New Year Industry Outlook: Multifamily and Senior Housing

With the start of a new year, economic factors remain top of mind for real estate owners. Inflation appears to be normalizing and incremental interest rate cuts may be on the horizon. While the multifamily and senior housing arenas both remain fairly steady entering 2024, owners and investors are closely watching shifts in occupancy, rent growth, new supply and rising operator expenses.

Many multifamily and senior housing insiders were somewhat optimistic following December’s cooling inflation numbers and the Federal Reserve’s subsequent rate pause continuation. Past months’ reports show interest rates inching toward the Fed’s 2% inflation goal, however experts are still anxiously waiting the next development.??

Multifamily still weathering many challenges of the day

The peak performance of apartments in recent years may have slowed, but rent growth and occupancy in multifamily remain relatively stable. One factor contributing to this is for sale housing, which remains out of reach for many Americans, leaving them as renters for longer and keeping demand for units strong.

Freddie Mac and Fannie Mae, which consistently offer liquidity and financing options to borrowers, even during economic uncertainty, maintained their finance activity during 2023 and are expected to in 2024 as well. The 2024 multifamily loan purchase caps for Freddie Mac and Fannie Mae will each be $70 billion, for a combined $140 billion. The FHFA sets these caps based on multifamily origination market projections and requires that 50% of the agencies’ business support affordable housing. Workforce housing loans will be exempt.

These agencies notably offer finance incentives to affordable and workforce rental property owners, whether 100% of a building’s units serve Americans with lower incomes, or just a portion do. Finance incentives also exist for property owners completing sustainability-focused enhancements to their properties, specifically in the areas of water and energy efficiency.

Senior living continues to recover post-pandemic

While COVID-19 severely impacted senior housing, its recovery continues post pandemic. NIC MAP data shows occupancy rates increasing for ten consecutive quarters as new properties are slower to hit the market.[i] Their data notably shows that occupancies in previously dominant markets have declined, some considerably, while others that have historically been at the bottom rose. Occupancy still hasn’t returned to pre-pandemic levels, but that could change this year.

Rising expenses are serious concerns for senior facility owners and operators. Elevated insurance rates, as well as insurance companies leaving certain markets altogether, are real issues. Availability of skilled labor is another. Operator surveys report that frequent staff turnover and the attraction and recruitment of community and caregiver staff are key challenges.

Outside of operating expenses, the cost of debt for senior facilities is currently higher due to interest rates, which haven’t yet come down. This, combined with construction costs can delay the delivery of new projects or render them unfeasible altogether.?

Operators with strong lender relationships – whether bank, agency or other – will fare better as they look to acquire or refinance properties. Senior housing requires heightened knowledge of the industry and lenders prefer to work with operators that understand the landscape and have demonstrated successes under their belt.

Financing from HUD also remains a good option for owners of senior living facilities and is available for a range qualified facilities such as nursing homes, intermediate care facilities, board and care homes and assisted living facilities.

Looking to finance your asset?

If you are a multifamily or senior housing owner/operator looking to finance, or refinance, properties, the Regions Real Estate Capital Markets Team (a Freddie Mac, Fannie Mae and HUD approved lender) is ready to assist you. To explore financing options and contact our team, visit: https://www.regions.com/commercial-banking/real-estate-banking/real-estate-capital-markets.

About the Author

Troy Marek is head of Real Estate Capital Markets for Regions Bank, a senior housing and multifamily real estate lender. Visit Regions Real Estate Capital Markets online at https://www.regions.com/commercial-banking/real-estate-banking/real-estate-capital-markets.

[i] 4Q23 Senior Housing Market Fundamentals, NIC MAP Vision, January 11, 2024, https://info.nicmapvision.com/nic-map-quarterly-market-fundamentals.html