Offering Options for CCRC Entrance Fee Refunds: Savvy, or Not So Much?

With the economic downturn and housing market decline, more continuing care retirement communities (CCRCs) are offering alternative entrance fee refund options to help attract prospective residents, but while many say it’s good business to do so, not all have adopted this practice.

There’s a clear trend toward communities offering 50% and even 0% refund options in addition to the more traditional 90% or 100% programs, says David Reis, CEO of Harrison, N.Y.-based Senior Care Development, whose affiliated company Chicago Senior Care LLC owns high-end Chicago CCRC the Clare at Water Tower.

“Somewhere in the 2000s, and certainly since the recession, the idea has been to look for lower price points to attract more residents,” he says. “In some communities where you’ve had a lot of distress among CCRCs, it’s easier to go to a prospect with a lower entrance fee, because that’s less money they have at risk.”


At Reis’s communities, developments usually start by offering 90% refunds. Seven or eight years down the road after the community stabilizes, says Reis, it might introduce a 70% plan, and eventually plans that refund 50% or less of the entrance fee.

When Chicago Senior Care bought the Clare out of bankruptcy in April, the community’s average entrance fee was set at about $900,000. Not many of those units were selling, says Reis, contributing to the recently-developed high-rise’s financial distress. 

“The question was, [upon buying the Clare,] how much should the apartment sell for, and what type of plan should we offer to do that?” he says. The luxury CCRC has sold 18 apartments since the beginning of July after repricing many of the units and introducing alternative refund options. While the majority of those sales have been for the 90% plan, the new 50% plan was the second-most chosen option.


That’s because if apartments are priced correctly, says Reis, people will pay the higher entrance fee in return for a bigger refund upon moving out. At some communities, full or 90% entrance fee refund programs are the only ones offered.

“It’s great to offer options, but we’ve been focused on ensuring the financial viability of the community,” says Mary Leary, president and CEO of Evanston, Ill.-based Mather LifeWays, which sponsors two CCRCs in addition to two senior care communities. “If that’s what we’re able to do, it benefits everyone in the long-term.”

Mather LifeWays’ strategy is to build in markets where it’s possible to only offer 90% entrance fee refund programs for the first generation of sales, she says. By developing in markets where prospects can afford to pay the higher entrance fees to get a higher refund, it’s possible to generate more initial proceeds that can allow the early pay-off of long-term debt related to construction costs.  

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Unlike some CCRCs which offer different tiers of entrance fee prices, Leary says her organization has “remained disciplined” in not offering many alternative entrance fees.

“We’ve not wanted to discount prices or offer deals, which we think is a signal to the market that a project might be in trouble,” she says. 

At other communities, though, it’s common to offer several refund options at all stages, including pre-sell, development, lease-up, and even upon stabilization.

“Our motivation is always to achieve high occupancy,” says John Spooner, executive vice president of Texas-based Greystone Communities. He says his company offers a wide variety of refund options for several reasons. “As an industry and as a specific community, we have to have more options to meet the changing financial picture of seniors.”

In Greystone’s mind, says Spooner, offering more options broadens the market to more prospects. Non-traditional entrance fee refund plans can address situations where potential residents are asset or income-constrained or have their assets in a trust. They can also be used for couples who have remarried or who are not married to each other, or for same-sex couples or perhaps neighbors, sisters, or brothers who live together. 

“There’s been greater demand for entrance fee refund options since the recession,” says Spooner. Compared to the traditional high refund plan, Spooner estimates that about 35-40% of Greystone’s move-ins are using some of the company’s alternative 70%, 50%, and 0% plans, which are offered in every Greystone community. 

Communities that do offer alternative pricing and refunds must carefully consider those options in their business models. “These alternate entrance fee options have limits to them,” says Spooner. “You can’t just go and sell all 0% [refund plans] because it’s the lowest price, then wake up at the end and say, ‘Oops, we have a problem.'” 

It’s crucial to protect the entrance fee pool and monitor the financial impact alternate refund structures have in order to maintain the ability to meet financial obligations, he says. “It’s almost like quotas: There can be a handful of 0%, a few more 50%, etc. It all needs to get baked into the financial pro forma at the very beginning.” 

However, these quotas can be very fluid, Spooner continues, and communities have to continually assess where they are in terms of occupancy and the types of plans that have already been sold throughout the development and lease-up process. 

At the end of the day, offering alternative refund options can be a good strategy not just to achieve stabilization, but also to fill them up.

“I think it’s good business, and wise, to offer multiple entrance fee plans,” says Spooner, “whether it’s for broader market acceptance, or to show you’re meeting customers where their finances are, or using entrance fee options to incentivize unit styles or inventory issues you might have.” 

Written by Alyssa Gerace

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