The distressed housing market, this fall's precipitous drop in securities prices, and a deepening recession threaten to turn the storm hitting retirement housing into a hurricane. Across the spectrum of senior housing—life-care communities, assisted living facilities, and nursing homes—people at all levels of income are dealing with funding challenges.
Primary residences are the greatest source of wealth for most retirees, and the sale of those homes is the most common way to generate retirement-community entrance fees, which range from $100,000 at the low end, upwards of $500,000 and much more at the highest-end communities.
Income from pensions and investments is a major source of monthly maintenance payments across the spectrum of senior housing. Financial support from children and other family members often enables retirement home occupants to make ends meet.
All sources are now being sharply compromised. And while it's too early to see the full effect of the impact, it's clear it will be extensive.
Medicaid-reliant facilities are already looking at funding pressures as state budgets plunge. And the National Governors Association has asked the federal government to include enhanced medical assistance support in its next economic stimulus package.
Approximately 3.8 million seniors reside in some type of aging services facility, according to the American Association of Homes and Services for the Aging. They live in roughly 17,000 nursing homes, 39,500 assisted-living facilities, 2,250 continuing care retirement communities, and other senior housing units.
"First, it started with the housing and that was bad enough," says David Brewer, director of sales for ACTS Retirement-Life Communities, which has 19 facilities in six states, mostly in the South. "More recently, the October massacre in the stock market has impacted us even more. . . . How do we qualify someone (for residency) whose portfolio just took a 40 percent drop?"
Still, Brewer and executives with other retirement communities who were interviewed say that occupancy rates have been stable over the past two years, in no small part because of extensive programs that many communities have developed to assist potential residents.
Tom Neubauer is executive vice president for sales with Erickson Retirement Communities, which has about 22,000 residents in its nearly two dozen continuing care retirement communities (CCRC). For Erickson, tough economic times for the auto industry three years ago turned its Detroit-area operations into an early warning system for the economic stresses that would affect many of its other markets.
A pilot effort there to help people deal with a slow and declining housing market was later expanded companywide into Erickson Realty & Moving Services.
"We become the advocate for the prospective resident," Neubauer says, offering services that include a personal moving consultant. "We handle the transition literally from their front door to our front door . . ." The company screens area Realtors to identify those with success in the prospect's neighborhood. The program also offers assistance in staging the home for sale, services to help the prospect downsize his or her household and then help with the actual move.
"We've been able to help engender confidence that you can be successful even in these turbulent times," he says.
Most other CCRCs began or expanded similar real estate support programs, particularly in Florida and markets hit with steep declines in housing prices and sales activity.
"We started probably about a year and half ago, when the real estate market started to slow down in this area," says Colleen Ryan Mallon, marketing director for Goodwin House, which has two high-rise CCRCs in Northern Virginia. "We were really lucky for a long time," she says, wistfully noting that prior to that slowdown, it wasn't uncommon for residents to agree to move into a Goodwin facility and then find a buyer for their house three days later.
Now, she advises potential residents to think in six-month time frames, if not longer. Goodwin began working with local banks to provide bridge financing, allowing residents to move into a Goodwin facility even though their home had not yet sold. And it has worked with a local Realtor to lead educational sessions for prospects on the tough realities of selling a home today.
"We're working very hard to hold their hands," she says.
Today, tightness in bank credit has sharply reduced the percentage of a home's appraised value that a lender will extend credit on. Financial problems are also affecting more of Goodwin's current residents, but the nonprofit's foundation has been able to step up and provide needed assistance. "This year, we're seeing more people who need help."
At ACTS campuses, Brewer says, real estate problems "really hit hard toward the end of last year and this year...A lot of people are even afraid to put their houses on the market" these days.
ACTS has a range of support programs, including sales incentives to Realtors and a relocation package that is funded by an entrance fee reduction. "We will give you up to $25,000 off of your entrance fee, and you go ahead and spend it however you feel you need to, to sell your house."
ACTS may also reduce entrance fees on its units, he says, offering a three-bedroom apartment for the price of a two-bedroom apartment, or a two-bedroom at a one-bedroom price.
Programs offered at other communities include long extensions for entrance fee payments, subsidies for interest payments on home equity loans, and even short-term bridge financing directly, with at least one community offering such loans with no interest charge. Another home offers to waive 75 percent of its entrance fee for up to four years or until the new resident's primary home is sold. These examples were provided by the senior living finance arm of Ziegler Capital Markets, which is the dominant provider of development financing to CCRCs.
Kathryn L. Brod, senior vice president and director of senior living research for Ziegler, says there are signs of a slowdown of new residents moving into retirement communities. "We ask this question constantly among our senior living borrowers, and we have learned that increasingly they are feeling the impact of the housing market." However, she notes, half of the communities Ziegler works with have not been affected.
Most communities are also waiting to see whether people who have reserved units under development will honor their commitments. "There are a number of new communities in the planning stage that are certainly slowed a bit by the current financial markets," Brod says, "but they are not seen as on indefinite hold. Most have simply adjusted their financing schedules, reworked their financials with adjusted interest rates, value-engineered as a result, and are full steam ahead."