My folks just moved into an Erickson property in Houston last week. I went to help and every resident I met spoke enthusiastically and warmly about the facility. There were scads of groups and activities to join. Meals were served in a cafeteria and/or dining room. They get one meal a day and can pay for others or eat in their apartment. they chose this area rather than moving nearer to family because of MD Anderson cancer treatment center for my dad. This approach to aging is fantastic. I want to talk to Erickson (or whoever buys them) about including the disabled community in their living communities. My autistic son needs this sort of oversight. They have a little hanger on the front door of the apartment that someone walks around and flips late in the evening. If when they walk around the next day and it hasn't been dropped back by the door opening then someone checks on you because you haven't been out all day. Independence with support, the exact balance our aging population and disabled population seeks. Now...how do we fund this????

Response to Tchamp: BY the montly fees the seniors have to pay!! My mother in law is in Brooksbys in Danvers MA and pays $1450 a month. That certainly goes to the services you describe. Everyone pays those fees - think of them as condo fees.

My mom is at WindCrest in Colo.Any info on how her bank account and lifestyle are goingto be effected would be most
appreciated.

If services are diminished, monthly fees increased, or she needs more in medical care thanwill be offerred what happens to the deposit? WiindCrest has
many new units that are not occupied. Where can I look
to keep up to date on the situation?

You are missing a huge point here. What may be at issue and I believe is an issue is the financial health of the individual retirement community where the "deposit" is held. (And we know these are not really deposits at all, as you mention in your post above.) I believe in the next few days/weeks, some of the 501(c)(3)s will also file for bankruptcy. Segebrook, for example has well over $100 million in debt and does not have positive cash flow from operations. If they do file, then the contract the resident has with the community is subject to rejection by the debtor.

I will say however, that I believe there may be some protections available to the residents through common law (see National Benevelont case), but the residents are clearly at risk contractually.

You are missing a huge point here. What may be at issue and I believe is an issue is the financial health of the individual retirement community where the "deposit" is held. (And we know these are not really deposits at all, as you mention in your post above.) I believe in the next few days/weeks, some of the 501(c)(3)s will also file for bankruptcy. Segebrook, for example has well over $100 million in debt and does not have positive cash flow from operations. If they do file, then the contract the resident has with the community is subject to rejection by the debtor.

I will say however, that I believe there may be some protections available to the residents through common law (see National Benevelont case), but the residents are clearly at risk contractually.

Thank you for your thorough and informative coverage of this timely occurrence. I am reading carefully anything that I can get my hands on since I am considering a move to an Erickson community in another state.

Unlike other E communities, bonds were not issued for new builds at this place. For this reason, they are telling me there is no way that this facility will go bankrupt or fall into foreclosure. A board member stated that they have a 44 year lease?! I am told that they borrowed money from Erickson corporate for their buildings and are now paying it back.

Do you think there is assurance in these statements? Should one proceed under these contingencies?

drg/ph.d.

Hi Dorothy: The nonprofit Erickson communities usually don't issue bonds until they're well developed, when they use the proceeds from the bonds to buy the communities from the for-profit Erickson arm. This is according to a Ziegler Research report by Michael Schmidt that I have.

In the early stages of development, Erickson's for-profit operation usually obtains construction loans to begin building. At a certain point, when the nonprofit community starts collecting residence fees, that money is loaned to the for-profit wing to continue construction. So the non-profit outfit does assume some risk during development.

I would be careful depending on how new the community is that you're looking at. You didn't mention which community you are interested in. Erickson's established communities are great places, and spots there will continue to be in high demand. But newer residential developments -- whether subdivisions or condo buildings or retirement communities, can be more unstable in shaky economic times.

UPDATE: I should have mentioned this. Last summer Erickson did lose a development in Hilliard, Ohio, to foreclosure. But according to the Wall Street Journal, "Erickson promptly returned residents' deposits."

I just read the bankruptcy filing, and am confused about the status of the communities that are managed by Erickson. My Mom is at Greenspring, which is not specifically listed in the filing. Does this make a difference in potential outcome? Thanks very much for providing this info, I am trying to reassure my Mom while figuring out what the worst case scenario may be here.

