Although the number of continuing care retirement communities that have experienced severe financial distress in the past few years is small compared to the number that have remained stable, it’s piqued the curiosity—and concern—of potential consumers.
There are almost 1,900 CCRCs in the U.S., according to LeadingAge, and since the recession began, only about 1% of them have gone through the bankruptcy process. In all cases, the community remained open and the residents were not forced to relocate.
Additionally, LeadingAge says, the bankruptcies for these communities all had a common denominator: the economic downturn. In most cases, residents did not lose rights to the refunding of their entrance fee or access to any of the services for which they had contracted.
Even though default or bankruptcy situations are generally isolated to one particular community’s individual circumstances, they can impact how other communities are perceived.
“There’s a ripple effect. What happens to one, affects all the others. The kinds of questions that might get raised to that organization will get posed to us,” says Glenn Brichacek, chief financial officer of the Admiral at the Lake, a Chicago CCRC that reopened in July after affiliating with Kendal Corporation and undergoing an extensive redevelopment.
When a distressed CCRC—particularly one that files for Chapter 11 bankruptcy—gets publicized, consumers become curious and a “little bit wary” about CCRCs in general, says Steve Maag, director of residential communities at LeadingAge. “It heightens consumers’ awareness and makes them a little bit more concerned, but it doesn’t necessarily scare them off.”
What it does, though is raise questions in their mind about the financial viability of any community they’re considering, and in response providers have to work harder to explain how their finances work, what their responsibilities are, and what shape they’re in, says Maag.
“Prospects are much more educated and financially savvy,” agrees Mary Leary, president and CEO of Mather LifeWays, which manages two CCRCs in addition to two other senior care communities. “They come in very educated with a list of questions.”
That list of questions can be accompanied by more than just the prospective resident.
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“Our experience has been, they’re not just bringing in a family member to do due diligence, but also professionals like attorneys or financial advisors—and that’s good,” says Brichacek. “We want to be sure that everyone who deals with prospective residents are fully informed, so we can be as transparent as possible.”
Despite the waves that can be caused by a headlining default or bankruptcy, sometimes CCRCs can fall back on their own reputation.
“Our financial strength is probably the cornerstone of our brand,” says Leary. “Beyond that, we’ve needed to build our reputation and differentiate ourselves from the market, because a lot of the CCRCs that are out there are beautiful new communities with wonderful amenities, and it’s tough to figure out how to make yourselves stand out.”
That the Admiral at the Lake is now part of a larger system, The Kendal Corporation, may be reassuring to some. “Kendal has a spotless history in terms of development and operation of communities,” Brichacek says. “It’s not to say that every one of these has gone smoothly—there have been bumps in the road. But what’s important to see is how those bumps are handled, and Kendal has always handled things in a responsible way, and has gained the trust of investors as well as of residents and their family members.”
The Kendal affiliation isn’t a guarantee, he acknowledges, but the depth of the corporation’s experience can not only instill confidence, but it also implies that the Admiral “isn’t in this alone,” because it has the experience and resources of Kendal at its disposal.
From an investor standpoint, the reaction to distressed situations can be much the same as from consumers, although it’s a little more sophisticated, says Maag. “Investors understand financial matters; they know they assume a certain amount of risk,” he says. “They’re a little more realistic and spend more time from a financal standpoint analyzing potential investments.”
At a recent marketing event for the Admiral in Chicago, prospective residents were given a chance to speak with a panel of current residents. Many of the questions that were raised revolved around the security of the CCRC and its viability, Brichacek says, perhaps driven by other CCRCs that have fallen upon rocky times.
“Our response has always been, we certainly hope for the best [for other projects who are struggling financially],” he says. “We try to point out as many positives as we can in each situation and how it’s been handled, because that can provide some extra reassurance.”
Written by Alyssa Gerace