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Who Will Fund Housing For Seniors In The ‘Forgotten Middle’?

A frightening new twist to the affordable housing crisis is bearing down on one of the nation’s most vulnerable populations: seniors. A growing number of seniors find themselves in the “forgotten middle,” or renters who can’t afford market-rate apartments but who don’t qualify for low-income housing. 


The problem could get worse. Without the promise of high-end returns or the aid of Low-Income Housing Tax Credits, developers currently may not have much incentive to start building this sort of housing.

“Is this a crisis? I certainly think so,” said Lee Delaveris, vice president of seniors housing and healthcare at KeyBank Real Estate Capital. “The growing number of middle-income seniors has to be top of mind for governments and of course for the real estate industry.”

Where did the “forgotten middle” come from?

More than half of new renters are over the age of 50, and around a fifth are over the age of 65. Many of these seniors were hit hard by the Great Recession and are turning to rentals because they have lost retirement savings, cannot keep up with mortgage payments or took on debt to fund their children’s education and careers, according to Al Beaumariage, KeyBank Real Estate Capital’s affordable housing program manager.

Many of these renters are debt-burdened — they spend 30% or more of their income on housing — but they may not qualify for low-income housing. While developers have established strategies for both high-end and affordable senior housing, there is no clear path forward for the demographic in between.

“The middle is an economic problem,” Beaumariage said. “At market-rate retirement communities, developers can make a nice income, and they can lock in the developer fee from tax credits if they do affordable. But in the middle, they’re wondering, ‘Where do I get the return?’ That’s the doughnut hole.” 

Can lenders solve two crises at once?

With the over-85 population expected to triple by 2050, housing isn’t the only crisis at hand. All those seniors will place unprecedented strain on the nation’s healthcare system, according to Joe Mulligan, managing director of Cain Brothers, a division of KeyBanc Capital Markets that specializes in capital strategies in the healthcare industry. 

There may be an opportunity to solve both of these crises at once, by creating new partnerships between real estate and healthcare companies. Over the last two years, Key has been working with housing developers, healthcare and managed care companies and local officials to help build a coalition to solve the impending senior housing crunch. 

“The biggest problem right now is that there’s no funding programs out there,” Mulligan said. “The industry needs to fuse new funding programs from the payers with new capital sources and structures from capital providers, which is exactly what we’re putting together.”


A new capital stack

Simply showing developers that there is a viable capital stack for these sorts of projects is already making a large difference, he said. KeyBank, which offers loan products through Fannie, Freddie and the Federal Housing Administration, financing from its own balance sheet, as well as bond underwriting expertise via its investment bank, is uniquely positioned to deliver an array of customized solutions that these projects will require.

Key’s commercial real estate and capital markets teams have helped coordinate and fund projects around the country to build housing for financially vulnerable seniors. Mulligan pointed to a project recently funded in Indiana that utilized nonrated bonds, Low-Income Housing Tax Credits and assisted living Medicaid waivers as an example of a successful solution that holds great promise for the future in other markets.

“There is a tendency to try to mold the project to fit a certain financing structure,” Mulligan said. “Our view is different. We work to understand the nuances of the market and the goals of the developer or sponsor and then deliver a tailored strategy and product mix for the project, which is paramount to creating the best end result.”

The path forward

While he was excited about the progress that KeyBank had made so far, Delaveris said that there is an immense amount of work still to be done to accommodate seniors for whom both market-rate and low-income housing are out of reach. Ultimately, it will take both payment reform and funding reform.

What could jump-start these kinds of projects, Beaumariage said, would be a federal or state incentive program to support housing at a higher price point and with higher resident income qualification thresholds than current affordable housing efforts. However, that sort of legislation is not currently being discussed anywhere, although Beaumariage and Delaveris said the proposed expansion of the Low-Income Housing Tax Credit program could provide at least some relief to the forgotten middle. 

Without intervention, lenders and developers may be stuck waiting for the invisible hand to take over, as the crisis of the forgotten middle becomes more acute. 

“Demand could take over,” Delaveris said. “At some point developers may just have no choice but to start paying attention to the seniors in the middle.”

This feature was produced in collaboration between Bisnow Branded Content and KeyBank Real Estate Capital. Bisnow news staff was not involved in the production of this content.