A short walk to a longer life: Part 2, the financing
[Continued from yesterday’s Part 1.]
Yesterday we saw that revitalization of new urbanist cities created a physically safer and intellectually more stimulating environment that is now attracting the urban empty-nesters. As one moves down the income pyramid, the first entrants beyond the purely profit-oriented are non-profits:
Last year, Pacific Retirement Services, a nonprofit organization based in
A strong-infrastructure well-established neighborhood in a culturally diverse and intellectually oriented city — a classic example of need finding market expression. So too are the variations in use, as the CCRC’s now being developed represent a specialized form of property.
As normal neighborhoods maintain a continuum of consumption, configuration, and tenure options among different homes, an extended-occupancy CCRC must make provision for their customers’ aging, and for their customers’ potentially rallying from age. So these CCRC’s build the continuum inside:
The project will have 289 independent-living apartments, 32 assisted-living units, 20 “memory care” suites for people with Alzheimer’s, and 22 skilled-nursing suites.
Got that?
Four flavors of living
Four distinct submarkets in one property. There’s financial and managerial complexity, catering to four distinct populations. This also means complexity in construction:
The developments can be challenging to build. Unlike suburban campuses, high-rise communities are “vertically integrated,” said Paul Donaldson, an architect who worked on the Clare. “You have to integrate the institutional standards into a residential model in an understated manner.” Design requirements include shortening travel distances to elevators and facilitating access to services on different floors.
Then there’s the challenge of sprinkling in non-residential elements:
There will also be a saline swimming pool, four restaurants, an arts studio and a 300-seat theater.
To mixed occupancy, we have just added mixed use.
The Mirabella is a few blocks from a Whole Foods market, the c and the central shopping and entertainment district.
The elderly love young people … in small doses. Having them down the street, not down the hall, is the best of both worlds.
“Today’s buyer doesn’t want to be put out to pasture, where they never see anybody other than someone else who is put out to pasture,” said Paul Riepma, Mirabella’s senior vice president of marketing. “They want to be connected to the energy of the city.”
Plug in to the city’s energy
Meanwhile, developers who in following their clients have created a new combined-use form of property now confront a different problem: the concrete partitions dividing legal, regulatory and subsidy silos:
Although the new communities resemble upscale condominium projects, they are regulated as insurance or health care products, depending on the state in which they are located.
I don’t want to be caught at a disadvantage
The communities must comply with licensing requirements for skilled nursing and residential care facilities. Officials also monitor the communities’ finances to ensure that providers can meet their service obligations.
I can’t understand these finances
Regulation always adds cost. So does uniqueness:
Navigating the residential costs, which vary by institution, is also a complex undertaking. “I always tell people, if you’ve seen one CCRC, you’ve seen one CCRC,” said Lauren Shaham, a spokeswoman for the American Association of Homes and Services for the Aging. “CCRC’s can provide a lot of protection as long as consumers understand what they get up front and what they don’t get.”
New ownership and tenure forms compel the creation of new financial forms. New financial forms always start out disfavoring the customer:
At the Clare, which is on the campus of
$600 a square foot. Very pricy. Note that this isn’t ownership, it’s an “entrance fee.” Really, it’s a security deposit on steroids:
Okay, who’s paid the entrance fee?
Ninety pervent of the Clare entry fee is refundable to the resident’s estate. The fee is also refundable — at the same rate — should a resident choose to move out of the facility.
Endowment-oriented models (which were the prevailing model way back in 1985 when I first looked at this) really disadvantage the customer. It’s all well and good to write in a contract that you’ll get your entrance fee back … but what if the sponsor/ first owner goes bankrupt?
Sponsors sometimes collapse
Many did, and the residents were financially devastated.
Nor is a judicial protection like separate escrowing viable today. Sponsors use this money to build the property. Insisting on a collateralized escrow is legally feasible but economically unavailable — now. (In 10 or 15 years, there will likely be consolidation of ownership, when that kind of financial backstopping will be feasible, but we can anticipate a few high-profile catastrophes before then.)
Once in, residents pay pretty dearly for their comforts:
There is also a $5,000 monthly fee, which covers one meal a day, maid service and utilities.
$3 per square foot per month.
Should either spouse need to move out of the apartment into long-term care, the monthly fee will cover one of the Clare’s 32 private skilled nursing or 15 memory care suites, with supplementary costs for two additional meals a day.
Still, what is wealth if you are not alive and alert to enjoy life?
“Elderly people who have taken a more proactive approach live an awfully lot nicer than people who wait until they have to move,” said [69-year-old Mirabella buyer
Actually, it’s a thrill a minute.
“Downtown is where the fun is at.”
Downtown when it’s safe. A healthy community is a precondition to a returning affluent elderly.
Indeed, the urbanization of the senior living market is redefining both cities and the people who move there.
The ecosystem constantly modifies itself.
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