A couple of months ago, we wrote about a bankruptcy sale/auction for a large CCRC in Michigan, and we’ve just learned the property has entered into a stalking horse asset purchase agreement with MED Healthcare Partners, in accordance with bid procedures approved by the U.S. Bankruptcy Court for the Eastern District of Michigan, Southern Division.
MED agreed to acquire substantially all of the community’s assets for $69 million, or $66,500 per unit/bed, unless a higher or better offer in accordance with the bid procedures and deadlines (and approved by the court) is accepted. The deadline for competing offers to be submitted is set for April 30. A hearing to approve the sale transaction is currently scheduled for May 24.
When we say “large CCRC”, we mean it. The property features 852 independent living units, 96 assisted living/memory care 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.
RBC Capital Markets marketed the not-for-profit community. 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.
The appetite for a CCRC with more than 1,000 units is usually quite small, and while the property got an offer from MED Healthcare Partners, there are probably still a few other buyers out there. We’ll see how the auction goes.
