(Bloomberg) -- Bob Curtis, 87, and his wife Sandy sold their home in Nassau County three years ago and forked over $840,000 to move into The Harborside, a Long Island retirement home that was supposed to provide care for the rest of their lives.
Then the facility went bankrupt and an effort 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 - disappear.
The collapse is emblematic of financial stress coursing through an industry that sprouted up to cater to the Baby Boomers, the demographic bulge that by force of sheer numbers has dominated America's cultural and economic life for over half a century. At least 16 continuing care retirement communities, or CCRCs, have filed bankruptcy since 2020 as pandemic restrictions, labor shortages, soaring 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 charge a monthly fee and that offer housing, residential services and unlimited healthcare all at one site -- found that 50% were operating in the red last year.
Under contracts with The Harborside, residents or their heirs are supposed to get as much as 90% of the entrance fee refunded if they move or die. But the contracts can be voided in bankruptcy court, which treats residents as unsecured creditors, pushing them toward the back of the repayment line. The Harborside’s residents could be forced to move and stand to lose as much as $130 million unless a new buyer is found who is willing to take over the residents’ refund 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 for care alone, said Curtis, who fears a move would accelerate her decline. An apartment for himself at 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 weight of full-time care. 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 Seniors Housing & Care. But the finances of CCRCs like The Harborside, particularly those that offer so-called “Type A” contracts, providing housing, meals, social activities, housekeeping and unlimited health services, can be shaky.
The communities rely on a steady stream of entrance fees to pay operating costs, debt service and resident refunds. Disruptions to the flow of new residents —- whether from the pandemic, a recession, or residents’ longevity — can drain cash. Some CCRCs don’t refund entrance fees until another resident moves in.
Almost half of CCRCs surveyed by CARF International, a non-profit organization that accredits health and human services providers, said Type A are their predominant contract. And some 50% of those operating at a single site lost money last year and were dependent on new residents buying in just to stay afloat.
“They spend a bunch of that upfront fee and then they don’t have the cash reserves that they need for the long-term care,” said Jack Barker, a former McKinsey & Co. partner and former principal at the Carlyle Group who has studied CCRC finances. Residents “are taking major league credit risk on those fees and nobody really likes to talk about that.”
To be sure though, CCRCs that have filed bankruptcy are just a fraction of the roughly 1,910 facilities in the US. And it remains rare for residents to be displaced and lose their entire entrance fee in a bankruptcy. In some cases, though, residents have been left with as little as 25 cents on the dollar.
“Ideally, they don’t discharge the obligations to the residents for refundable fees because it’s very hard to attract new residents when that has happened,” said Katherine Pearson, a law professor at Penn State Dickinson Law.
Forty-one states regulate CCRCs, but requirements vary widely. New York is among 17 states that require them to maintain reserve funds. In New York they must maintain a minimum liquid reserve equal to 35% of the total projected operating costs in a given year.
Wall Street takes a risk in financing CCRCs, with bond investors buying high-yield securities used to finance the facilities. More than 5% of the $36 billion municipal bonds issued to finance continuing care retirement communities are in default, according to data compiled by Bloomberg. That’s compared to about a 0.1% average 10-year annual default rate 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 to them, bondholders — as secured creditors — were paid in full after the facility filed bankruptcy in 2020.
The Harborside bondholders, however, 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 debt and T. Rowe Price Group muni funds own another 17%, as of Sept. 30. Matthew Chisum, an Invesco spokesperson and Bill Benintende, a spokesperson for T. Rowe Price both declined to comment.
The Harborside’s March 2023 bankruptcy — as it faced challenges in attracting new residents because of the lingering impact of the pandemic — was its third in a decade.
But Curtis and his neighbors at The Harborside were relieved in December of 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 when due. 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’s Department of Health said LCS’s application was deficient and considered 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 The Harborside’s residents.
“We were so elated that we found somebody,” said Karin Regan, 85, who has lived at The Harborside since 2014. “We couldn’t believe it.”
LCS said it sank $1 million into The Harborside to keep it open while it worked to obtain regulatory approval. The state’s rejection letter on Oct. 3, came three days after its purchase agreement expired.
“We believe what was submitted was permissible, did not violate state law, and at no time asked regulators for any exceptions to law or statue,” said LCS spokesperson Traci McBee in an email. “Had the DOH engaged and communicated earlier, there would have been an opportunity to resolve and discuss alternate approaches.”
Despite the setback, The Harborside’s bankruptcy attorney said at a Nov. 6 hearing that several parties have expressed interest in buying the community. She didn’t name the suitors or disclose terms.
To contact the author of this story:
Martin Z Braun in New York at [email protected]
