’s fundamentals remain strong, positioning it for continued growth and attracting increased investor interest in 2025.”

The post Lending Still a Big Barrier for Senior Living Development, Growth in 2025 appeared first on Senior Housing News.


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