Nursing Home Loan Delinquency Rates Rise in 2024, Hit 2.7%

Construction lending in the nursing home sector remained “virtually nonexistent” with no activity in the first half of the year among lenders, highlighting a continued lack of momentum in this area.

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A high cost of borrowing and uncertainties around operational challenges further constrain new development, according to a report recently published by the National Investment Center for Seniors Housing & Care (NIC) on lending trends. The question of whether operational challenges will abate in the new year affected delinquency rates, loan volume and short-term lending, in addition to construction loans, NIC found.

Delinquency rates for nursing homes saw a continued rise for three consecutive quarters, reaching 2.7% in 2024. That’s up from 0.6% in late 2023, according to the report. Like with many other loan statistics, rising delinquency rates were chalked up to ongoing operational challenges in the sector.

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Still, overall loan volumes for nursing care rose by nearly 60% in Q2 2024 compared to Q1, reflecting a more measured and gradual recovery for the sector as Medicaid reimbursement rates and occupancy improved. Nursing home occupancy increased to 83.9% in the first half of 2024, NIC said, while nursing home cap rates sat at 13.4% during the same period.

By comparison, seniors housing saw a 200% increase in loan volumes during the same time period and slow recovery of construction lending.

The NIC report includes data between Q3 2016 and Q2 2024 for skilled nursing care and seniors housing construction loans, bridge loans, permanent loans and delinquencies. The report has survey contributions from 17 participating lenders.

There’s generally renewed confidence in long-term care investments, the report found. Bank holding companies made up 24% of lender types from the first half of 2024, NIC found, followed by banks, investment management firms and government-related sources tied at 18%, then financial services companies making up 12% of lenders in the space, while commercial real estate services and REITs made up 6% each.

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New mini-perm and bridge loan volumes remained low for nursing homes and seniors housing in the first half of the year, reflecting caution among lenders, the report found. Bridge loans were less attractive to buyers and more difficult to underwrite, given high borrowing costs driven by the Fed’s target rate of 5.25% to 5.50%.

“Lenders primarily focused on selective deals with existing borrowers and properties demonstrating strong performance metrics,” NIC researchers said of bridge loan volume. Lenders cautiously navigated high-interest rate environments and prioritized stronger credit profiles, according to the report.

Actual deal flow for such financing was limited despite an increase in requests as credit availability overall was tightened.

Foreclosures in the first half of 2024 totaled $43.2 million for nursing care, indicating continued pressure facing some borrowers in the nursing home industry, as well as seniors housing with $51.8 million for the same time period.