Over the past several years, Continuing Care Retirement Communities (“CCRC”) have opened up in increasing numbers throughout the country, and many seniors have bought into the CCRC concept. While CCRCs are a great idea and there are many wonderful CCRCs, as has happened with other businesses in a tanking real estate and credit market, some CCRCs have failed, to the detriment of their residents and the consternation of the industry. I am writing to introduce you to or remind you about the idea and promise of the CCRC, but also to make you aware of some of the risks.
In a CCRC, seniors start out by living on their own in the equivalent of town homes or condominiums until such time as they pass away, or need an assisted living or skilled nursing facility. CCRCs have both assisted living facilities and skilled nursing facilities on site. In other words, when one enters a CCRC, one can be relatively assured that there will be no reason to move out of the CCRC because whatever level of care the resident may need will be available at the CCRC. Many CCRCs are built close to universities. For example, in Thousand Oaks, there is a new, absolutely beautiful CCRC across from California Lutheran University called University Village. I have clients who have moved into University Village, and they are very happy with the accommodations and the services they receive. Although I am sure that no CCRC can please everyone, I have not heard anything bad about University Village.
CCRCs are not cheap. It costs anywhere from the low hundreds of thousands of dollars to nearly seven figures for a senior to buy into a CCRC, plus a monthly fee for amenities like two square full meals a day, and the many activities provided at CCRCs. I do not believe I have seen or heard of a monthly CCRC fee that is less than $2,500, and some are substantially more than that.
Based on the CCRC contracts I have seen, the residents or their survivors will receive a refund of their buy-in at their death, or if they move out of the CCRC for any reason. For example, in one CCRC, the resident gets ninety percent of the buy-in back if they leave in the first year; the refunds go down gradually until after the fifth year, at which time the resident or their survivor would get no more than seventy-five percent back of the buy-in amount.
Before one can move into a CCRC, one must also pass the CCRC’s admission test, which not only is prove your ability to continue to pay the monthly fee. CCRCs also generally want people to be ambulatory and able to live on their own in one of the town home/condominium units, rather than coming in on the assisted living side, at the time the resident moves in.
While the buy in for a CCRC is substantial, the CCRC resident is not actually buying into the real estate. Instead, he/she is making a payment that secures one of the units for the resident at the CCRC. Again, however, title to the real estate is not in the resident’s name, the resident does not own an interest in real estate, and the resident’s buy-in amount is not secured by a lien against the real property.
What many people do not realize is that if you pass away or move out of the CCRC, the CCRC is not contractually obligated to pay you until they resell your spot in the CCRC. In other words, I am not aware of any CCRC that maintains a large cash reserve in order to cash out their departing residents.
Unfortunately, especially with the proliferation of CCRCs and the downturn in the economy, some CCRCs have been struggling. The October 31, 2009 edition of the Washington Post contains an article entitled “You’re Only as Secure as the Retirement Home.” The article recounts a number of incidents where CCRCs or the entities operating them have filed for bankruptcy. It also quotes Senator Herbert Kohl of the Senate’s Special Committee on Aging: “In effect, seniors choosing CCRCs today could be exchanging their assets and income for nothing more than a promise.”
In fact, the Washington Post article mentions one CCRC in Pennsylvania where residents saw their deposits wiped out by virtue of a bankruptcy court ruling. That community had been sponsored by B’Nai B’rith International, a substantial Jewish organization that was founded decades ago. The article did not specify the relationship between B’Nai B’rith International and the CCRC in question, it serves to emphasize that if an organization lends its name to a CCRC, that does not necessarily mean that the organization or its resources and assets will back the CCRC. I am confident that B’nai B’rith is very upset that its name is associated with a failed enterprise that let down senior citizens, but that is of little solace to the residents.
The Post article did not indicate that any CCRC residents had to leave, but it also did not say whether the new operator would allow existing residents to remain in the CCRC so long as they continue to pay the monthly fee. It did recount how in at least one CCRC that filed for bankruptcy, meal service was cut from two meals to one meal per day, activities (i.e. dance and music) were cut, and there was no on site staff to respond to emergency lifeline calls. In another failed CCRC, monthly fees were increased because, according to one of the CCRC’s officials, “There was a business model here that wasn’t sustainable.”
I have had clients who have asked me to assist them in their due diligence in evaluating whether to buy into a CCRC. As I have told them, I am not an auditor, nor do I have any special skills with respect to financial statement review. On my most recent review of information given to my client by University Village, I saw that it has reported that it has nearly paid off its construction loan. And since the company that owns or operates it does apparently not operate numerous CCRCs, but is limited in its exposure, my client felt comfortable buying into University Village even though I was not able to provide them with any great assurances of its continued viability.
The important point to remember is to scrutinize the information and financial statements you get from a CCRC before you decide to buy into it. Realize that no matter how good a financial statement may look, there is an element of risk, as the unfortunate residents of the CCRCs mentioned in the Washington Post article have learned. Consider what you, your parents, your clients, or others you know would and could do if they spent a substantial portion of their estate to buy into a CCRC, and later learn that their deposit is wiped out by the CCRCs financial trouble.
In addition, there has been some publicity about some disagreements between CCRC residents and a CCRC when the CCRC wants to move a resident to a higher level of care, such as from an assisted living facility to the skilled nursing unit, but the resident does not agree with the CCRC’s assessment of their increased needs. That there would be disagreements over this issue is not surprising, since such disagreements occur in families as well. The California legislature has been examining CCRCs in our state, and I will keep you posted on my blog or newsletter if I believe any new developments in the legislative sphere warrant an update. As with all information regarding senior care and affairs, you can find information about CCRCs on the California Advocates for Nursing Home Reform web site (www.canhr.org).
I believe that CCRCs can provide a wonderful alternative for seniors who have sufficient funds to buy into the CCRC and to pay the monthly fees. However, CCRCs are not without their risks, and it is important that you go into a CCRC with an open mind and fully advised of the risks as well as the rewards.