Unable to find new investors, Erickson Retirement Communities announced late Monday afternoon that it is selling the company and, as a condition of the sale, will seek bankruptcy protection in order to restructure its debts. The company, which operates 19 complexes around the country with 23,000 residents, is one of the nation's largest developers of continuing care retirement communities (CCRCs). It said it is being acquired by Redwood Capital Investments, a privately held investment company controlled by Jim Davis, chairman and majority owner of Allegis Group. The companies are based near Baltimore.
[See 7 Tips on Retirement Community Safeguards.] CCRCs have been hurt by the housing and economic downturns, which have sharply curbed the ability of consumers to move into retirement communities. Erickson was further hurt when capital markets dried up due to the credit crisis at Wall Street investment firms and banks.
"Given the nation’s severe economic crisis, Erickson had been in discussions with its lenders in recent months to restructure its debt but, despite good faith negotiations with certain of its creditors, it was unable to reach an out-of-court agreement," the company said in a press release.
As part of the bankruptcy proceedings, the company said community management activities would be separated from the development side of the business. Erickson has maintained that operations in its existing communities were financially sound and that its problems were caused by financial commitments made in developing new communities.
"A separation of the management and development sides of the business means existing and future residents will be better protected from the volatility of the real estate development business," the company said, "and allows for the resumption of building in developing communities as the economy improves."
John C. Erickson, who founded the company in 1983, said he has known Davis for a number of years, and that he "is fully committed to the values and vision of the company and will continue its mission." Terms of the transaction were not announced.