Even though retirement home construction loan financing is quite common these days, especially with the growing demand for this type of housing, construction financing can be difficult to arrange.
While higher ratio institutionally insured mortgages backed by CMHC are possible to obtain, many projects struggle to qualify for the level of funding that’s required.
The main reason for this is the challenges the project faces with satisfying the repayment assessment and post construction valuation of the construction mortgage lender and/or the mortgage insurance provider.
Retirement homes are valued for financing based on the estimated market value at the point of completion. Because the market valuation is dependent on the revenue producing ability of these types of assets, it becomes more difficult to establish value with no historical financial performance available.
In many situations, a newly constructed retirement home will not fill up the available occupancy for one or two or more years, potentially providing a cash flow shortage for debt servicing a large mortgage that was used to build the facility in the first place.
The key to getting the largest potential retirement home construction loan is by having a large percentage of units presold or committed (depending on the business model) at the beginning of construction so that the revenue projections can reflect stronger year one cash flows that are supported by solid commitments to occupy or own.
This is not an easy task to accomplish but one that is becoming more and more of an issue with retirement home construction projects. Unless you have an alternative source of revenue that you can pledge towards the debt servicing of the project, it may be difficult to qualify for the retirement home construction financing required unless the unit or occupany marketing is mostly completed prior to the project commencing.
There are private mortgage construction financing options for these projects as well, but they are going to also rely on the repayment strategy of the construction loan and will be more focused on the geography of the project, favoring those projects in more densely populated areas.
If you require a retirement home construction loan I suggest that you give me a call so I can quickly assess your requirements and provide relevant construction financing options for your consideration.