New Pricing Models, Unit Mixes Could Gain Favor With More CCRCs

Continuing care retirement communities (CCRCs) are poised to attract a wide swath of older adults over the next decade, but that doesn’t mean there won’t be challenges or changes to the business model along the way.

For CCRCs—which are also commonly known as life plan communities—the near-term and long-term forecasts look good. Tailwinds include a strong economy; a static, 91% average national occupancy rate; rent growth outpacing other kinds of senior housing; and limited new supply in some markets, according to a new CCRC report from commercial real estate services and investment firm CBRE (NYSE: CBG).

Overall, the senior housing type is well-positioned to attract baby boomers as they start to move into retirement communities en masse by the mid-2020s, according to Jeanette Rice, Americas head of multifamily research at CBRE.


“The near-term outlook is good, and the longer term outlook is very good, as well,” Rice told Senior Housing News. “You have demographics that are starting to kick in for senior housing.”

However, the product type will still have to grapple with an evolving pricing structure and a changing care continuum in the future, among other challenges.


Pricing pressures

Though the so-called modern-era of CCRCs first arose more than three decades ago, owners and operators in the space still haven’t quite figured out the best way to charge their residents.

The most common type of CCRC pricing is the “Type A,” or “life care” model, where residents pay an entrance deposit and other mostly static monthly fees to get a practically unlimited amount of care as they age. Usually, at least part of that deposit is reimbursed after a resident moves out or dies. Other pricing models with entrance deposits include “Type B” structures, where residents can pre-pay future assisted living and nursing care costs; and “Type C” structures, where residents pay different fees depending on the services they receive.

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The average entrance fee for CCRCs in the U.S. is $329,900, according to CBRE research and data from the National Investment Center for Seniors Housing & Care (NIC). Nearly two-thirds of the 1,153 CCRCs tracked by NIC use an entrance fee pricing structure.

Despite the prevalence of the type A model, some have argued it is too rigid to support communities with a greater number of higher-acuity residents. And, “one-size-fits-all” pricing can be confusing, or simply unfriendly, for some potential residents and their families.

“The type A contract is more complicated, and in a way it’s a harder sell to seniors,” Rice said. “They’ve owned homes, and they know about renting. But [type A] is just a different concept, and it takes a long time to market that to seniors.”

Meanwhile, some large senior living players are moving away from entrance-fee pricing models. Life Care Services, the largest third-party manager of CCRCs in the U.S., is expanding its rental portfolio at a steady pace. More providers could follow LCS’ lead and similarly focus on rental CCRCs in the years ahead.

“It does look like rental is becoming a bigger part of the landscape,” Rice said.

As baby boomers reach start to retirement age over the next decade, they bring with them a host of preferences that could complicate all of the above pricing models. For instance, some baby boomers prefer a “lock and leave” lifestyle, where they might spend weeks or months away from their communities at a time while traveling. To these residents, monthly fees for dining or programming may prove burdensome. However, for operators, there is no good answer to this problem.

“For these residents that are still traveling a lot, they just don’t want to have to pay for meals and other services if they’re not there for three months a year,” Rice said. “But, if you have a lot of residents with a reduced monthly fee because of that … is that enough to sustain a lot of the ongoing costs for the CCRC? To me, that is a big question.”

That said, while more CCRCs could move toward a rental model, Type A pricing is still “here for the long haul,” she added.

Mixing it up

While many CCRC owners transition from the standard pricing model, some are moving away from the traditional unit mix, as well.

Much of the senior housing industry has experienced moderate overbuilding in recent years, though the same cannot be said for CCRCs. As of the first quarter of this year, 86 CCRCs representing 10,200 units were under construction in the U.S., comprising just 15.8% of the 64,500 total senior housing units in the works, according to CBRE and NIC data.

While CCRCs typically include at least some mix of independent living, assisted living and skilled nursing units, many newer developments heavily favor independent living. For instance, one 510-unit CCRC under construction in San Diego has a unit mix of 78% independent living, 11% assisted living and 10% skilled nursing.

Of the nine CCRC acquisitions tracked by CBRE in the past year, the average unit mix was 37% independent living, 24% assisted living, and 38% nursing care. But there was also significant variation in that data, with independent living comprising between as little as 20% and as much as 63% of total units. Similarly, skilled care mix ranged from 9% to 55% of total units.

Some CCRCs are scaling down their skilled nursing offerings in response to ongoing operational challenges in the skilled nursing landscape. Some operators, such as Wilsonville, Oregon-based Avamere Family of Companies (pictured above), are even doing away with skilled nursing wings entirely, instead relying on assisted living services or partnerships with local health systems to meet residents’ needs as they age. Others still are converting their skilled nursing rooms into short-term rehab units.

Still, skilled nursing is likely to remain a vital part of the CCRC continuum for years to come.

“When it’s done properly, skilled nursing facilities can be a very financially attractive operation,” Rice said. “There are lots of challenges, but they can enhance the financial performance of CCRCs.”

Written by Tim Regan

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