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The CCRC Value Proposition

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By Steve Moran

Way too long ago I had the opportunity to interview Warren Spieker, Managing Partner at Continuing Life, a very unique for-profit senior living company that develops and operates CCRC communities.  

Continuing Life

Continuing Life operates 4 very successful large CCRCs in California. CCRCs are the only thing they do. They also have two more CCRC communities in development. Here is what Warren had to say about Continuing Life:

  • By necessity, developing CCRCs means taking a very long view with respect to the development process and expectation of returns on investment. It is not uncommon to for it to take 5-10 years to go from contracting on a piece of land until construction begins.

  • They favor large projects because of the efficiencies it brings. Their portfolio currently includes numbers 1, 2, 4 and 5 in terms of size in California.

  • When they develop a project they put in a ton of equity, and then during the construction process they use conventional construction financing. Then their goal is to get the community full, use the entrance fees to pay off the construction loan, and end up with a debt free property. This model means residents have a high degree of certainty that their refundable entrance fee is protected. It also gives the organization/investors solid cash flow on their investment.

  • Their entrance fee structure ultimately leaves residents with a 75% return on their investment. The non-refundable 25% is amortized over the first 5 years of the contract, going down in 5% increments.  

Why Residents Move-in

CCRCs tend to appeal to a relatively small slice of the aging population. It is the one segment of the industry that tends to attract younger residents who choose CCRC living as a lifestyle option. They also tend to be planners who have a goal of mitigating risk by limiting their financial exposure in the event of long-term chronic healthcare needs (skilled nursing, assisted living, memory care).  

It turns out that it is actually a pretty good investment for individuals with moderate retirement income and assets. You get a great senior living community / lifestyle where the cost is at the low end of the rental market for senior living. You do have to make a substantial upfront investment, but in effect that investment serves as a long-term care insurance policy, with the bulk of the fee being returnable to you or your heirs.  

They don’t particularly see their market as ultra-high-earner but more typical are people who have worked hard, owned and paid off, or mostly paid off, a home and have a nice middle-class pension plus other investments.

Lessons Learned

The biggest advantage of experience is the lessons learned and an enterprise grows. I asked Warren to outline some of the lessons they have learned in developing and operating communities:

  • Not so much a new idea, but they continue to be committed to the idea that they must have a financial structure that says they are good stewards of residents money.

  • They are finding that residents are more and more active requiring a more robust or at least different kind of life enrichment program.

  • When doing an expansion on their Carlsbad community they added an indoor pool and found it was a big hit, which then led to “hey maybe we should do an indoor/outdoor pool.” They tried that and it was an even bigger hit, so now that will be a part of all future developments.

  • They're finding that food service is changing from fairly formal to more of a lounge-style dining option.

  • Because the resident population is so active, there is competition for common area space from parties, to movies to exercise and other things. They are moving in the direction of adding more space that can be used in a variety of ways.

  • They have discovered their communities have almost a multigenerational feel and appeal. Meaning they having people in their 80s and 90s does not seem to be an impediment for young seniors (those in their 50s and 60s) moving in. There is a sense that having this broad spectrum of ages actually enhances the appeal.

  • The other big datapoint is that while for most senior living options it is the children making those decisions, when it comes to CCRC residents, it is almost universally and singularly the residents' decision.

I came away from this conversation with three big take-aways:

  • There continues to be a substantial opportunity for CCRC operators and developers who have the patience and the deep pockets to make it work.

  • It is or at least can be much more of a middle market product that I believed it to be.

  • I can see an uptick in demand by us Boomers who what a great place to live and want a great place to come home to after traveling . . . without worrying about who is taking care of the property while they are gone.

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