Hi Curious. Greenspring and the other Erickson communities are not part of Monday's bankrutpcy filing. They are nonprofit organizations that are, legally at least, separate from the for-profit arm that filed for bankruptcy. Neither does the sale of Erickson's for-profit operation affect the communities directly. The nonprofit communities are not being sold.

Greenspring is an established, fully-built-out community, which means it lacks the development risk of some of the newer ones. Can't promise nothing bad will happen, but from your mom's point of view this week's developments don't look too troubling.

Do you have any information on Ann's Choice in PA. We are considering moving there but would like to know how this bankruptcy affects that property? Should we wait till the court settles the problem next year?

I would like to add that the language used in the bond contract for the Hingham, MA "Linden Ponds" is the same. My father just had his contract reviewed by a real estate lawyer in Boston and luckily, the lawyer caught this language. In hindsight, my father notes that staff turnover seemed high there, and it was disconcerning how unclear the current occupancy rate of the facility is. MOST OBJECTIONABLE to us, and to any prospective resident, is that if one follows the current practices to a logical end, the risk to one's investment seems unacceptable. The Mass. facility has just delayed their big addition. Many units appear unsold. If my 75-year-old father had already lived there for 5 years and was trying to move, it is the company's financial interest to sell a new unit over his owned one. Then, he could lose as much as 60% of his investment based upon how they calculate as 1% of your investment per month for the life of one's occupancy. Combine that with a company in Ch. 11 and I urge prospective residents to look elsewhere.

We are scheduled to "close" on a high-end unit at Brooksby Village in Danvers, MA in seven days. For us this is a substantial portion of our assets. It is our understanding that Brooksby is complete. What kind of risks will be taking if we follow through?

Hi Babs: Brooksby is complete, as you understand, and was bought last year by a nonprofit created solely to own the community. As in other Erickson communities the local nonprofit buys management services from the Erickson parent to run the place. I would ask the Brooksby people what the occupancy rate is. If it's full or close to full that's a good sign. I would ask if there's a waiting list to get in and how long it is. I would query other nearby retirement communities to see how long their waiting lists are. Since you'll eventually be selling your Brooksby apartment to a new buyer, you want to see high local demand. The fact that the property is complete is a plus, because that means Erickson, at least, won't be adding to the local supply. Hope this helps.

how do you say that the refundable deposits are used for corporate purposes?the deposits go to the previous owner that moved or died.the only time that they had use of the money was from the first buyers.please explain

Hi Eugene. The entrance fees of the first wave of buyers get pulled into the Erickson organization for various purposes, including being loaned out to Erickson corporate to build out the community. You're right that, for secondary buyers, the entrance fees are mainly used to pay off the previous owner. However, usually Erickson increases the entrance fees over time, so if it sells a $300,000 space to a new buyer for $350,000, it keeps the extra $50k.

Great reporting!

A 90ish couple I know at Greenspring, having lived there more than six years, is spending down their entrance deposit on round the clock aides supplied by Greenspring at the rate of $15,000 a month, with the promise from Erickson that they will be able to continue recieving the care they now have and stay in their independent living apartment even after their funds are exhausted in six months or so. Under the new circumstances, who is or will be obligated to fund this promise? Anyone? Also, Why does Greenspring have a "Benevolent Care Fund" through which residents are asked to contribute to the well- being of a dozen or so of their fellow residents? Is this a way of Erickson asking residents to pick up part of Erickson's financial obligation under the Residence and Care Agreements?

Excellent information in this blog.

