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For Family Offices • Financing Strategy
Financing Senior Housing Investments: Capital Sources for Family Offices
Comprehensive guide to financing senior housing acquisitions for family offices and high net worth investors. Explore HUD 232 programs, conventional debt, mezzanine capital, bridge financing, and optimal capital structures for assisted living, memory care, and skilled nursing investments.
18 min read•For Family Offices • HNWIs
What this article explains:
- •Topic: Financing Senior Housing Investments: Capital Sources for Family Offices
- Who this is for: Family offices, HNWIs, and real estate investors seeking financing for senior housing acquisitions
- Problems addressed: Complex financing landscape, unfamiliar HUD programs, suboptimal capital structures, high cost of capital
- Systems involved: HUD 232/223(f) programs, conventional bank debt, bridge loans, mezzanine capital, preferred equity structures
- Why this matters now: Understanding financing options is critical to optimizing returns and managing risk in senior housing investments
1. HUD/FHA 232 & 223(f) Programs
HUD-insured financing offers the most favorable terms for senior housing investors: high leverage, long amortization, non-recourse debt, and fixed rates.
HUD 232 (New Construction & Substantial Rehabilitation)
- Loan-to-Value: 85-90% of project costs
- Term: 35-40 years, fully amortizing
- Interest rates: 5.5%-7.0% (fixed)
- Non-recourse: Yes (subject to standard carve-outs)
- DSCR requirement: 1.20x minimum
- Prepayment: Yield maintenance or defeasance
- Timeline: 6-12 months from application to closing
- Ideal for: New assisted living or memory care development; major renovations
HUD 223(f) (Acquisition & Refinancing)
- Loan-to-Value: 85-87% of appraised value or purchase price
- Term: 35 years, fully amortizing
- Interest rates: 5.5%-7.0% (fixed)
- Non-recourse: Yes
- DSCR requirement: 1.20x-1.25x
- Property age: 3+ years of operational history
- Occupancy: 85%+ required at closing
- Timeline: 4-6 months
- Ideal for: Acquiring stabilized assisted living or memory care properties
HUD 232 Example: $15M Assisted Living Acquisition
- Purchase price: $15M (72-unit assisted living community)
- HUD loan amount: $12.75M (85% LTV)
- Equity required: $2.25M
- Interest rate: 6.25% fixed, 35-year amortization
- Monthly debt service: $79,000
- Annual NOI: $1.2M
- DSCR: 1.27x
- Cash-on-cash return: 14.2% (levered)
- Benefits: Non-recourse, low down payment, predictable fixed-rate debt service
2. Conventional Commercial Mortgage Financing
Conventional debt from banks and life insurance companies offers faster closings than HUD but lower leverage and shorter terms.
Regional & National Banks
- Loan-to-Value: 65-75%
- Term: 5-10 years (balloon or amortizing)
- Interest rates: SOFR + 200-350 bps or 6.5%-8.5% fixed
- Recourse: Typically recourse unless strong credit profile
- DSCR requirement: 1.25x-1.35x
- Timeline: 45-90 days
- Ideal for: Stabilized assets with strong occupancy; faster closings
Life Insurance Companies
- Loan-to-Value: 60-70%
- Term: 10 years (balloon) or 15-20 years (amortizing)
- Interest rates: 6.0%-7.5% (fixed)
- Non-recourse: Yes (subject to carve-outs)
- DSCR requirement: 1.30x-1.40x
- Loan size: $5M+ minimum
- Timeline: 60-120 days
- Ideal for: Class A stabilized properties; institutional-quality assets; long-term fixed-rate financing
3. Bridge & Construction Financing
Short-term financing for development, lease-up, or value-add opportunities before refinancing into permanent debt.
Bridge Loan Structure
- Loan-to-Cost (development): 70-80% of total project costs
- Loan-to-Value (acquisition bridge): 75-85%
- Term: 24-36 months (with extension options)
- Interest rates: SOFR + 400-700 bps (floating)
- Recourse: Typically recourse (full or limited)
- Lenders: Debt funds, specialty lenders, regional banks
- Exit strategy: Refinance into permanent debt (HUD 223(f) or conventional) upon stabilization
- Ideal for: Development projects, lease-up properties, value-add turnarounds requiring operational improvements
Example: Development Bridge Loan
- Total development cost: $20M (80-unit assisted living community)
- Bridge loan amount: $15M (75% LTC)
- Equity required: $5M
- Interest rate: SOFR + 500 bps (~10.5% all-in)
- Term: 36 months
- Construction period: 18 months
- Lease-up period: 12-18 months to 85% occupancy
- Exit: Refinance into HUD 223(f) at stabilization ($17M permanent loan; 85% LTV of $20M appraised value)
4. Mezzanine Debt & Preferred Equity
Subordinate financing that fills the gap between senior debt and common equity, enabling higher leverage and enhanced returns.
Mezzanine Debt
- Structure: Second lien on property or pledge of equity interests
- Leverage: Fills 10-20% of capital stack above senior debt
- Interest rates: 12-18% (current pay or PIK)
- Term: Matches senior debt term
- Lenders: Mezzanine funds, debt funds, family offices
- Ideal for: Maximizing leverage on acquisitions; preserving common equity for future investments
Preferred Equity
- Structure: Senior to common equity; subordinate to debt
- Leverage: 10-20% of capital stack
- Preferred return: 14-20% (accruing or current pay)
- Term: Matches senior debt or common equity hold period
- Upside: May include promote participation in residual cash flow or sale proceeds
- Ideal for: Joint ventures where capital partner wants downside protection with equity upside
Example Capital Stack with Mezzanine
- Purchase price: $15M
- Senior debt (70%): $10.5M @ 7.0%
- Mezzanine debt (15%): $2.25M @ 14%
- Common equity (15%): $2.25M
- Blended cost of capital: ~9.5%
- Equity multiple enhancement: Reduced equity requirement amplifies returns on smaller equity check
Optimal Capital Structure Strategies
Family Office Core Hold (10+ Year Horizon)
- Strategy: HUD 232/223(f) for maximum leverage and fixed-rate, non-recourse debt
- Leverage: 80-85% LTV
- Term: 35-40 years fully amortizing
- Benefits: Predictable debt service, minimal refinancing risk, non-recourse downside protection
- Target cash-on-cash: 8-12% (levered)
Value-Add Investment (3-5 Year Hold)
- Strategy: Bridge loan during turnaround; refinance into permanent debt at stabilization
- Leverage: 75-80% LTV (bridge); 70-75% LTV (permanent)
- Term: 24-36 months (bridge) → 10 years (permanent)
- Benefits: Flexibility during repositioning; exit to permanent debt locks in stabilized cash flow
- Target IRR: 16-22% (levered)
Development Project (5-7 Year Hold)
- Strategy: Construction bridge loan → HUD 232 permanent takeout at stabilization
- Leverage: 75-80% LTC (construction); 85-90% (HUD takeout)
- Term: 36 months (construction + lease-up) → 40 years (HUD permanent)
- Benefits: High leverage development financing; long-term fixed-rate permanent debt maximizes sale proceeds
- Target IRR: 18-25%+ (levered)
Explore Financing-Ready Senior Housing Opportunities
Browse senior housing properties eligible for HUD 232, conventional financing, and bridge loans on SeniorCRE®.