Senior housing projects built over the past three to four years are becoming a significant source of risk in the sector, as many are failing to lease up as projected and now face refinancing challenges with the maturity of their initial bridge loans, according to Nachum Soroka, Vice President of the Healthcare Group at Eastern Union.
Soroka notes that many recently completed developments have not met their expected occupancy targets, and loan extensions are nearing their limits. “You just want to see where lease-up is going on these new constructions, because eventually the shoe will drop,” he says.
The problem is especially severe for projects with high construction costs. Soroka notes that his firm has seen several developments costing $300,000 to $400,000 per unit fail to attract enough tenants, while operating expenses have exceeded projections. As a result, these properties need higher rents to cover their debt service, but raising rents is difficult in a market already oversupplied with new units.
This creates a cycle in which high debt and insufficient occupancy make it nearly impossible to meet the required debt service coverage. Operators are pressured to increase rents, but doing so risks driving away potential tenants. In markets where supply has outpaced demand, struggling properties are often forced to consider asset sales rather than continuing to extend debt and hope for better lease-up performance. “Someone’s going to have to take a haircut,” Soroka says, referring to the likelihood of losses for owners or lenders.
These lease-up problems are coming to a head as bridge loans mature. Many recent projects were financed with short-term loans that assumed quick lease-up and stabilization. Now, as those loans come due, owners must refinance at a time when lenders are tightening underwriting standards and reducing loan proceeds.
Soroka explains that if a loan has matured and lease-up remains weak, the property may be underwater, making refinancing difficult or impossible. This is creating a clear divide in the market: stabilized assets with strong occupancy and operating history can still access capital, while new construction stuck in lease-up struggles to secure refinancing.
Both debt and equity investors are feeling the impact. Lenders face heightened refinancing risk on loans backed by underperforming assets, while equity investors may face negative returns or capital calls if operations deteriorate further. This pressure is prompting more owners to consider selling assets at a loss or pursuing strategic repositioning.
At the root of the crisis is a mismatch between the high costs of construction, rising operating expenses, and the rents achievable in today’s market. Many projects were underwritten when interest rates and material costs were lower, and demand projections were more optimistic. Now, those assumptions no longer hold.
The issue is not confined to specific regions. Soroka points out that while states like Florida and Arizona have traditionally attracted senior housing development, supply has often kept pace with or exceeded demand, limiting rent growth. In some cases, projects in less competitive, lower-cost markets may fare better than those in oversupplied “hot spots.” As Soroka puts it, “The economics may work better if you’re in the middle of Minnesota versus Miami, Florida,” due to less competition and more stable demand.
Eastern Union, which arranges nearly a billion dollars in healthcare real estate financing annually, is working with clients to determine whether to hold and extend debt or sell assets and accept losses. The firm is providing acquisition due diligence and underwriting services to help clients navigate these decisions.
These challenges in new construction are already influencing the outlook for future senior housing development. If lenders and equity investors absorb significant losses on recent projects, they are likely to tighten underwriting standards for new construction, slowing the pipeline of future development.
Soroka says his firm is monitoring lease-up trends as a key factor in their 2026 market outlook. The uncertainty now is whether losses will be recognized gradually through loan extensions and modified terms, or whether a wave of distressed sales will force a more immediate reckoning with construction cost overruns and demand miscalculations.
What is clear, Soroka emphasizes, is that the current approach of extending loans and hoping for improvement cannot last indefinitely. Someone will have to absorb the losses—the only question is who, and when. This reality is already reshaping investment decisions and could have lasting effects on senior housing development in the years ahead.
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