I haven’t posted much on the state of the senior housing industry lately, but I saw something today that really bothered me. There was a headline from an industry magazine regarding acquisitions: “Erickson Acquires $176 Million of Foreclosed CCRC’s Senior Debt”
That doesn’t sound all that scary off hand, but what bothered me was what happened in 2009: Erickson went bankrupt.
What’s worse, another headline came out almost at the same time this week: “Investor Buys $30 Million Senior Housing Complex at Fraction of Cost” The property was an Erickson community that had been sold following their bankruptcy in 2009.
So, let’s summarize this week’s headlines: A formerly bankrupt company bought $176 million in debt (at an undisclosed discount) at the exact same time that a community that it lost during bankruptcy was sold for pennies on the dollar to another firm.
Certainly Erickson wrote off a bunch of debt following the bankruptcy. I can see how they’re probably more financially stable now. I can even see how they might be in a good position to invest in other projects. But, frankly, I just don’t think it’s a good deal.
Compare this to the 2009 acquisition of Covenant at South Hills by Concordia Lutheran Ministries: They did the $15 million deal in cash. They have operated a stable, sustainable business for the last several decades. They don’t have a history of overly ambitious acquisitions.
The world of high finance has certainly entered the senior housing market, but I still think that the good old boys who buy with cash and don’t overextend themselves are the heroes here. It’s true that no one lost their homes during the initial Erickson bankruptcy. However, hindsight is always 20/20. At the time, there was a huge threat that Erickson would cease to operate:
But in recent days, the lenders apparently lost patience, sparking fears that Erickson may have to cease operating. After filing for bankruptcy, Erickson’s lawyers asked the judge for emergency access to the company’s cash collateral. Ceasing its operations “would have devastating effects on the residents of the communities,” Erickson warned, “including leaving many residents without food, medical supplies, and the health and support services that they require.”
Of course, this crisis was averted. Erickson sold off many of their properties, reorganized, and began operating under the name, “Erickson Living.” Should this change how potential residents view a community?
Since Erickson Living is now a private company, you can’t find their financial statements online. So, if you were doing your own due diligence, you’d have to look at the Disclosure Statement for the community that you wanted to live in. The problem is that one simple Disclosure Statement won’t tell you everything about the entire company. Yes, you’d be signing your contract with a nonprofit that owns the local community, but you don’t know what sorts of agreements are made between the local nonprofit and the parent company.
This is the sort of thing that really frustrates me about senior housing. Moving into a CCRC is a big deal for seniors. Why should they trust a company that would go bankrupt in 2009 and then start trying to buy new communities again in 2013? Maybe they know something that I don’t, but, frankly, I don’t think it’s a very promising indicator.