Life plan communities outperform other types of seniors housing amid the pandemic due to an increased focus on choice and long-term residents.
By Jeff Shaw
The 2008 housing market crash, also known as the Great Recession or Global Financial Crisis, hit one segment of seniors housing particularly hard: continuing care retirement communities (CCRCs).
The CCRC, or life plan community, concept is a campus with a full continuum of care — from independent living through skilled nursing — where residents can continue to live at the community as their acuity increases.
The vast majority of CCRCs at the time of the Great Recession required hefty entrance fees, and most residents paid those fees by selling their homes. With home prices tanking, many prospective residents didn’t have the funds to move in.
“People couldn’t sell their homes,” recalls Lana Peck, senior principal with the National Investment Center for Seniors Housing & Care (NIC). “Or, if they could sell, they weren’t getting what they thought they should because [the housing market] was so inflated before the crash. So, they were just waiting.”
The more recent recession caused by the COVID-19 pandemic is a very different animal. Housing prices have soared amid low interest rates and scant supply — quite a different set of factors from the 2008 crash. Home prices rose 12.2 percent from February 2020 to February 2021, according to the Federal Housing Finance Agency House Price Index.
However, CCRCs have not been immune to the effects of COVID-19. The occupancy rate fell from an average of 91.5 percent to 84.3 percent from the first quarter of 2020 to the first quarter of 2021, according to NIC data gathered from 1,208 CCRCs in 140 markets.
Still, in comparison to the other segments of seniors housing, CCRCs greatly outperformed their peers.
“When you compare across the board, the CCRCs definitely fared the best,” says Lisa McCracken, director of senior living research at Ziegler, which specializes in financing for nonprofit CCRCs.
For example, while occupancy at independent living units in CCRCs fell 430 basis points from first-quarter 2020 to first-quarter 2021, independent living occupancy outside of CCRCs decreased 830 basis points. Asking rents rose 1.6 percent in CCRCs but fell 0.6 percent in non-CCRC independent living units.
Taking all those factors into account, Peck predicts that CCRCs will also see a faster recovery from the pandemic than other types of seniors housing. Dan Hermann, CEO and head of investment banking at Ziegler, agrees with that assessment.
“The nonprofit operators, multi-facility systems in particular, are doing well driven by their CCRCs. The occupancy has stayed higher and is going to rebound quicker,” says Hermann. “You’re attracting a younger customer, often a couple. You’re also attracting the planners. You’re attracting folks that have the financial resources.”
The on-the-ground reports reflect the positive numbers. Acts Retirement-Life Communities, a nonprofit operator of 26 CCRCs based in Fort Washington, Pennsylvania, notes that tours and move-ins have continued across its portfolio.
“In many ways, the pandemic has highlighted the value of the essential care, services and engagement we provide seniors and the importance of strong and experienced management teams,” says Lori Woodward, senior vice president of sales and marketing for Acts. “Sales have been impacted, but only slightly. Virtual tours and marketing tactics were effective, and we had many people moving in during the pandemic without personally seeing their unit before moving in.”
“And due to the current very favorable real estate market — which includes low mortgage interest rates, high home values and very fast sale time — those seniors who have chosen to sell their home now have benefited so much more than during the last recession,” concludes Woodward.
Kisco Senior Living, based in Carlsbad, California, owns and operates 22 communities, including two CCRCs. The company reported that occupancy at those two CCRCs stayed flat throughout the pandemic — one at 95 percent and one “in the low 80s.”
“We’ve had our two best months in the company’s history in March and April on net move-ins,” says Andy Kohlberg, founder, president and CEO of Kisco.
New faces embrace CCRCs
Once upon a time, life plan communities were almost exclusively the arena of nonprofit operators that specialized in the niche. However, positive real estate fundamentals have led for-profit companies from other subsectors of seniors housing to dip their toes into the water, such as Kisco.
Private equity firm BRP Senior Housing Management has started building its first CCRC, a 114-unit property on Kiawah Island in South Carolina. The Beverly Hills, California-based company also purchased the 418-unit University Village in Tampa, Florida, out of bankruptcy and has renamed it Unisen. Both are entrance-fee models.
What piqued BRP’s interest in the CCRC segment was the length of stay, according to Richard Ackerman, the company’s CEO.
