Skip navigation
Long Live the CCRC Entrance Fee Model

Long Live the CCRC Entrance Fee Model

Is the entrance fee almost extinct? Every few years, especially since the recession began, the question has been raised about whether charging seniors hefty entrance fees to get into continuing care retirement communities (CCRCs) should be shelved for the strict rental model.

The question was again floated at a recent Urban Land Institute webinar for the seniors housing industry. A panel debated whether the entrance fee, harder for seniors to raise today because of all the underwater and under-valued mortgages, is keeping occupancy rates lower.

The resulting opinion? Though development has still been slow, it’s agreed that entrance fee-based CCRCs are still the best method to create new mixed-setting properties for elderly care, with offerings such as assisted living, nursing and memory care.

“I don’t think the entrance fee model is dead,” said Aaron Conley, president of healthcare real estate development at Third Act Solutions, based in Greer, S.C. “I just think people are getting more comfortable with the rental model, as in the hot multifamily markets today.”

There are typically three levels of entry to CCRCs. The top level, labeled a type-A community, includes the entrance fee, which can range from $50,000 to $500,000, depending on the luxury and care level of the property. In many facilities, paying the entrance fee guarantees the senior that the monthly rent for any required healthcare service, from in-home nursing to transfer to a memory care center if that becomes necessary, will not change. If the senior decides to move out, the entrance fee is typically refundable on a sliding basis per length of stay. About 60 percent of all CCRCs charge an entrance fee.

A type-B community generally charges a lower entrance fee, and the monthly rent is low but can change if more care is needed. A type-C community has the lowest or even no entrance fee, and is pay-as-you-go service with higher monthly rent.

Conley said that seniors, as well as adult children who are taking care of seniors, are being more cautious today about where to put the accumulated life savings. “Folks want to stay more liquid, they want to keep some cash on hand—some by choice and some by necessity,” he said.

Entrance fees at many types of properties, such as golf and country clubs, have dropped considerably due to the recession, Conley said. In many of the luxury CCRCs, the prospective tenants were members of those clubs, and are now expecting the same type of discount because of the economy, he said.

Diane Twohy Masson, a California-based seniors housing consultant, said more properties would like to offer discounts, but can’t because of their financing requirements. Owners don’t pay much more than a few million dollars to build and market the communities, most of the money comes from bonds issued to investors, with some of the entrance fees going to pay off the debt. This allows for attractive properties with lots of amenities, but not much wiggle room on unit charges.

“I’ve seen owners beg lenders to allow for a reduction in the entrance fees, but if they are extended, as many companies did before the crash, they can’t lower the fees,” she said. “It’s the properties without much debt that are better able to respond to the seniors’ lower fortunes today.”

Masson said she recommends that her clients keep entrance fees, as the costs can help pay for amenities which seniors want today. “At two of my communities, they wanted to go all rental, they didn’t believe they could sell entrance fees anymore,” she said. “It’s all about how much value you bring to the customer, they still want a vibrant community. The average age may be going up for moving into the property, but the average 80-year-old today is more active, they’re not just sitting in rocking chairs, they want activities and entertainment.”

More proof that entrance fees aren’t dead can be found in the recent announcement by Brookdale Senior Living, which generated about $19.1 million in the third quarter from the entrance fees at 147 unit closings. However, although this was a record entrance fee amount for the trust, Brookdale still reported a net loss of $12 million for the quarter because of cuts to Medicare reimbursements and changes to therapy services.

Conley said CCRCs are still attracting 7 percent of the market, and there is positive chatter that things will pick up in 2013. Regardless of the current arguments for and against entrance fees, in the next 10 to 20 years, whether to charge an entrance fee will likely become a moot point.

“When the baby boomers come, the sheer numbers are going to create real demand and you’ll see much more movement and development,” he said. “That’s a few years away, and until then, developers and investors should pick and choose locations carefully and decide, based on that, if the entrance fee model will work best.”

TAGS: News
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.