How often have we heard that new development is dead? Or that CCRCs (LPCs) are on their way out? Too often. But how often do you hear about an Active Adult expansion on a CCRC campus, and one with entrance fees? Not often enough.
That didn’t stop Three Pillars Senior Living Communities and Cain Brothers from putting together a plan that may really change the 120-year-old CCRC in Wisconsin. Three Pillars was originally founded in 1905 as Masonic Home to provide care for indigent Masons. Today, it has a 50-bed nursing center, 17 memory care units, 52 assisted living units (CBRF), 75 catered living/assisted living units (RCAC) and 123 Type C independent living units. The rents for the AL and MC units range from $4,700 to $7,600, while the IL units range from $1,400 to $3,100 with entrance fees from $67,000 to $325,000, with an average of $148,000. So, a middle market community in a middle market area between Madison and Milwaukee.
Even though census is a high 95% (excluding a newer component opened a few years ago), the not-for-profit board wanted to keep up with the times and provide the “community” with something new and different. They were referring to the existing residents, the newcomers coming into the addition, as well as local people who do not live on the campus, but may in the future.
Consequently, they came up with a plan to build 110 “active adult” units adjacent to the existing campus. We put it in quotes because they are really targeting a more active resident than who currently resides in the existing campus, but you might not think of it in the same way as a typical 120-unit rental active adult community you see being built. The average age of residents in the existing campus is 84, while the average age of the depositors is 78. In this expansion, there will be 48 lofts/apartments with rents ranging from $1,635 to $3,123 and entrance fees from $284,000 to $575,000. Obviously, for each unit size the lower the rent the higher the entrance fee. All these units are more than 1,000 square feet.
Then there are 12 courtyard homes with similar pricing, and 50 garden duplex units which go up to 1,700 square feet with the highest rent and entrance fee at $4,288 and $770,000, respectively. The entrance fees are 90% refundable. While across the street from the original campus, they will be connected by an underground pathway. The mix of unit sizes in the original IL community will go from 70% one-bedroom/30% two-bedroom to 45% one-bedroom/55% two-bedroom units on a combined basis. They realize that the younger cohort wants more space.
The new campus will also include a wellness center, performing arts center, artisan market, creative arts studio, hearth kitchen, club room, terrace dining, a pub and a rooftop terrace party room, among other amenities. Sounds like all they need is a whisky bar. But all of this does not come cheaply. Cain Brothers issued a total of $108.295 million of tax-exempt bonds, of which $63 million are long-term, and up to about $45 million are expected to be paid off with entrance- fee proceeds. The blended interest rate was 5.6%. While this comes to over $1.0 million per unit, there is a lot that will be built outside of just the living units. Three Pillars contributed about $13 million of equity. They also spruced up the existing campus so that it did not look like a poor stepchild across the street from the new.
Just in case you think investor demand for senior living debt in our post-COVID environment remains low, the bond issues generated $697 million of total orders from 22 unique accounts, or 6.4x oversubscribed. The bonds were rated BBB by Fitch Ratings. Joe Mulligan, Matt O’Grady, Thomas Culhane and James Sternheim of Cain Brothers all worked on the financing.
