Senior housing supply constraints create new opportunities for investors

As occupancy rises and new construction remains limited, experienced sponsors have multiple financing options to consider.

Key takeaways

• Senior housing demand is outpacing new supply. Occupancy continues to rise while new construction and inventory growth remain limited, creating opportunities for investors and operators.
• Investment activity is increasing, particularly for high-quality properties. Capital is flowing into the sector, with newer properties helping drive transaction activity and valuations.
• Borrowers have multiple financing options. HUD, Fannie Mae and Freddie Mac offer different solutions depending on property type, sponsor experience and other factors.
• Experienced sponsors may have an advantage. In a specialized, relationship-driven sector, a strong operating track record and existing lender relationships can help borrowers navigate financing options.

The senior housing sector continues to benefit from strong tailwinds. That optimism is showing up across the industry, in conference conversations and in the day-to-day work of industry participants, as market fundamentals align to create real opportunity. According to recent NIC MAP data, senior housing occupancy across the country’s top 99 markets reached 90.1% in the second quarter of 2026, a level not reached since 2007. Despite occupancy gains, however, annual inventory growth lags at just 0.4%.

This gap is explained by a sharp pullback in new supply. Both active construction and new construction starts are trending downward. A May NIC MAP Senior Housing Development Trends article showcases results from a broad view across 140 regional markets surveyed. More than half of all coverage markets currently have no senior housing developments underway, 20% of markets have just one new development in process and less than 10% of markets have four or more active new construction projects.

“The slowdown in new unit deliveries highlights a pronounced, current mismatch in supply and demand. As the sector recovered from the pandemic, occupancy has steadily improved while new construction stayed subdued,” said Logan Daber, Regions Bank Real Estate Capital Markets origination lead specializing in senior housing finance solutions. “Alongside these trends, another important shift emerged: an aging baby boomer cohort with increasing care needs.”

Strong demand meets limited senior housing supply

The supply gap offers opportunities for those active in the sector able and willing to step in and provide solutions. As a result, many new participants are entering senior housing. Capital allocators more focused on other real estate types in years past now feature senior housing prominently in their portfolios. Many owner/operators have initiated enhancements to their senior living communities, changing them to offer additional levels of acuity care, allowing residents to age-in-place as their needs increase over time.

Senior housing investment activity is growing

According to recent NIC MAP Senior Living Investment Trends, investment activity in the sector is increasing; however, that activity is not evenly distributed. Investment transactions have grown for two years in a row, reaching more than $15.6 billion in 2025 while the price-per unit (PPU) has also risen in back-to-back years to reach more than $180,000 per unit nationally. However, capital movement demonstrates a clear preference for newer, high-quality properties, which are driving the acceleration.

Senior housing financing options expand

Lenders have also become increasingly active in the space, but their terms and offerings vary. HUD remains the top choice for permanent financing on existing Skilled Nursing Facilities. Offering 35-year fixed-rate terms, with non-recourse, 80% leverage and a sub-150bps spread, the agency remains competitive. HUD also recently updated its underwriting guidance to allow for more aggressive valuations and loan sizing parameters.

Most notably, HUD increased the amount of Medicaid reimbursement income that can be included in the valuation for loan sizing purposes. Specifically, Quality Incentive Payment Program (QIPP) revenue is now valued using a minimum cap rate of 25% and permitted at up to 30% of the total value, allowing facilities in favorable Medicaid reimbursement states to benefit from increased valuations and higher supportable loan proceeds.

Finally, HUD has continued to refine its “Express Lane” which was rolled out last year as an accelerated loan closing program for certain facilities that meet the criteria (generally sub-70% loan-to-value and 2.00x debt service coverage ratio), allowing borrowers to compress the closing timeline.

Fannie Mae and Freddie Mac offer options for senior housing

Fannie Mae and Freddie Mac continue to be a primary source of financing for senior housing, and both agencies have been increasingly active in the space. Sponsor experience remains the agencies’ top priority when evaluating opportunities, and they’ve been very direct in establishing which property attributes fit squarely in their credit box with the potential to receive favorable terms.

Generally speaking, Fannie Mae and Freddie Mac want to see facilities with at least 80 units and have been avoiding full, standalone memory care facilities. Their minimum loan amount is generally $10 million although they will dip below that for the right collateral and sponsor. For the opportunities that meet this set of criteria, borrowers can expect to achieve up to 65% loan-to-value on assisted living (with a small memory care component) and 70% loan-to-value on full independent living facilities. Typical 10-year fixed rate spreads have ranged from 140-170bps, making the agencies one of the most compelling options from a pricing perspective.

Notably, Fannie Mae and Freddie Mac do not finance skilled nursing facilities, but they remain great options for assisted living, independent living and memory care communities.

Experience and lender relationships still matter

“No matter what loan offering, sponsors who have operated successfully through market cycles and who have existing lender relationships may find greater ease sourcing a loan amidst today’s dynamics. Economic conditions — persistently high interest rates and a flood of new entrants into the sector — mean senior housing lending will remain relationship-driven for the foreseeable future,” said Daber.

“Capital providers understand this sector of real estate is highly specialized, and potentially not as easily mastered as others. Additionally, with the robust set of challenges operators face today — staffing, expenses, insurance, costs and the large population of baby boomers entering senior facilities — experienced sponsors do offer peace-of-mind advantages to lenders.”

Finding the right financing for a senior living facility

Borrowers seeking finance today can benefit from the expertise of a trusted advisor to help with identifying ideal loan options to meet business goals. The Regions Real Estate Capital Markets team is here to help both borrowers nationwide with loan solutions. Explore our loan programs and contact us today for information and support.

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