Northern Virginia Seniors Housing Community

In 2022, Berkadia’s client was facing a loan maturity with a four-property cross-collateralized portfolio. The projects were nearing stabilization from the COVID-19 pandemic, however, the existing lender no longer wished to remain in the deal via a loan extension. Berkadia identified one of the assets that could obtain a permanent debt solution via a GSE or HUD loan. The strategy would allow for a meaningful allocation of cross-pooled debt to be refinanced, making it easier to obtain a new bridge loan for the remaining three projects that needed a little more time.

Working with the existing lender, Berkadia Managing Director Steve Muth determined a release price for the subject that left a low enough loan balance on the remaining three projects for the client to achieve their desired debt terms.  The client initially pursued a GSE execution on the subject property; signing a loan application for a $14.9 million loan reflecting 65% LTV and 1.50x DSCR.  Unfortunately, revenue dropped significantly in October 2022 due to a COVID-19 outbreak. With an anxious senior lender and lack of flexibility on proceeds, the sponsor was unable to wait for a rebound in performance to execute through Fannie Mae and pivoted to a bridge to HUD execution utilizing Berkadia’s balance sheet.

The bridge to HUD execution was preferable for three reasons:

1. HUD’s longer underwriting process (seven to nine months from engagement to closing), which allowed the community time for performance to recover
2. HUD’s focus on the trailing 12-month period rather than the shorter-term revenue focus of GSE’s minimized the impact of the quarter long downturn
3. HUD’s greater maximum LTV constraint (80% LTV vs. 65% quoted LTV for GSE), enabled the client to recover the increased transaction costs resulting from the bridge loan through loan proceeds and providing more cushion if value came in lower than expected.

Berkadia simultaneously underwrote the bridge and HUD loan, submitting a HUD application within weeks of closing on the bridge loan.

In late December 2023, Berkadia closed a cash-neutral $16 million 232/223f HUD loan with a 35-year fixed rate, fully amortizing loan representing 77% LTV.  The loan enabled the client to secure a cash-neutral loan on the remaining three assets with an 18-month term.

The fully amortizing HUD loan term will allow the sponsor to avoid a loan maturity at an inopportune time in the future and take advantage of a loan modification or a 232/223(a)(7) in the future to achieve a lower interest rate while remaining in HUD’s portfolio.