Experimentation with the traditional form of the housing model is creating more options for developers, owners and consumers.
By Jane Adler
Economists talk about “growing the pie” as a way to boost the nation’s economy and generate more prosperity. That strategy could be a successful recipe for the quickly evolving slice of the industry known as continuing care retirement communities (CCRCs).
The traditional CCRC with its entrance fee model has always been a small part of the senior living market, and critics say the structure is outdated and in need of a total revamp.
The penetration rate — defined as the total inventory of seniors housing divided by the number of age 75-plus households — stood at 10.6 percent in the first quarter of 2017 based on 140 markets tracked by the National Investment Center for Seniors Housing & Care (NIC) headquartered in Annapolis, Md. The penetration rate of CCRCs was 3.4 percent.
Proponents of CCRCs think the model is just fine, and will continue to provide a viable option for well-resourced seniors seeking the security of a community with a variety of housing and care options, including skilled nursing.
But a bigger CCRC market appears to be emerging to satisfy critics and advocates alike, where traditional communities co-exist alongside new, more flexible housing models that also offer a continuum of care.
Developers are experimenting with rental models that provide services to allow residents to age in place. At the same time, traditional CCRC developers are building campuses with lots of amenities and large units to attract a more demanding clientele.
“There’s a lot of conversation about the future of the CCRC model,” says Randy Richardson, president of Vi Living, a Chicago-based company that owns 10 upscale CCRC communities. Nine require entrance fees, while the other is a condominium buy-in model.
Vi exited the rental CCRC business in 2011 with the sale of 10 rental communities. But the company now has a two-track strategy, planning new traditional CCRCs as well as new rental projects that would include independent living, assisted living and memory care, but no skilled nursing on-site. “We are back in the rental business,” says Richardson.
The rental model appeals to different customers than the CCRC, he explains, and Vi plans to tap into that market. Seniors who prefer the rental model are typically in their 80s and single, whereas CCRC residents are younger and include more couples. The Vi rental projects will offer amenities similar to those of CCRCs, but not as elaborate, says Richardson.
By many measures, traditional entrance-fee CCRCs are performing well. The single-family housing market has rebounded nicely from the recession. Longtime homeowners who make the transition to CCRC communities typically rely on proceeds from the sales of their homes to pay the entrance fees that start at about $200,000. Entrance fees act as a kind of insurance policy to help defray costs as the needs of residents increase during the aging process.
Occupancy at CCRCs has improved. At the end of 2010, the occupancy rate for CCRCs in the top 31 markets averaged 88.9 percent. By the end of 2016, the occupancy rate had climbed to 90.5 percent, according to NIC.
“For the most part, CCRCs are in a healthy spot,” says Lisa McCracken, director of senior living research and development at Ziegler, an investment bank based in Chicago.
Even so, the CCRC market is changing and could look quite different 10 years from now.
The pace of ground-up development has declined over time. About 40 nonprofit, ground-up developments have been started since 2010, a slower rate than in the 1980s and 1990s. However, not all of today’s new developments undertaken by nonprofit CCRC sponsors are CCRCs. Some projects are satellite locations of existing CCRCs, or different types of properties altogether, such as rental apartments.
McCracken, who follows the nonprofit CCRC segment closely, attributes the slowdown to several factors. Traditional-style campuses can now take as long as seven years for the developer to acquire the land, presell units and complete construction. Fewer quality locations are available for large projects. And competition for residents has become more intense amid a development wave as for-profit developers open new assisted living, independent living and memory care buildings.
As a result, the nonprofit CCRC segment is changing. Nonprofit operators are growing through affiliation, joining forces to meet changing market demand. And instead of new campuses, the emphasis has shifted to reinvesting in existing communities or building satellite properties near an existing campus.
There were 178 CCRC expansions from 2010 to 2015, according to the 2016 LeadingAge Ziegler 150, a report that tracks the largest nonprofit systems. About 45 percent of campuses offer a rental option.
New name, new model
Nonprofit operators have recognized the need to update the CCRC model. And they figured a good place to start was with the CCRC name — an old-fashioned acronym ill-suited for modern consumers.
The industry launched a campaign in late 2015 to rebrand CCRCs as “life plan communities.” LeadingAge, a Washington, D.C.-based trade group that represents nonprofit senior living communities and service providers, has led the effort. Life plan communities typically offer several different types of contracts, including a life care contract that sets the monthly fee at one rate even if the resident needs a higher level of care.
Individual organizations are taking the rebranding effort further. Cornerstone Affiliates, a nonprofit organization that will officially change its name on June 1 to HumanGood, recently partnered with a design think tank to retool the CCRC concept. The project is called “CCRCs Reimagined.”
“The old business model is tired,” says John Cochrane, president and CEO at Cornerstone, which serves as the umbrella organization for the be.group and ABHOW, two large West Coast nonprofits that affiliated in 2016. Together they own and operate 18 life plan communities, 63 affordable housing properties and a for-profit management company.
Historically, CCRCs or life plan communities have been organized around meeting the basic needs of safety, security and healthcare, notes Cochrane. But the next wave of residents wants more. They want to stay engaged with outside life. “We need to rethink the community, so it can serve as a platform to help them lead purposeful, meaningful lives,” he says.
The “reimagination” project is just getting underway. But Cochrane expects it will touch on all aspects of a community, including design, location, programs, services and pricing. “This is not a superficial rethinking, but a fundamental redesign of what this lifestyle looks like,” he says.
