It is amazing what patience, capital, expertise and desire can do to change things around for a few bankrupt entrance-fee CCRCs. We are referring to Sedgebrook in Lincolnshire, Illinois and Monarch Landing in Naperville, Illinois that fell into bankruptcy in 2010 and were sold in an auction process for a combined total of about $39.25 million.

They had been built by the former Erickson Retirement Communities, which itself filed for bankruptcy protection after problems with too much debt and too many new units to fill during the Great Recession, although these two CCRCs were outside the corporate bankruptcy. Monarch Landing was supposed to be built with 1,498 IL units, 84 AL units and 132 skilled nursing beds, but the only units built were 360 IL units, which were 71% sold in 2010. Sedgebrook was planned to have 1,380 IL units, 96 AL units and 132 skilled nursing beds when completed. By 2010, 469 of the IL units were built with an occupancy rate of 87.2%, 44 AL units were open with a 22.7% census and 44 skilled beds at 50%. It was not the industry’s finest hour.

Senior Care Development and Fundamental Advisors purchased the properties at the auction, beating out the new owners of Erickson who most likely saw the same potential value that the winning bidders did. They hired Life Care Services to manage the two communities, built a new 118-unit health center at Monarch Landing, invested about $20 million, mostly from cash flow, across the two communities to spruce them up and worked on stabilizing the census. In addition, both communities had excess land, and the surplus that will not be needed for any future expansions was sold to two different buyers for close to $15 million, according to sources. That alone was about 40% of the original purchase price.

Today, Sedgebrook has an overall occupancy rate of about 92%, while Monarch Landing is 100% full in its IL units, and in the low 90s in the assisted living and skilled nursing center. According to David Reis of Senior Care Development, “it is one of the few times one has been able to buy distressed CCRCs with a distressed bond investor, completely turn them around and then find a long-term capital partner to recapitalize the two properties and let them prosper and grow.”

That partner was Arcapita, an experienced investor in seniors housing properties in the U.S. which is a subsidiary of Bahrain-based Arcapita Bank. Senior Care Development reinvested some of its proceeds from the sale in the recapitalization, and LCS also became an investor in the two communities. And the leverage, we understand, is a relatively conservative 65%. The existing lender on Sedgebrook refinanced its debt, and the new joint venture found a new lender for Monarch Landing.

While the exact price was not disclosed, it was in excess of $100 million. The end result was that the two communities that some people thought might not make it, produced a hefty profit of perhaps $50 million for the original two investors. Not too shabby. And more units may be added in the future. If you know what you are doing, CCRCs still make great investments. Allen McMurtry, Paul Carr and David Kliewer of Cushman & Wakefield represented the sellers in the transaction.