In light of mental health awareness week and the continued effects of the pandemic being prevalent, mental health is in the spotlight more than ever before. The Centre for Medical Health has estimated that an additional 500,000 people will require support for their mental health in the next two years. From a real estate perspective, this inevitably leads to increased demand for residential facilities to provide care and respite to those in need of further support.
A Learning Disability (LD) or Mental Health (MH) Home is a residential care home that provides personal care and accommodation for adults with Learning Difficulties and/or Mental Health conditions. These types of homes are classed as “specialist care” and there is often a range of care provided depending on the residents’ individual needs. Some residents might require minimal care, such as basic personal help and accommodation, whereas another resident may require more constant/involved and as such is best suited to a care facility which offers 24-hour support. This level of care promotes a long-term residency, with the tenants considering the property as their home. Therefore, placing increased importance on an owner’s ability to keep the asset stable and provide continuity in housing potentially vulnerable adults.
The continued growth of LD and MH presents an appealing investment sector for lenders including some of the high street banks. However, lender’s criteria have tightened up over the past year with CQC rated ‘Good’ homes being sought after and, often, a must have criteria for these mainstream lenders. Homes with a ‘requires improvement’ or ‘inadequate’ rating will be considered by more specialist and niche lenders but due to the complexity of the facilities, they will usually expect the borrower to be an experienced operator with a successful track record of turning around said homes. It is important to work closely with experienced Sector Specialists within the banks, who genuinely understand the market to achieve the most competitive loan terms.
There is currently a shortage of beds in MH homes and high demand where many boroughs are under-serviced. The workforce has had little growth over the past 10 years (BMA Report) and the number of mental health cases continue to rise, with 1 in 4 people said to experience mental health problems of some kind each year in England (Mind Charity). Therefore, this type of asset class can often meet a lenders’ social responsibility targets as these homes are a valuable addition to communities and can provide crucial housing for vulnerable adults.
Regarding the availability of finance for potential borrowers in this sector, Lenders are typically looking at 60%-70% Loan to Value against the Open Market Value of the business as a standalone asset. For an existing operator looking to expand their care home business, there could be several avenues open to help maximise their lending ability.
So, what does 2021 look like for this sector? We are expecting to see several operators looking to refinance over the next year and expand their portfolio to meet both existing and anticipated demand. The sector is understandably likely to attract investors given that there is much opportunity here however, they will find that there are often significant barriers to entry due to the high regulatory requirements associated with the Sector. To stand a better chance of entering the market, investors would be wise to identify and onboard a credible and experienced care operator, to ensure that they are able to deliver the high standard of service warranted.
Sirius Property Finance has partnered with Chris Field to lead the debt advisor’s new Specialist Business Finance Team, specialising in the Care and Hospitality sectors.
Chris has more than 28 years’ experience in the finance industry, having previously held roles at a number of high-profile institutions including a corporate debt advisory firm, a specialist city broker, Lombard, Alpha Bank and Barclays.
In his new role as Head of Care & Hospitality, Chris will lead and grow the new Specialist Business Finance Team for Sirius, which includes Emma Vanson who joined the debt advisor in March to specialise in the care and education sectors.
Nicholas Christofi, Co-Founder at Sirius Property Finance, says: “‘Chris is the perfect choice to lead and grow our new Specialist Business Finance Team. His meticulous and transparent approach has made Chris the go-to broker in the hotel and care sectors for SME and corporate borrowers alike. Having won several accolades during his time in the industry, Chris has carved out a remarkable reputation within his extensive network for his knowledge and always going the extra mile for his clients. We believe his expertise within the care and hospitality lending market is second to none and we’re delighted to have him on board to help us to further support these sectors.”
Chris Field, Head of Care & Hospitality at Sirius Property Finance, said: “The hospitality industry has clearly had a tough time and needs funding more than ever, but it is still seen by savvy investors as a great long-term investment that will present many opportunities as the sector recovers. Sirius has recognised the importance of this market and also the niche requirements of the sector. My team and I will bring the necessary core expertise and contacts within the care, education and hospitality markets to support our wider commercial team.”