The project will be a multi-year effort, says Dan Hutson, chief strategy officer at Cornerstone/HumanGood, which has offices in Glendale and Pleasanton, Calif. The group plans to refine the concept through the fall, and then make a decision on how and when to introduce a prototype community.
What will it look like? Technology will play a role. Healthcare will probably be accessed and delivered in novel ways. Different business models could run the gamut, ranging from high-cost housing coupled with bundled services to a lower-cost housing model with only light services. “There will be a wider range of variations,” says Hutson.
California-based Big Rock Partners is rolling out a variation of the CCRC concept. The real estate investment firm is developing two new rental CCRCs in Florida. The community in Palm Beach County is set to open this October, and the other in Celebration near Disney World is scheduled to open in March 2018.
Atria Senior Living will manage the development in Palm Beach County, and LCS will manage the community in Celebration. Big Rock has another rental CCRC project underway in Montgomeryville, Pa., near Philadelphia. Each community ranges from 240 to 300 units and includes a mix of independent living, assisted living and memory care. The projects do not offer skilled nursing on site.
“We’re offering consumers the same lifestyle as an entrance fee community for less money,” says Richard Ackerman, managing partner at Big Rock. Today’s 75-year-olds want a retirement community with all the fancy amenities, he says, but they don’t like the big upfront entrance fee. “They don’t want their capital tied up.”
Big Rock’s $100 million project in Palm Beach County, the Villages of Windsor, will feature the latest amenities such as state-of-the-art fitness facilities and modern dining venues. The residents’ apartments will be larger than units typically found in other rental properties.
Though the 22-acre campus provides no skilled nursing unit, residents in independent living will have access to home healthcare and other services. The assisted living building will be staffed with nurses and certified nursing assistants.
Rents for independent living apartments will average about $6,000 a month, similar to the monthly maintenance fee at an entrance-fee CCRC, says Ackerman. His strategy is to develop communities in markets with successful CCRCs that have a waiting list. “If I produce a better product than the CCRC at half the price, I will win every time,” he says.
While Vi plans to launch a rental product with a different brand name that still has to be determined, the company also plans to develop new, traditional CCRC communities. “We are bullish on the model,” says Richardson. “We will pursue projects that make sense.”
Vi recently completed an $85 million renovation of Bentley Village, a 160-acre luxury campus with an 18-hole golf course in Naples, Fla. Two older clubhouses were torn down and replaced with new ones. Seventy-two new apartment units were added.
Prospective residents are seeking bigger units, so most of the new units have at least two bedrooms and two baths. One-bedroom units are about 950 square feet. The average entry fee at the community is $1 million.
Richardson hopes to develop four or five big CCRC/life plan communities over the next 10 years. He thinks CCRCs will continue to appeal to upscale seniors, but successful projects will include lots of amenities similar to those at Bentley Village with its fancy new fitness and activity spaces. The community will look more like a resort than a place for retirees, he says.
The challenge is finding the right location, as well as financing. The Vi projects are valued as high as $250 million, and require funding from several banks. But about half the lenders Vi worked with prior to the recession are no longer in existence. And the banks that do remain have more restrictive lending guidelines and tougher terms, says Richardson.
Stick to the basics
Erickson Living, a CCRC developer and owner, self-finances its projects and continues to expand. Redwood Capital Investments, which owns the company, bought Erickson at auction in 2010 after a bankruptcy in the wake of the housing crisis.
Redwood provides equity for new projects, according to Adam Kane, senior vice president of real estate acquisitions and corporate affairs at Baltimore-based Erickson. A corporate line of credit is available to manage cash flow.
Currently, Erickson owns and operates 20 communities. Occupancy portfolio-wide is 94 percent. Entrance fees, which are 90 percent refundable, range from about $250,000 to $600,000.
In 2016, the company opened a new community, Lantern Hill, in New Providence, N.J. Erickson also added about 500 independent living apartments at several campuses, and opened three new assisted living buildings.
Development work also began in 2016 at Windsor Run, a new CCRC in Matthews, N.C., and Erickson acquired property in Naples, Fla., for a future CCRC. The company plans to add 4,000 units at a cost of more than $1 billion from 2017 to 2021.
“We are aware people say the CCRC model is tired,” says Kane. “But new units are selling.” In fact, the company recorded 2,300 sales, or so-called entrance fee “settlements,” last year. Only one Erickson property offers a life care contract. The others are fee-for-service arrangements where residents pay more for higher levels of care.
Echoing the views of other developers, Kane says consumers are seeking more amenity-filled communities. Like other developers, Erickson is increasing the size of individual apartments. Two-bedroom, two-bath units range from about 1,100 square feet to 1,200 square feet. Interior finishes are high-end, similar to those found in new condominiums or modern multifamily projects.
Assisted living units look more like those for independent residents.
“Residents can transition to different levels of care and not sacrifice quality of life,” says Kane.
To meet consumer needs moving forward, Erickson is focused on three key areas: dining, technology and healthcare.
Different dining venues, such as cafes and bistros, are being added to communities to reflect consumers’ preference for more casual eating spaces. More attention is being given to the quality of the food.
The use of technology is being expanded. Today’s buildings are Wi-Fi-enabled and residents are gaining access to services through their smart phones and other electronic devices.
Healthcare has always been a big selling point at Erickson communities. The company employs its own physicians and offers a Medicare Advantage health plan. “The continuum, coordination and quality of care are increasingly important to our residents and their families,” says Kane. “We think CCRCs will continue to be an attractive product.”