Planning policy The delivery of sufficient housing is an ongoing issue, and a hot topic for local and central government. As the UK population ages, the delivery of homes that meet the needs of the retirement community is an increasingly important part of this picture. The structure of real estate funding, taxes and the outdated planning regime all need to play a part in the provision of a more sustainable solution. While some local authorities have implemented detailed planning policies which distinguish between specialist older persons housing and care home accommodation, in other areas there remains a lack of specific planning policy support and uncertainty about whether retirement accommodation falls within Use Class C2, C3, or is sui generis. Dwellings within any of these Use Classes can (potentially) attract an affordable requirement and this will remain a hurdle for retirement sector developers. Finance issues Lenders commonly test against covenants such as debt service cover ratios, debt yield and loan to value. But payment terms for senior living tenants can vary greatly from scheme to scheme with fluctuations in income due to advance payments, standard ongoing payment terms, and/or turnover of residents. Retirement living income is not usually classed as traditional rental income within real estate financing. As a result, break clauses or tenant contributions aren’t relevant when calculating income. EBITDA and operating income are more relevant calculations and due to fluctuating cash flow, lenders may choose to adopt projected or retrospective blended rate over periods of three to 12 months. If a tenant no longer resides at the retirement village, the matter of advanced payments will depend on the payment terms of the retirement village. If a retirement village retains any advanced payment, the borrower will want this to be treated as income rather than as a capital payment. Challenges in the sector 28 Real Estate Investment 2022