CCRCs Positioning for the Future, Avoiding Pitfalls of Financial Distress

Defaults and bankruptcies by continuing care retirement communities (CCRCs) are the exception and not the norm in the senior living industry, but the ability to avoid financial pitfalls and adapt to consumer demand is crucial in attracting and reassuring prospective residents, executives agree.

Only a small percentage of the industry’s 1,900 CCRCs—about 80% of which are not-for-profit—have encountered severe financial distress, leading to default, debt restructuring, or bankruptcy. However, most of the ones that have belonged to the non-profit sector, and many nonprofit institutions that sponsor CCRCs develop and finance them almost completely with long-term debt.

Mather LifeWays, with four communities in Illinois and Arizona—two of which are CCRCs—follows a different method.


“We’ve approached it with more of a for-profit model,” says its president and CEO Mary Leary. “There are several things we have done differently: We financed our projects with bank construction loans that are repaid within five years, which leaves projects debt-free.”

Additionally, Mather LifeWays is willing to put financial skin in the game. “We have always had that in terms of up-front equity,” Leary says. “We were fortunate in that we were able to offer a non-contingent entrance fee refund, guaranteed within 150 days of move-out. This has really given prospects a great peace of mind.”

Although Chicago has been one of the most troubled housing markets tracked by the National Investment Center (NIC) for the Seniors Housing & Care Industry following the economic downturn, the organization has successfully developed and stabilized a couple new developments in the Chicago area, most recently The Mather in Evanston.


Mather has spent $300 million on developing new communities in the last six years—not exactly the best timeframe considering the economy tanking, says Leary—and has already paid off all but $27 million of those project costs, with expectations to repay the remainder in 2013.

“Mather LifeWays has a very strong balance sheet, which gives people a lot of confidence,” she says. “Unlike a number of not-for-profit CCRCs, our community is structured such that construction debt is paid off within the first few years after the opening of the community, so that the community is debt-free, and residents aren’t responsible for debt service payments.”

Another Illinois CCRC, this one on Chicago’s north side, has a long, 154-year history, a strong industry affiliation, and a mind toward the future.

The Admiral at the Lake recently reopened in July after undergoing an extensive redevelopment and becoming affiliated with Kendal Corporation. The community’s independent living units are already nearly half full, and the community is filling up about six months ahead of schedule, according to Glenn Brichacek, CFO of the Admiral.

There are even more people waiting to move in, he says, but a number of them who have made reservation deposits are still trying to sell their homes, while others don’t want to move in quite yet due to various life circumstances. The community health center, with its assisted living and skilled nursing services, is expected to be open by early next year, Brichacek says, and he’s optimistic about achieving stabilization.

“While the past is no absolute guarantee of what will happen, what has happened to this point is significantly different than those other distressed situations,” says Brichacek, perhaps obliquely referencing the Clare at Water Tower, another CCRC located a few miles south that ended up being sold out of bankruptcy after failing to achieve stable occupancy following its recession-era opening.

The Admiral isn’t just focusing on the occupancy it has already achieved, but also on its future occupancy goals. “Our plans to reach those other benchmarks provides our investors the reassurance they need,” he says. “We can avoid some of the pitfalls of other communities.”

Additionally, the community’s executives have a “responsible plan” for debt financing, he says, which all the investors are aware of. “There are benchmarks we have to achieve, and everybody enters into this with eyes wide open, especially the investors. Some of the investors who bought bonds for our projects had already owned paper in other Kendal projects, and their experience in other situations was very positive.”

Ultimately, an organization’s longevity and viability is also due to its ability to adapt to current trends.

“In my opinion, there are several key reasons for our long survival, and one of those is that our organization has a history of remaking itself. At critical times in the past, the organization has moved from one location to another. In each case, it has remade itself to better position the organization for the future,” says Brichacek.

The Admiral hasn’t stopped at redeveloping its bricks-and-mortar existence, but has also implemented technology and given it a “much bigger and more prominent place within our organization going forward.”

It’s also resident driven. “It always has been, but it’s much more so now, because we believe that’s what people are looking for—at least the types of people that are looking at us,” he says. Although it’s been open for less than half a year, the community’s residents have already organized about 20 different groups and committees covering a wide range of interests, including gardening, transportation, fitness, and life-long learning opportunities.

“The fact we were able to retain as many of our depositors as we did [during development], and were able to achieve 50% occupancy already, and get financing at rates that were more advantageous than what was included in our financial model– we were able to lower the cost of construction over all, finish the project ahead of schedule and under budget,” says Brichacek. “Those are all positive things. Those kinds of things bode very well.”

Written by Alyssa Gerace

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