Life-Care or Continuing-Care Communities
(12/31/09)- As a follow-up to our item dated 10/14/09 below, Redwood Capital Investment LLC acquired the assets of the Erickson Retirement Communities, one of the largest senior housing developers in the U.S. for $365 million. Erickson had filed for Chapter 11 bankruptcy protection in October.
The auction for the assets of Erickson took place over an 18-hour period of time, and the winning bid indicates that there is renewed interest in the senior-community market.
Erickson, which is based in Baltimore, has developed and managed 19 community facilities in 11 states that are home to 23,000 seniors. Redwood is a closely held investment company headed by Jim Davis, the co-founder of Allegis Group, a staffing service firm headquartered in Baltimore.
Before the auction, Erickson had announced a preliminary deal to sell itself to Redwood for $105 million in cash and the reinstatement of some debt. A team headed by Kohlberg Kravis Roberts & Co, along with 2 other private equity firms submitted a bid, which forced the auction
(10/14/09)- The National Investment Center for the Seniors Housing & Care Industry estimated that there are now about 330,000 continuing-care units at entrance-fee communities in the U.S., which is about 32% more than existed three years ago.
Financial distress is rearing its ugly head in this area as the recession takes more and more of its toll on older Americans. One of the biggest developers in the comprehensive retirement community business is Erickson Retirement Communities. The company, which vigorously expanded in the good times, now finds itself burdened with debt, and fewer applicants because of the economic times.
Erickson failed to make an interest payment on a $48 million junior corporate loan, and has about $244 million in corporate debt outstanding. Erickson manages 19 "continuing-care retirement communities" around the country. A "continuing care" community offers independent living, assisted living and skilled nursing facilities on the same campus.
The company was founded in 1983, and refunds resident's entrance fees after they pass away or move elsewhere. Residents sigm a "residence and care agreement" when they move in specifying that their deposits are refundable.
The Special Committee on Aging of the U.S. Senate has directed the Government Accountability Office to study the risks facing continuing-care residents and to assess whether the developments are sufficiently regulated.
Erickson lost a Hilliard, Ohio development to foreclosure, but the company promptly returned the residents' deposits.
Continuing-care communities are often sponsored by nonprofit organizations, giving them access to tax-exempt bond financing. Erickson develops the community and then leases them to not-for-profit corporations, which manage them.
(10/23/07)- Back in 1989 New York State authorized the development of life-care or continuing-care communities. The purpose of this type of situation was to cover older people who were not yet ready for assisted living facilities, while on the other hand want to make their living arrangement before such other arrangements would have to be made because of the growing frailty and health of the individuals involved..
The first continuing-care development in Nassau County in New York State will open to residents in about two years. More than three-quarters of the 226 apartments are spoken for. The $282 million project, Amsterdam in Harborside is sponsored by the Amsterdam Nursing Home on the Upper West Side of Manhattan, a nonprofit organization, and co-developed by the Greystone Communities of Irving, Texas, a subsidiary of Sunrise Senior Living.
Residents of these projects will live independently, but contract in advance once they require assisted living and nursing care on the premises. Fully refundable entrance fees for the apartments range from $465,000 to $2.3 million, with monthly fees ranging from $2,400 for a single person in a one-bedroom apartment to $7,500 for a penthouse. These fees cover 30 meals a month, housekeeping, activities and group transportation as well as future health care needs.
New York State has 8 of this type living arrangement operating with a ninth one coming on stream shortly in Buffalo. Five others, including Amsterdam are in the pipeline. Pennsylvania has more than 200 licensed continuing-care communities.
New York recently liberalized its regulations in this area because of how few of these type arrangements were being built. They now have 7 years instead of 3 years to become fully financed. They are now allowed to invest 5% of their assets in stocks. New York recently approved a continuing-care facility in Binghamton that will be the first in the state to allow residents to pay for services only as they need them.
FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home"
Allan Rubin
updated December 31, 2009
e-mail: hrubin12@nyc.rr.com or rubin@brainlink.com