“There’s a much higher stickiness with the CCRC. You don’t see the swings in the rent roll. People are invested in the project. Even though it’s not legally owned by the residents, the CCRC concept is really built around the residents. They take an ownership to it, so you don’t have the churn that you have with rental seniors housing.”
Ackerman notes that CCRC residents usually move in younger and healthier, as well, and the risk of losing the entrance fee keeps them from moving out. As an example, Unisen has a 100-year-old resident who has been there for nearly 30 years. “You just don’t see that longevity in a rental.”
That length of stay appeals to some residents as well, according to Matthew Anderson, president and CEO of The Osborn, a CCRC in the New York City suburb of Rye. The property features 382 units on 56 acres.
“Many of our residents find it comforting to know they can move to our campus and never have to leave the community — even if their needs change. CCRCs also offer a safe and secure community and wonderful opportunities for life-long learning, wellness and socialization on a beautiful,
campus-like setting, all without the worry of home maintenance.”
Kohlberg says CCRCs allow Kisco to find new customers that may not be interested in their other properties.
“I’ve done focus groups for years, and most people who move into an entrance-fee CCRC would not move into a rental community. We like it as an alternative to a rental because it taps into a different customer base.”
A new level of variety
Perhaps a silver lining to the struggles of CCRCs during the housing crisis was the implementation of new payment options. While entry-fee models are still the lifeblood of the niche, many operators now offer rental options and a wider variety of entrance-fee plans.
For example, The Osborn offers a fully refundable entrance fee (given to the family after the unit is filled), as well as a cheaper entrance fee that is 80 percent refundable. There are also rental and fee-for-service models. “This gives people more options for today and the future,” says Anderson.
The baby boomer generation is driving this change, according to McCracken. Ziegler holds a CFO workshop that devotes an entire section to contract types, she notes, and “there is a lot of conversation around choice.”
“Operators started to understand that they needed to cater to the individual’s different financial needs and wants,” notes Peck of NIC. “We have a new generation of folks coming in that are interested in having more choice.”
Flexibility also opens up CCRCs to the underserved middle-market demographic. The Clare, a luxury high-rise CCRC in Chicago initially required an entrance fee of $1 million — before going bankrupt during the housing crisis and being sold. Ackerman says having a variety of plans allows some entrance fees to now be as low as $50,000.
This flexibility could be the key to the future success of CCRCs, he adds. Early models were too reliant on entrance fees coming in, and developers would take on hundreds of millions of dollars in debt to fund construction. If those entrance fees didn’t come in as planned, there was no way to adjust pricing to meet the market without failing to pay off that debt.
“The biggest detriment to the CCRC structure is its financing, meaning if it’s built with a lot of debt up front and that debt is not paid down in the initial sales period, it could be unsustainable,” says Ackerman. “Unfortunately if you have some kind of economic downturn, market shift or poor management, that debt becomes a millstone around the neck of the CCRC. When you have a rental model, which is almost always private equity and debt, you can restructure, and the rental price goes to the market.”
Kisco, for its part, has one entrance-fee CCRC that it acquired and a rental-model CCRC that it developed. The company has licensing in place on the latter community to introduce entrance fees if they so choose. “We like that flexibility,” says Kohlberg.
“Generally, entrance-fee customers are a little bit younger,” says Kohlberg. “They tend more often to be couples and they tend to be long-term planners. They want certainty and peace of mind well ahead of time.”
“Rental customers tend to be a little older, and want the flexibility of being able to move if their circumstances change,” he continues. “They value the continuum of care, but not as much. They consider themselves more mobile or transient and like the flexibility.”
In addition to the variety of options, CCRCs have another advantage, according to Ziegler’s Hermann. The difficulty of building the massive campuses means very little new supply is on the way.
Ziegler arranged $7 billion in financing for CCRCs over the last two years, notes Hermann, but only 10 percent of that is going into new campus development, with 30 percent going to refinancings and 60 percent designated for expansions and renovations of existing campuses.
“We’re pretty bullish on CCRCs due to the difficulty of developing new,” says Hermann. “We wish there were more new entrance-fee communities, but if they’re not a high rise then they’re on 40 to 50 acres. It’s hard to buy the land, hard to get the entitlements. The scarcity of entrance-fee CCRCs in metro markets is going to make them more desirable.”