Multifamily lending giant branches out

Arbor aims to become top 10 player in HUD LEAN financing.

A heavyweight in the multifamily financing arena is branching out into the seniors housing and healthcare sector with the intent of becoming a major player. Arbor Commercial Funding, a subsidiary of Arbor Commercial Mortgage, is a perennial top 10 Fannie Mae DUS (Delegated Underwriting and Servicing) lender in the apartment sector, ranking No. 8 in 2012 based on annual loan production. 

Building on that success, Uniondale, N.Y.-based Arbor Commercial Mortgage recently formed the FHA LEAN Seniors Housing & Healthcare Financing Group, led by professionals with vast experience in seniors housing financing. The 23rd NIC National Conference that took place in Chicago in October 2013 marked the official kickoff for the lending group.

“This is a brand new venture for Arbor as a response to what we perceive to be a significant business opportunity in financing within the seniors housing and healthcare sector,” says Matthew Carey, vice president of FHA lending for Arbor. “It’s really a natural extension of our longstanding success in the multifamily sector.”

Carey, who is based in Arbor’s Cleveland office, emphasizes that seniors housing and healthcare finance will remain a core business for Arbor going forward. “We’ve utilized the past few months to build the infrastructure for the underwriting group. We are primed to take on this new venture."

In his role as vice president of FHA Lending, Carey oversees Arbor’s FHA Multifamily Accelerated Processing (MAP) and LEAN (seniors housing/healthcare) loan production, including the coordination of its underwriting strategy. “The key in the seniors housing and healthcare finance business is to be diverse, and above all be able to execute quickly on the underwriting side,” emphasizes Carey.

Eligible property types in HUD’s Section 232 LEAN program include skilled nursing and rehabilitation centers, long-term care facilities, assisted living and Alzheimer’s care/memory care facilities. The program enables qualified borrowers to refinance or acquire facilities, and it provides funds for new construction and facility expansion.

High demand for HUD loans

HUD loans are highly attractive for borrowers because they obtain non-recourse, fixed-rate debt for up to 35 years for refinancing and 40 years for new construction. Borrowers can also get up to 80 percent loan to value, which is relatively high in today’s market. Closing costs are also financeable up to 80 percent loan to value.

Since its inception in 2008, the HUD LEAN mortgage program has increased production each year, Carey points out. Indeed, the HUD LEAN program set a new record for the fiscal year ending Sept. 30, 2013 with $5.8 billion of loan volume, beating the previous record set the prior year by more than 6 percent. 

“Historically, it’s been one of the least expensive long-term capital solutions for owner/operators,” says Carey. “Arbor believes the HUD LEAN program will continue to be a viable product going forward. It certainly has been in the spotlight since 2007 and 2008 when capital dried up for a period of time.”

Lancaster Pollard generated the largest volume of activity in fiscal 2013 in the HUD LEAN program with 118 closed loans in 25 states totaling $811.7 million, or 13.9 percent of total program volume. Arbor is built to become one of the top 10 lenders in that space, Carey believes. The 10th largest in fiscal 2013 was Beech Street Capital, which closed 24 loans totaling $167.3 million.

Before joining Arbor approximately a year ago, Carey held the position of senior FHA underwriter and then FHA deputy chief underwriter at KeyBank Real Estate Capital. Prior to that, he served as MAP underwriter for Love Funding Corp. “I cut my teeth at Love Funding in FHA. I started in healthcare right away, and I was fortunate enough to prove myself very early there.”

Carey has more than 10 years of experience in commercial lending and underwriting, and he holds both the LEAN (healthcare) and MAP (multifamily) HUD designations, qualifying him to submit applications to HUD for all FHA property types and programs. He has underwritten and submitted more than $200 million in LEAN and MAP applications and has closed more than $100 million since 2009. 

Value proposition

How does Arbor plan to distinguish itself in the marketplace? “Our healthcare team has 40-plus years of experience. In particular, we have a tremendous amount of LEAN experience,” says Carey. “When we get a deal, we look at it, we screen it, and we can say whether the deal is going to get done or not with a degree of certainty.”

The seasoned team includes Jack Boudler, who in July 2013 was appointed vice president of the seniors housing and healthcare organization at Arbor.

Boudler has focused on seniors housing and healthcare finance for most of his 26-year career in finance and mortgage banking. Before joining Arbor, Boudler was a permanent loan originator and senior vice president and senior banker with KeyBank Real Estate Capital for more than 18 years and was responsible for sourcing and originating healthcare and seniors housing loans. 

Jenifer Williams, FHA senior underwriter at Arbor, has more than 12 years of experience in the seniors and healthcare industry and is based in the firm’s Dallas office. Williams has successfully underwritten and managed more than $100 million of seniors and healthcare transactions under HUD’s LEAN program since 2010, and she holds the LEAN designation. Before entering the seniors/healthcare underwriting field, she spent nine years appraising healthcare properties for acquisitions and mergers, as well as conventional, FHA and Fannie Mae financing.

With skilled nursing facilities aging rapidly — many were built in the 1970s — Williams anticipates the industry will increasingly focus on replacement facilities within the next five years. “A lot of owners have renovated the properties to the point they can, but there are just some things that aren’t able to be fixed through renovation. They are going to start looking to do replacement facilities,” says Williams. “HUD will finance some of those replacement facilities, and conventional lenders will finance some. That’s the trend I expect to see.”