February 25, 2013

For long-term care operators, safe bets can be anything but

John O'Connor

If there's one thing long-term care operators contemplating the coming years should know by now, it's this: There are no guarantees.

That's worth keeping in mind as various can't-miss strategies that ensure future success are being pitched your way. Not saying the new ideas are bad or won't work. It's just that many of them may not deliver as promised.

From hoteliers who underestimated the “care” part of senior living to developers who did the same, many wishful thinkers have had to watch their plans for success fail in a big way. In fact, the nation's landscape is dotted with well-intended senior living projects that now serve a modified or different purpose.

It was less than half a decade ago that continuing care retirement communities seemed like a can't-miss opportunity: Entry fees would cover many of the start-up costs, residents could be transitioned into higher acuity (and increasingly, higher pay settings), and happy residents would be a powerful recruitment tool.

Fast forward to 2013: Thanks to the Great Recession, a related housing market crash, and governing boards that got over their skis, a growing number of CCRCs are doing what seemed impossible: failing.

Just this week, a CCRC in James City, VA, announced it will seek bankruptcy protection. By reorganizing under Chapter 11, WindsorMeade hopes to reorganize in a way that reimburses its debt holders.

Of course, that's small potatoes compared to the Clare at Water Tower property in Chicago. There, an affiliate defaulted on more than $229 million in debt. Less spectacularly, Clare Oaks, a retirement community in Bartlett, IL, just emerged from Chapter 11 bankruptcy protection. This came after a more than a yearlong recapitalization and restructuring process.

In retrospect, it's easy to see that these and other failed projects had one key flaw in common — they expected to collect money that never materialized.

Many operators now find themselves in an uncomfortable situation. Their current business model is flailing, or soon will be. Yet the available options are not so easy to assess.

I don't have the insight or acumen to say what path is the best. So I'll just pass along some of Mom's advice: If it looks too good to be true, it probably is.