HUD Lending Slows in Q1 as Inflation, Labor Add Pressure

The U.S. Department of Housing and Urban Development (HUD) funded far fewer loans in the first quarter of this year compared to last year, recently published Trepp data shows.Factors such as omicron, high expenses and labor shortages kept firms on the sidelines.

HUD funded 346 loans totaling $6.04 billion for 1Q, and that was down substantially from 404 loans totaling $8.92 billion funded in the quarter ending December 2021. For fiscal year 2021, which ran through last September, the agency funded 1,578 multifamily loans with a balance of $29.48 billion, up 55% from the $19.02 billion it funded in fiscal 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 billion.

In terms of health care and senior housing, Greystone saw 79 loans totaling $676 million in 1Q22, the firm told Senior Housing News.

Lending volume appears to be slowing with the latest data analysis, and those at Greystone have taken notice.

“We have seen about half the application volume we saw in the first quarter of 2021,” Greystone Head of Healthcare FHA Production Scott Thurman told Senior Housing News, while the dynamics of the lending space have continued to change since early 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 remaining flat for the rest of 2021. In the first quarter of this year, rates were muted in the mid-2% range and jumped 100 bps by the end of the quarter.

The higher interest rates compounded with HUD’s increased processing times and variations in individual project performance, while mixed with the dynamic omicron Covid situation, all played into volume for health care loans slowing, Thurman said.

“Even if facilities were not affected by COVID, still, staffing shortages/limitations have led to lower financial performance so there are a significant number of transactions at HUD that are ‘on hold’ waiting to achieve the underwritten performance,” he added.

With the dynamics of Covid still circulating in all areas, Thurman said he believes the variants brought conservative underwriting to the health care industry that wasn’t seen in 2020 or 2021.

Staffing remains a key challenge for many operators in health care and senior living, with Thurman noting Greystone was seeing increased expenses across the board that the agency expects are “to be the new norm.”

“HUD and lenders can no longer assume that health care facilities will return to 2019 operating expenses,” Thurman said. “Staff burn out and retirements brought about by the pandemic along with competition from other employers outside of the health care industry are certainly having an effect.”

Still, HUD lending has come back from pandemic lows.

“In fiscal 2021, nearly 52% of the agency’s production consisted of 223(f) loans,” the Trepp post stated. “That was a 73% increase from the $8.87 billion of production under that program in fiscal 2020.”
Bridge lending has stepped in to fill the gaps in some cases, as borrowers navigate the time-consuming process of obtaining HUD loans. Hudson Realty Capital recently launched a bridge lending platform focused on senior housing and skilled nursing, and anticipates volume of $300 million to $400 million in the next 18 to 24 months.

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