HUD 232, Bridge-to-HUD, and Senior Housing Construction -- We Know the Capital Stack

HUD 232 under Section 232/223(f) requires a minimum of 80 percent physical occupancy for at least six consecutive months prior to FHA application. For skilled nursing facilities, MAP lenders typically also want to see a DSCR of 1.45x or better based on the most recently completed 12-month cost report period, with positive trends in the trailing quarters. Assisted living underwriting varies by MAP lender but the occupancy and coverage standards are similar.

Survey history matters as much as financial performance. A facility with a Special Focus Facility designation or a history of G-level or higher citations will face significant MAP lender resistance regardless of occupancy and coverage. If your client has survey issues, the first step is resolving the deficiencies and allowing time for a clean survey cycle before approaching HUD 232 lenders.

For operators who are close but not quite at the HUD threshold, a bridge-to-HUD structure is usually the right answer. We structure the bridge term to provide enough runway for the operator to reach qualifying occupancy and coverage, and we coordinate the HUD 232 application concurrently so there is no wasted time between bridge close and HUD application.

Bridge-to-HUD lenders underwrite the exit risk primarily by evaluating whether the asset will qualify for HUD 232 at or before the bridge maturity date. That means they are looking at the same metrics HUD MAP lenders look at -- current and projected occupancy, EBITDAR coverage trajectory, survey history, and operator quality -- and asking whether those metrics will meet HUD standards within the bridge term.

Most bridge-to-HUD lenders build in a 12 to 18 month term with one or two six-month extension options. The extension options exist precisely because HUD timelines are not perfectly predictable. A typical HUD 232 application takes four to six months from FHA application to firm commitment and another 60 to 90 days from firm commitment to close. If the application is submitted on a reasonable timeline, the bridge maturity should not be a crisis even if FHA processing runs long.

Where bridge-to-HUD deals go wrong is when the HUD application is not submitted promptly after bridge close, or when an unexpected survey issue delays the application. We coordinate the bridge and HUD timelines explicitly at the outset to minimize these risks.

Senior housing construction lenders evaluate the operator as rigorously as they evaluate the project. They want to see a track record of successfully opening and stabilizing comparable communities -- specifically AL or MC communities of similar size and acuity, opened within the past five to ten years, that reached stabilized occupancy within the projected ramp period. If the operator is new to development but has strong operating experience at existing communities, that history needs to be presented in detail.

On the project side, lenders want a market study demonstrating demand and limited competitive supply, a construction budget from a qualified general contractor with fixed-price elements where possible, a realistic census ramp pro forma with conservative occupancy assumptions, and a clear plan for management during the lease-up period. The management team that will run the community during lease-up is particularly important -- construction lenders have seen too many projects where the development team and the operations team are not the same people.

Equity requirements for AL and MC construction typically run 25 to 35 percent of total project cost depending on the lender and market. Recourse during the construction and lease-up period is standard -- senior housing construction lenders generally do not offer non-recourse until the community is stabilized and refinanced into a permanent program.

Distressed SNF situations are within our scope, but they require a realistic assessment of where the asset is and what the path to lender-acceptable performance looks like. A skilled nursing facility with declining census, recent survey deficiencies, and compressed margins is not a candidate for HUD 232 or life company financing in its current state. It is potentially a candidate for bridge financing from a private lender who specializes in healthcare turnarounds and is willing to underwrite the recovery rather than current performance.

The questions we need answered to assess financing viability for a distressed SNF are: Is the license in good standing and is there a realistic path to keeping it that way? Does the operator have a credible remediation plan for survey deficiencies? Is there sufficient equity in the real estate to support bridge financing even at distressed operating metrics? And is there a clear path to a financeable exit -- whether that is improved performance qualifying for HUD 232, or a sale to a creditworthy acquirer who will assume or refinance the bridge?

If the answer to those questions is yes, we can usually find bridge capital. If the license is at risk or there is no realistic path to a financeable exit, we will tell you directly. We do not string clients along on deals that are not financeable.

Property Assessed Clean Energy financing is a useful tool for senior housing operators funding energy efficiency improvements, HVAC replacement, solar installations, or building envelope upgrades. PACE assessments are repaid as a property tax assessment rather than a mortgage lien, which creates specific considerations in a senior housing capital stack.

The critical question for senior housing operators considering PACE is lender consent. HUD 232 lenders require FHA approval for any financing that creates a senior lien on the collateral. Because PACE assessments are collected as property tax assessments and can have priority over mortgage liens in certain states, HUD MAP lenders and their FHA counterparts take a careful look at PACE before consenting. Some MAP lenders will allow PACE alongside HUD 232 if the PACE assessment is sized conservatively and the operator can demonstrate that the annual assessment does not impair DSCR. Others will not consent at all.

For bridge-to-HUD situations, PACE alongside a bridge loan is generally more straightforward because bridge lenders have more flexibility than FHA-regulated programs. The more important planning question is whether the PACE will survive the HUD 232 refinance -- and that needs to be addressed before the PACE is placed, not after. We work with PACE advisors and MAP lenders to structure the capital stack correctly from the outset so there are no surprises at HUD closing.