High Profile Bankruptcies Will Change Future of CCRC Financing

Many non-profit continuing care retirement communities (CCRCs) have enjoyed getting 100% financing for their properties in the past, but that could change going forward, according to panelists speaking at SHN’s first annual Senior Housing Summit in July.

LeadingAge, a non-profit advocacy group of senior living providers, says 80% of CCRCs are non-profit, and while most have fared well through the downturn, the dozen or so that have ended up in bankruptcy during the recession have had a significant impact on the market.

In light of this, the future of financing CCRCs for non-profits will require more equity in order for developments to be successful, said David Reis, CEO of Senior Care Development, during the panel.


“Skin in the game is important,” Reis said. “So is the history of the non-profit and the communities it has. If you’re a nonprofit, you need to think very carefully before building a large-scale CCRC.”

Most of the failed projects have had little experience in operating CCRCs and financed the communities with large amounts of tax-exempt debt.

“Then when trouble came, they were the first to hit the exits,” said Reis.


In April, his company purchased the Clare at Water Tower in Chicago at bankruptcy auction for $53.5 million in cash, and is working to turn the project around.

The 750,000-square-foot building entered bankruptcy last year, leaving bondholders with only pennies on the dollar for its debt. The $272 million project was financed with $233 million of debt and ended up as 2011’s largest municipal bond default after the Clare’s sponsor first missed its payment in September that year.

But not all of the CCRCs being built today are experiencing financial distress. Located on the north side of Chicago, The Admiral at the Lake is finishing construction on a 31-story redeveloped community built on the site of the original Admiral, which first opened its doors in 1858.

The first residents moved into the new Admiral at the Lake in July, and 80% of the community’s independent living units are pre-sold, with expectations of reaching 50% occupancy by the beginning of October, said Glenn Brichacek, CEO of The Admiral at the Lake, during the panel.

For some institutions, years of brand recognition and a longstanding reputation can help, but increasingly CCRC projects will be asked to come to the table with something more tangible—their own equity stake.

“One thing that distinguishes us,” said Brichacek, “is when you look at larger CCRCs you see highly leveraged debt projects. When you include both the value of the land and the equity we put in, it was more than $20 million. That’s somewhat reassuring to investors as well as [non-profit partner] Kendal.”

Other non-profits such as Mather Ways have had successful CCRCs in the Chicago area, which seems to indicate there is enough market demand for high-end communities.

Cain Brothers Managing Director Mike Zarriello told SHN that many of the communities developed between 2007 and 2009 are experiencing some form of distress, he says.

“The primary reason for that is the fact that they were done by organizations who funded them with 100% debt,” he says. “That’s not a lot of leeway.”

As the economy heads toward recovery, investors don’t want to replicate that situation, he says.

While non-profit CCRCs have been able to fund development of projects through the tax exempt bond markets, profit-driven companies say getting financing continues to be a challenge.

“At one point, banks were very comfortable lending,” said Gary Smith, chief financial officer of Vi Senior Living. “[Those banks] are either not around anymore or have taken a break from lending, which makes sense given what’s happened.”

Smith does believe that financing will come back, but it will require a higher level of equity investment than it did in the past.

“The interesting thing is, start-ups that are getting done are with some form of equity contribution, [with] a guarantee from the related entity,” says Zarriello. “That’s the difference here—these deals aren’t being done with 100% debt. It gives the lenders a cushion. That’s the primary change that we see.”

Written by Elizabeth Ecker

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