CCRC Entry Fee Model Here to Stay—For Now

Thanks to the Great Recession’s impact on seniors’ net worth, some expect rental continuing care retirement communities (CCRCs) to gain market share in the next few years while others contend the diversity of the baby boomer generation will support the near-term viability of the entry fee model as well. 

“Both will continue to have their places in each individual market,” says Chris Bird, senior vice president of sales at Brookdale Senior Living (NYSE:BKD). While about 80% of the nation’s 1,900 CCRCs are operated by not-for-profit organizations, the remainder are on the for-profit side. Brookdale has around 20 communities that have a Life Care entrance fee model and upwards of 80 campuses that offer a full continuum of care on a rental basis.   

How future demand for entrance fee or rental CCRCs among consumers will be split is “always the big question” investors ask, he says. Currently around 60% of CCRCs charge entrance fees, according to the National Real Estate Investor, while the remaining 40% are rental. 


“As the housing market continues to rebound, entrance fee communities will continue to build occupancy,” Bird predicts. “We’ve noticed younger clientele in their mid-to-late-70s coming onto a couple campuses after recognizing they’d never bought long-term care insurance, and that moving into a [Life Care] entry-fee campus was a much better financial opportunity, based on price, rather than buying a policy at this point.” 

While Life Care contracts can function as an alternative to long-term care insurance, high entrance fees can make it difficult for people to adequately plan their future, says Aaron Conley, president of healthcare real estate development at Greer, S.C.-based Third Act Solutions.

Financial security is a factor, as early boomer households saw their wealth decline 2.8% between 2006 and 2010, according to the National Bureau of Economic Research. 


“The entrance fee model is increasingly harder to make work. Probably a large percentage of the population are going to want to have more control over their assets, and they’re not going to want to just hand over a large sum of cash they may never seen again in their lifetime,” Conley says. “The rental model is a more affordable model to swallow, and going forward I think you’re going to see a proliferation of those types of deals, and very few of the entrance fee model.” 

By and large though, he says, there’s still room in the market for entrance fees—especially considering the huge pool of potential residents among the 78 million boomers. 
Speculation that the entry fee model will become obsolete has been happening on and off for years, says David Ferguson, president of ABHOW (American Baptist Homes of the West), a not-for-profit senior living provider with 11 West Coast CCRCs that charge entrance fees. Unlike Brookdale’s entry fee CCRCs, however, most of ABHOW’s communities have fee-for-service models rather than Life Care contracts. 

“In the 30-some years I’ve been in the business, the entrance fee model has been proclaimed ‘dead’ several times,” Ferguson says. “I liken it to that quote from Mark Twain, ‘The rumors of my demise have been greatly exaggerated.'” 

Despite a somewhat rocky road for a few entry fee CCRCs that opened around the time of the Great Recession, the model is here to stay, according to him. “To me, it’s kind of a Chevy versus Ford conversation. There’s always going to be a certain group drawn to a certain product.” 

Still, post-recession, many CCRCs have had to adjust their business models to keep up with market trends and ensure their own financial security. In 2010-2011, ABHOW introduced a variety of pricing alternatives and incentives in a sixth-month period that produced about 165 sales, while Erickson Living recently announced a change to its refundable entrance fee structure.

Erickson is switching to a 90% refund option for new residents, although existing residents with 100% refundable contracts will not be impacted. Despite a smaller refund, entrance fees are not expected to decrease. 

“We think the 90% plan, with the extra finances going to the community, will really help build the strength of the communities,” says Adam Kane, senior vice president of of corporate affairs at Erickson. 

Portfolio-wide, Erickson communities are averaging an approximately 95% occupancy rate—above the national average occupancy of 89.1%, according to data from the National Investment Center (NIC) for the Seniors Housing & Care Industry—and it’s a sign that the entry fee model is alive and well, according to Kane.

“Given the circumstances we live in, with volatility in the real estate market, CCRCs have performed relatively better than condos—particularly for people looking for stability,” Kane says. 

Similar to ABHOW, Erickson CCRCs have a fee-for-service entrance fee model. Still, CCRCs where residents essentially ‘buy in’ with an entrance fee typically experience longer lengths of stay and lower resident turnover rates, according to the American Seniors Housing Association’s State of Seniors Housing report.

Independent living residents in an entrance fee model CCRC stay a median 91.9 months—nearly double the median 52.3 month stay for rental CCRC independent living residents. Turnover rates are also better among entry fee CCRC assisted living beds, at 43.6%, compared to 56% for rental CCRC assisted living beds, according to the 2012 report. 

“Clearly, [entrance fee CCRCs] are getting a different customer who’s staying longer,” Kane says. “From a business perspective, I don’t have to fill as many units as frequently as a comparable business model does for rental.” 

However, rental CCRCs are an easier sell these days, according to Susannah Myerson, vice president of research and applied strategies at market research firm ProMatura Group, LLC. She’s also the former director of strategic initiatives at Watermark Retirement Communities, which manages a portfolio of more than 30 mostly rental CCRCs. 

“Rental may become more prevalent. You’re not asking people to give up a lump sum,” she says. “Entrance fees aren’t going away—I just don’t think there’s going to be a huge explosion [of new development or interest].”

A la carte models have an added benefit for the “have it my way” generation: choice. 

“Being able to pick and choose is attractive to people, probably especially to boomers,” says Myerson. “I know people entering independent living now, even in their early 80s, who are saying, ‘We don’t want all the services included. We don’t want 30 meals a a week, we don’t want to eat every single day in the dining room.’ They’re wanting to pick and choose what services they want to use, and that will extend to healthcare as well. In the entrance fee model, you’re locked in.” 

Having multiple options available to consumers is what’s important, providers agree. 

“We’ve never felt that seniors are a homogenous group,” says Mike Lanahan, founder and president of Greystone, which develops and manages entry fee model CCRCs in the not-for-profit sector. 

A strength of the CCRC business, Lanahan says, is that residents can find the option that best fits them and their needs.

“The CCRC is not trying to be the end-all, be-all for any senior out there; it responds to a certain senior demographic, the way rental communities respond to a certain demographic,” Lanahan says. “There’s going to be room for rental models and entry fee models. The important thing is to offer choices to the senior population.” 

Written by Alyssa Gerace 

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