Investment in real estate for elderly favorable.Geriatric demographics are on the side of efforts to develop a viable and affordable U.S. health care industry, and potentially these efforts favor investments in real estate that comprise health care and elderly facilities.
Of course, the key development in health care and elderly demographics is that more Americans are living - and will live - to old age. Not all can or want to remain in their own homes and apartments. Many will need specialized care in specialized buildings.
Demographics that I believe are creating the need for more elderly health-care real estate investments include the following:
* In 1985, 22.5 million Americans were 65 and over. By 1990, that portion of the population expanded to 32.5 million.
* Forecasts that the number of people 65 and over will grow at a rate of half million a year for 20 years.
* The number of Americans aged 85 and over will double in the next two decades and the longer we live, the more likely it is that more of us will be afflicted af·flict
tr.v. af·flict·ed, af·flict·ing, af·flicts
To inflict grievous physical or mental suffering on.
[Middle English afflighten, from afflight, with the ills associated with aging. We will look for facilities that will provide care and make us more comfortable.
One of the questions about health and elderly care is how do we pay for these programs? Government plays the major role in financing health care property, but the private financial sector is active in it, too. These private, investment institutions range from U.S. banks to Wall Street and off-shore lenders, and each may offer a different type of loan structure.
A typical nursing home loan today by a bank would consist of a five-year, renewable mortgage with an amortization of 15-25 years priced at 300 to 350 basis points above corresponding Treasuries.
Many off-shore lending institutions Noun 1. lending institution - a financial institution that makes loans
financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in are competitive on nursing home loans, as their interest rate is often based on LIBOR-plus. These loans are written with an interest cap and 15-20 year amortization.
Generally, real estate investment trusts have been asking for 10 percent to 11 percent interest plus a participation. In return, they will offer various loan structures, such as sale-lease-banks and provide 100 percent financing, enabling an investor to own a zero-equity investment.
The process of creating a financial instrument by combining other financial assets and then marketing them to investors.
Mortgage backed securities are a perfect example of securitization.
May also be spelled as "securitisation. as a way of financing pools of nursing home properties Home Properties (NYSE: HME) is a real estate investment trust (REIT) that owns and manages apartments and apartment properties in the Midwest, New England, Mid-Atlantic and Southeast Florida. It manages or owns over 47,000 apartments. is relatively new. Often, these programs are based on a fixed-rate, 70 percent loan-to-value loan with a 10 or 20 year term, and a 20-year amortization schedule. This type of financing would require a 1:50 debt service coverage, and average pricing has been 400 basis points over the rate of a 10-year Treasury.
The construction of most new nursing homes and hospitals today is financed through government bond issues and government insured loans. My own company is an affiliate correspondent for the U.S. Department of Housing and Urban Development (HUD Hud (hd), a pre-Qur'anic prophet of Islam. Hud unsuccessfully exhorted his South Arabian people, the Ad, to worship the One God. ), and we are active participants in this kind of financing. The government loan program through HUD uses the FHA See Federal Housing Administration.
See Federal Housing Administration (FHA). insurance program for construction and permanent loans. The loans then are sold to investors.
The government's ability to influence the development of certain health-care systems in the U.S. is almost overriding because it is such an important factor in the reimbursement of health care costs. The federal government maintains Medicare, which represents about 8 percent of the total income of the nursing home property industry.
The states administer Medicaid for the indigent indigent 1) n. a person so poor and needy that he/she cannot provide the necessities of life (food, clothing, decent shelter) for himself/herself. 2) n. one without sufficient income to afford a lawyer for defense in a criminal case. . This program is partially financed by the federal government. It is the primary health and long-term care long-term care (LTC),
n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. vehicle for the poor, and 43 percent of all nursing home property revenues come from Medicaid.
Some 1 percent of nursing home income is from private insurance, but the number of elderly people who have long-term care insurance has increased 81 percent since 1988, rising to 2.1 million from 1.2 million.
Health care services encompass many types of property. There are, for example:
* Assisted-living properties which usually provide apartment units for active older people who need little care. Rent and services are paid for by the residents.
* Nursing homes, which offer custodial care Custodial Care
Non-medical care that helps individuals with his or her activities of daily living, preparation of special diets and self-administration of medication not requiring constant attention of medical personnel. , both skilled- and intermediate-care services, and also supplement hospital care. Patient payments come from Medicaid, Medicare and veterans' programs, and from savings and private insurance.
As a group, health-care real estate facilities are relatively secure investments. Historically, cash flows have been stable; debt service coverage ratios The debt service coverage ratio (DSCR), or debt service ratio, is the ratio of net operating income to debt payments on a piece of investment real estate. It is a popular benchmark used in the measurement of an income-producing property’s ability to produce have been low; and loan-to-value ratios Loan-to-value ratio (LTV)
The ratio of money borrowed on a property to the property's fair market value. have been high. As a result of these strong financials, they are attracting private institutional mortgage financing, especially from commercial banks and savings banks savings bank, financial institution that, until recently, performed only the following functions: receiving savings deposits of individuals, investing them, and providing a modest return to its depositors in the form of interest. that have departments and/or officers who understand geriatric demographics.