Bank Consolidation Trend Puts Squeeze on Senior Living Lending

A sharp decline in the total number of banks has occurred in the last 20 years, and that is not good news for senior housing.

Although the trend has been steady over a sustained period of time, it has been practically “unseen,” Donald Husi, managing director with the senior housing and care finance team at specialty investment bank Ziegler, told Senior Housing News.

In fact, nearly half of all U.S. banks have been acquired or gone out of business in the last 20 years, according to FDIC data cited in the latest Lender Survey Results report from Ziegler and the National Investment Center for Seniors Housing & Care (NIC).

Between 1934 and 1980, the number of banks held relatively steady at around 13,000 to 14,000. But the number fell to 8,315 as of 2000, and to 4,518 as of 2019.

The Ziegler report includes 12 examples of bank consolidations and financial partnerships that have occurred since 2019.

“You would that would help the available capital, but it has decreased,” Husi observed. “Instead of 12 banks, we have six banks, but in terms of their senior housing and care practice, they’re not doubling in size.”

Banks that were heavily focused on senior housing might find that they have to step back to get in line with what the Office of the Comptroller of the Currency (OCC) views as the right mix of commercial real estate to other commercial and industrial (C&I) lending, Husi observed.

And as institutions like these combine, lending typically is frozen for a year or two, “other than for the best credits and customers,” the Ziegler report states.

Furthermore, credit officers at different banks may have different perspectives on commercial real estate, and these differing perspectives have to be worked out as institutions combine, Husi said.

Even within a single institution there can be different approaches to senior housing lending; of the 10 largest U.S. banks, 4 of them — Chase, U.S. Bank, Santander and Citibank — do not have a dedicated vertical for senior housing, according to the Ziegler report.

“These four leave the credit decisions to local and regional decision makers. Sometimes loans are underwritten by the commercial real estate teams, sometimes by the commercial and industrial (‘C&I’) teams and sometimes by another specialty vertical in the bank (eg. Not-For-Profit) teams,” the report states. “These three teams within banks typically view credit very differently.”

The majority of senior housing and care loans originate from about 115 banks and lending institutions, but that number could become even smaller in the years ahead.

“We think there will be more consolidation, and that will have an impact on pricing,” Husi said.

Capital market activity gradually resumes

At least in the short term, bank consolidation may exacerbate other senior living financing challenges, as the capital markets are gradually ramping up activity after Covid-19.

Still, Husi is seeing more community and regional banks resume activity, as well as internet-based banks such as Ally. And his team at Ziegler continues to grow their part of the business, which is focused on the for-profit sector.

Historically, Ziegler is known for its work on the not-for-profit side, underwriting between $4 billion and $8 billion in bonds every year. But since Husi came on board in 2018, his team has grown from 7 people to 21, while going from 9 completed transactions in 2019 to an anticipated 30-plus this year, totaling $1.1 billion to $1.4 billion. About 40% of the business is in senior living while 60% is in skilled nursing, although the team would like to flip those percentages.

Husi’s goal is to be the preferred banker to providers with 5 to 50 communities. He sees a value-add in being able to leverage Ziegler’s data and research capabilities, as well as his own operational expertise from a background with organizations such as American Retirement Corp., to not only provide financial products but strategic advice. 

“We like to go in and help companies position themselves for growth,” he said.

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