There are three common types of long-term care facilities. Often they are found in one project, and sometimes they are found contained in the same project with a hospital and a funeral home. This latter configuration is often called a cradle-to-grave community.
These communities consist of apartments or homes for seniors. The law permits discrimination against non-seniors in these communities by allowing the borrower to limit occupancy to those over 55 or 62 years old. In these senior communities, there can be a 20% component of non-seniors. The communities offer increased security and maintenance-free living. And although there are some common services such as dining, most occupants are self-sufficient.
Financing for independent-living communities is similar in form and terms to apartment financing, mirroring the products available for the general population. Many underwriters favor this type of community because it exhibits lower repair, maintenance and turnover costs than do other types of communities. However, it is rare for an independent-living community to attract the highest rents. A state license is not required
These communities are characterized by two forms – the state supported and the independent. All must have a state license indicating the number of beds eligible. Because the federal government does not support assisted-living expenses, state-supported facilities (often called rest homes) rely on the patient's social security check and any state supplements. These facilities are not very profitable, but they do not suffer much risk of vacancy as demand is very high.
Independent assisted-living facilities charge patients three to four times more than state-supported facilities. The difference is in the quality of the accommodations and the level of care. Because the profitability is greater, there are more lenders seeking to invest in these properties. However, there can be a problem with overbuilding in an area by several operators. Consequently, underwriters favor those projects where the sponsor has done exhaustive analysis of the competition and potential competition.
These are regulated much more strictly than assisted living, and their level of care is the highest outside of a hospital. It is a highly specialized facility with much special equipment. Also, states specify how many beds can be created for a particular market to ensure nursing homes do not go out of business and leave their patients homeless.
The number of lenders for nursing homes is fewer than those in the other two categories. Yet, because of the cost of such facilities, loans are often over $2 million, which opens lots of lender doors nationwide. With the exception of one or two specialized programs, the loan-to-values tend to be lower than for other types of property.
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