Erickson's Bankruptcy and the Future of CCRCs

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Lots of buzz about the Oct. 20 Chapter 11 bankruptcy and sale of Erickson Retirement Communities, one of the nation's premier developers of Continuing Care Retirement Communites. CCRCs are campus-like settings that promise lifetime care for seniors, from independent living to assisted living to nursing home care.

These facilities operate on several different business models but Erickson, like many others, requires a hefty, refundable, entrance fee (often hundreds of thousands of dollars). Residents also pay an additional monthly fee depending on their level of need. For instance, an independent living apartment may run $2,000 per month, while a nursing facility stay may cost $300 per day.

In the Erickson model, the entrance fees are fully refundable but only after a resident leaves their apartment and it has been reoccupied. Residents never own their units, but are instead buying lifetime access to the comunity's services. The fees serve as, in effect, an interest-free loan to the operator. Erickson Communities has 23,000 residents in 19 states. 

CCRCs have been under tremendous pressure in the current economic downturn. Their business model relies on new residents selling their homes and using the proceeds to the pay their entrance fees. With the collapse of the real estate market, fewer upper middle-class seniors have been able to sell. At the same time, highly-leveraged CCRC operators are being squeezed by impatient lenders. According to Erickson's bankruptcy filing, available here, the firm was driven into Chapter 11 by its bankers.

The consequences to residents are unclear. Erickson says their entrance fees are safe, but what happens if a current occupant dies or moves and a new resident is allowed to move in with a lower entry fee? Jay Hancock at The Baltimore Sun takes a good look at this issue. So does the Wall Street Journal's Anton Troianovski.

These problems highlight the complexity of resident agreements with CCRCs, arrangements many seniors simply do not understand. I am also concerned with the quality of care and services residents will receive as operators of these facilities face growing financial pressures. This is especially important for those living in the assisted and nursing facilities in the communities. 

The Erickson bankruptcy is likely to accelerate questions that lawmakers have been asking  about CCRCs. The U.S. Senate Aging committee has been investigating the business model for the past several months, and is likely to hold hearings on CCRCs sometime next year. 

   

 

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This page contains a single entry by Howard Gleckman published on October 26, 2009 9:41 AM.

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