By Navin Dabasia, Debt Finance Director, OakNorth 

Almost every healthcare development conversation I have prioritises one question: what’s the maximum LTC you can do? 

And I understand why. Equity is expensive, construction costs remain high, and reducing your cash-in can make the returns look better on paper. But that question is about day one of a relationship that could last well beyond the development period. 

Because you’re not just choosing a source of capital. You’re choosing who will be sitting opposite you through construction, registration, stabilisation and ongoing trading. 

Why this sector is different 

The demand case for modern, purpose-built care homes is strong. The UK’s pensionable-age population is projected to grow from 12.4 million to 15.3 million by mid-2049, while the 85+ population is expected to more than double. Yet bed numbers have grown by just 2.4% over the past decade, and much of the existing stock is ageing. That gap between demand and supply isn’t closing fast enough, and the schemes that do get built need to work commercially from day one, not just on paper. 

For a lender, that means looking beyond the development itself. The underwriting needs to work through construction and into operation, because the success of one ultimately depends on the other. 

Many lenders tend to focus more on either the development or the operating business, rather than looking at how the two fit together. 

Looking at the whole picture 

At OakNorth, development finance and operating business finance sit within the same team. Therefore, everything from land acquisition through to mature trading is viewed through the lens of continuity and, more importantly, a partnership approach beyond the numbers. 

From day one, we’re thinking about the home as an operating business. Alongside construction risk, we want to understand the staffing model, fee mix, acuity, CQC readiness and what a realistic stabilised home looks like in that location. Even if the strategy of the developer is to sell the home post practical completion, these metrics indicate the value likely to be achieved for the home. 

We also look beyond the model. Track record and sector experience matter, as does how an operator has responded when a previous development hasn’t gone to plan. The numbers are important, but they’re not the whole story. 

When the plan changes 

There are always going to be things you have to deal with during a development, whether that’s a delay, a cost overrun or an issue with a contractor.  

That’s where leverage matters. High leverage on day one leaves less wriggle room if a programme slips or costs rise. A sensible level means you can build in flexibility for the unexpected, and that can be worth more than the equity saved upfront. 

As an experienced development lender, we go into a scheme with our eyes open. We try to understand where those pressures could come from upfront, so if something does happen, we already know the scheme and can work through it with the borrower. We can also draw on our network and sector experience where it makes sense. We saw this on a development where the borrower needed additional funding to complete the build. We introduced them to mezzanine lenders and, through our network, helped open up conversations with a local authority looking for capacity in the area. Together, the additional funding and an agreement to lease the private units gave the borrower a route to complete the development. 

Why the relationship matters 

Working through a difficult period together tends to make the next scheme easier. There’s already an understanding of the business and how each side works, which can make conversations around the next opportunity much more straightforward. More than 80% of our new lending now comes from repeat customers, referrals or our network, and I think that says a lot about the value of those longer-term relationships. 

That experience also builds over time within a sector. In care and later living, we’ve recently provided facilities for Aspire LPP, Chatham Waters Care Home and Chrysalis Homes. Each business and scheme is different, but working across the sector gives us a better understanding of what can affect a development and, importantly, the business that will operate from it. 

That brings me back to the question I’m asked at the start of most conversations. Of course you should ask what leverage is available, but I’d also want to know who I’ll be dealing with in 18 months, what happens if the programme slips and whether the same team will still be involved when the home starts trading. 

Those questions will tell you whether you are speaking to just a lender at the current stage of your scheme, or to a long-term partner who can support and scale with you.