Wyoming Knott has hit upon something. From my experience with the Erickson Communities, there are an increasing number of residents who will not be "profitable" and represent a long-term financial drag on the operation of the not-for-profits. This could be a serious problem down the road as the number of marginal residents reaches an unsustainable level. Efforts to remove these residents will result in legal and PR nightmares for these organizations. The increased longevity of residents will exacerbate the issue. Don't get me wrong; I think that, from a resident’s perspective, the communities are high quality, well run, first-rate residences. In the past, the formula has worked as long as 401Ks and residential real estate values held up. However, the existing business model may have to change since it really amounts to a leveraged play on a future of sustained increases in Boomer (and older) wealth. The real estate bubble enabled the growth of these communities. As with many retirement companies, the developer builds and sells the community and then locks it into long-term management contracts with a management organization. Lots of debt is incurred in the process and the whole game is dependent on continued growth. I assume (in the case of Erickson) that the “entrance” fee is just an interest free loan to the management organization. The real question is the debt load of the not-for-profits (as GMan has indicated). If the management company has somehow saddled the not-for-profits with a large debt load, all bets are off. There could be a battle for the entrance fee money. In addition, will the new owners of the management company change the terms of the management contact? If so, I predict some major price increases to the residents as well as a reduction in services. That said, the communities will still be very desirable but they won’t be quite the deal that they’ve been in the past. They’ve been a great way for middle class folks to get into a fairly luxurious retirement lifestyle with lots of amenities and support. I fear that this may no longer be the case.

I would like to know what will
happen to the $1,000 I paid to
put my name on a list for future consideration? I put this money down on Seabrook Village in New Jersey. Thank you

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/30/AR2009103004219.html

This URL will take you a Washington Post article today, 1/1/1/2009, titled "You're only as secure as the retirement home" . It is not good reading because it does a good job of keeping the ERC/Landowner/NSC/NFP morass separated into neat piles - it does not. Stick with Jay Hancock for help separating the acronyms and abbreviations from one another. But, it does address some very scary scenarios which have occurred in other, never ever Erickson affiliated communities, as well as some that might or might not happen to Erickson NFP communities but have happened to Erickson not-yet-NFP run communities.

For those like my wife and me, the correct way to decide the big "shall we move?" is to not fall in love with the beautiful buildings and fly over walk ways etc. but to ask first "what if?" as in "what if the worse happens? ". Forget how much fun your friends already there are having and consider various scenarios and how much risk each will present to you in terms of financial risk and emotional risk and any other risk you can think up. As you read the Post article, ask yourself what would it mean to us if that happened to us or the community: soon, not so soon, or way out there not at all soon. And, don't forget the kids from whom you thought you would remove the burden of the old folks living in their spare bed room some day.

For depression born, World War II, types like us there is not much that will let us answer the "what if" questions with the kind of answers that make the amenities of Riderwood (our local choice) worth the risks. Certainly not until the Bankruptcy court makes a decision. I prefer to not be cynical, but I am not doing well at all in that area.

Hi Mr Hancock-Iam the OCV Resident who comments in your blog about where the entrance fees are deposited at OCV.In sum,I said they stay with OCV Inc a non-profit corporation. You disagreed and referred my comment to ERC.

Now--

In your October 21st blog Will Erickson changes wipe out resident refunds? , you “blogged”/responded to another commenter on October 23, 2009[6:28PM] about what happens to an increase in an entrance fee.
You said: “The entrance fees of the first wave of buyers get pulled into the Erickson organization for various purposes, including being loaned out to Erickson corporate to build out the community. You're right that, for secondary buyers, the entrance fees are mainly used to pay off the previous owner. However, usually Erickson increases the entrance fees over time, so if it sells a $300,000 space to a new buyer for $350,000, it keeps the extra $50k.

As to an increase, your response is misleading because you lump together what happens in “developing communities” with those like Oak Crest Village Inc, Charlestown, and Riderwood. : Briefly you said “it [Erickson corporate] keeps the extra $50k”.

Not so at OCV Inc, my community. The OCV Finance Officer, also a Regional Finance Officer, told me that the excess $50K is either transferred to the community savings account or used to pay for capital improvements at Oak Crest.OCV Resident

Hi OCV Resident: You're right, my wording was imprecise. I meant merely to make the point that the departing residents do not take the sales proceeds that exceed their entrance fee. On the 2nd reference to "Erickson" I meant to say that the excess proceeds stay with the Erickson organizaiton, broadly defined, including the nonprofit communities. Thanks for the correction. JH

I have sent in a deposit on the facility in Highlands Ranch, Colorado. I am interested to hear how that one facility is affected by the bankruptcy.