In case you haven’t noticed, there has been an ad for the past several weeks on these pages for the sale of a large CCRC in Michigan. When we say large, we mean 852 IL units, 96 AL/MC units and 89 skilled nursing beds. The community was substantially constructed between 1993 and 1998 and sits on 35 acres. This is Erickson Living big, and that is because the original Erickson Retirement was the developer and manager back in the 1990s.
The CCRC, known as Henry Ford Village, filed for Chapter 11 bankruptcy protection in October 2020. The reason, we assume, was the low occupancy. The IL units as of November were at 69.0% and the healthcare units combined were at 66.2%. We do not know how much of this was COVID-related or other problems, because most CCRCs have outperformed the rest of the senior care market with regard to census during the pandemic. But we believe it was a combination of COVID and previous census difficulties.
The not-for-profit community is being marketed by RBC Capital Markets, and while there is not a stalking horse bidder yet, that may change in the next few months. The auction date is set for early May. In addition to other outstanding liabilities, such as entrance-fee refunds ($34 million) and some wages and management fees, the debt outstanding is about $51.5 million, which is not too bad given the size of the community.
The key will obviously be to fill the IL units and collect those entrance fees. The entrance fees have ranged from $27,000 to $356,000, but the market has been competitive, and it is unclear whether they would have to come down (probably). About 89% of the units are entrance fee, while 10% are rental. Our estimate is that there are about 260 empty IL units, and given the economy and the pandemic, it will take a while to fill them. But, they represent up to $50 million of potential cash revenues.
Given the current environment, low census and perhaps some deferred maintenance, the pricing will be tight. Combining this with the fact that the appetite for a CCRC with more than 1,000 units is usually quite small means that there will be few buyers and they will probably all know each other. The key will be the stalking horse bid and where that comes out. Stay tuned.
