(Bloomberg) — Bob Curtis, 87, and his wife Sandy sold their Nassau County home three years ago and spent more than $840,000 to move to Harborside, a retirement home on Long Island that was supposed to provide care for the rest of their lives. .
The facility then went bankrupt, and an attempt to sell it to new owners was blocked by New York regulators in October. So now, like nearly 200 others who live there, they could see much of their life savings — and their new home — gone.
The decline is emblematic of the financial stress flowing through an industry that sprung up to cater to the Baby Boomers, the demographic swell whose sheer numbers have dominated America's cultural and economic life for more than half a century. At least 16 continuing care retirement communities, or CCRCs, have filed for bankruptcy since 2020 as pandemic restrictions, labor shortages, rising wages and rising supply costs have pushed many to the brink. A recent survey of one type of continuing care retirement community — those that also pay a monthly fee and offer housing, residential services and unlimited health care all in one place — found that 50% yes were operating in the red last year.
Under contracts with The Harborside, residents or their heirs are supposed to be refunded up to 90% of the entry fee if they move or die. But the contracts can be voided in bankruptcy court, which treats residents as unsecured creditors, pushing them toward the bottom of the repayment line. Harborside residents could be forced to move and lose up to $130 million unless a new buyer is found willing to assume the residents' repayment obligations.
“I can't replace what I have here,” Curtis said. A new home for Sandy, who has dementia, would cost between $12,000 and $19,000 a month just for care, said Curtis, who fears a move would hasten her decline. An apartment for himself in a senior community would cost another $8,000.
CCRCs can provide an attractive option for seniors who want to stay in one place while relieving their families of the burden of full-time caregiving. They often include independent living, assisted living, memory care, home care and skilled nursing services, all on the same campus. About 900,000 residents live in CCRCs, also known as life plan communities, according to the National Investment Center for Housing and Senior Care. But the finances of CCRCs like The Harborside, especially those that offer so-called “Type A” contracts, providing housing, meals, social activities, housekeeping and unlimited health services, can be shaky.
Communities rely on a steady stream of entrance fees to pay operating costs, debt service and resident reimbursements. Disruptions in the flow of new residents — whether from a pandemic, a recession, or the longevity of residents — can drain money. Some CCRCs do not refund entry fees until another resident moves out.
Nearly half of CCRCs surveyed by CARF International, a nonprofit organization that accredits health and human service providers, said Type A is their predominant contract. And about 50% of those operating in a single location lost money last year and depended on new residents buying just to stay afloat.
“They spend a bunch of that upfront fee and then they don't have the cash reserves they need for long-term care,” said Jack Barker, a former McKinsey & Co partner and former director at the Carlyle Group who has studied finance. of CCRC. Residents “are taking major league credit risk on those rates and nobody likes to talk about it.”
To be sure, however, the CCRCs that have filed for bankruptcy are only a fraction of the approximately 1,910 facilities in the US. And it remains rare for residents to move and lose their entire entry fee in a bankruptcy. In some cases, however, residents have been left with as little as 25 cents on the dollar.
“Ideally, they don't meet their obligations to residents for refundable fees, because it's very difficult to attract new residents when that's happened,” said Katherine Pearson, a law professor at Penn State Dickinson Law.
Forty-one states regulate CCRCs, but the requirements vary widely. New York is among 17 states that require them to keep reserve funds. In New York they must maintain a minimum liquid reserve equal to 35% of total projected operating costs in a given year.
Wall Street takes a risk in financing CCRCs, with bond investors buying the high-yield securities used to finance the facilities. More than 5% of the $36 billion in municipal bonds issued to finance continuing care retirement communities are in default, according to data compiled by Bloomberg. That compares with a 10-year average annual default rate of about 0.1% for municipal bonds rated by Moody's Ratings.
While residents of Henry Ford Village in Dearborn, Michigan are expected to recover about 25 cents on the dollar owed, bondholders — as secured creditors — were paid in full after the facility filed for bankruptcy in 2020.
However, Harborside bondholders should expect less, according to the bond market. The securities are trading at about 8.5 cents on the dollar. Invesco Ltd. municipal bond funds own about 43% of The Harborside's $168 million in debt and T. Rowe Price Group muni funds own another 17% as of Sept. 30. Matthew Chisum, a spokesman for Invesco, and Bill Benintende, a spokesman for T. Rowe Price both declined to comment.
Harborside's March 2023 bankruptcy — after it faced challenges attracting new residents due to the ongoing impact of the pandemic — was its third in a decade.
But Curtis and his Harborside neighbors were relieved in December 2023 when Des Moines, Iowa-based Life Care Companies won bankruptcy court approval to buy the facility. As part of its purchase, LCS, a for-profit operator, agreed to honor residency agreements and pay refunds to current residents in a timely manner. None of the other bidders offered that provision.
Then, after working for more than a year to get regulatory approvals from New York, in October the state Department of Health said LCS's application was deficient and deemed it “abandoned.” Brooke Navarre, president and CEO of The Harborside, did not respond to phone and email requests for comment.
The state's decision shocked both LCS and residents of The Harborside.
“We were so happy to find someone,” said Karin Regan, 85, who has lived in Harborside since 2014. “We couldn't believe it.”
LCS said it sunk $1 million into The Harborside to keep it open while it worked to get regulatory approval. The state's Oct. 3 rejection letter came three days after the purchase contract expired.
“We believe what was submitted was permissible, did not violate state law, and at no time were regulators asked for any exemptions from the law or the statue,” LCS spokeswoman Traci McBee said in an email. “Had DOH engaged and communicated earlier, there would have been an opportunity to resolve and discuss alternative approaches.”
Despite the setback, Harborside's bankruptcy attorney said at a Nov. 6 hearing that several parties have expressed interest in buying the community. She did not name the applicants or disclose the terms.
To contact the author of this story:
Martin Z Braun in New York at (email protected)