Today, there are more than 23.8 million U.S. veterans living among us, with more than half of them aged 60 or older. As these service men and women advance in their years, they are going to increasingly count on healthcare providers to meet their medical and mental health needs. For years, the Department of Veterans Affairs (VA) has offered generous benefits to help veterans pay for and receive such treatment. Now, thanks to a new twist on a little-known VA property development program, those efforts could be aided even further.
In 1991, Congress authorized the VA to lease its own property to help develop facilities, goods and services that benefit veterans. The “enhanced use lease” program, as it is called, has helped the agency complete a host of projects in the intervening years, including office buildings, parking facilities, power plants, homeless shelters, child care and mental health centers, and low-cost senior housing.
Those efforts have proved successful because private developers were able to finance construction and shoulder the risks on their own. But a new assisted living center going up in Viera, Florida, promises to change the nature of the game by significantly reducing development risk, paving the way for more assisted living facilities to be built in the years to come.
Viera Manor Assisted Living Residence, which will open for business next year, combines the VA's EUL program with financing insured by the U.S. Department of Housing and Urban Development. In this, the project will be the first assisted living facility in the country to bring the missions of both agencies under one roof. As part of the agreement, the facility will provide priority consideration for U.S. veterans, in addition to a 10% discount for leasing a room. Plus, veterans who live in the facility will be able to take advantage of the existing VA Outpatient Clinic located right next door.
Financing the transaction through HUD's Section 232 loan insurance program enabled the developer, INVENCO Senior Housing LLC, to obtain a lower interest rate than conventional financing could offer, and at least 15 more years on the loan term. In addition, HUD-insured loans are non-recourse, meaning the developer doesn't bear any liability outside of the equity it invests. Combined with the EUL, which eliminates the cost of land, HUD financing enables developers to generate a tremendous return to investors for a fully stabilized assisted living facility.
Of course, the process is complicated and not for everyone. In addition to filling out a HUD loan application spanning 3,000 pages and reviewing the 100-page lease, the interagency nature of the deal meant that all documents and conditions had to be approved by both HUD and the VA.
But with the first deal behind us, much of the heavy lifting is now done. Given how much land the VA has in its national property portfolio, combined with the need to take care of a significant population of aging veterans, we think the Viera Manor deal could serve as a valuable template for other assisted living developers to emulate across the country. You would be hard-pressed to find a better financing paradigm – or a more deserving customer base.
Laura Saull-Smith is a senior director at Washington-based Love Funding, which secured the financing for Viera Manor. John Goode is a managing member of INVENCO Senior Housing LLC, the project's developer.