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For Profit Ownership

for profit CCRC in WA State
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Except for those very few care communities that are philanthropically funded, senior housing communities are businesses and dependent over the long term on being able to make at least a minimal profit from resident fees sufficient to cover the cost of providing services.


Any headquarters staff is an overhead burden that must also be covered. Headquarters expense is justified if its role improves the quality of services and reduces the cost of providing them. Otherwise, it's just a sunk cost. Of course, this is equally true of nonprofit and for-profit enterprises, though the for-profits tend to be more chary about needless expenditures.


In many states, nonprofit businesses like senior housing are not exempt from local property taxes. They are often required to help fund public services by the payment of “Payments In Lieu Of Taxes” which are commonly called PILOT fees by insiders. In other states, the states do not recognize the Federal tax exemption, so these businesses are directly assessed under state law to pay their fair share of taxes.


Because nonprofits nominally have a public benefit purpose, they are not accountable to owners in the same way that a for-profit enterprise is. That means that they may not be as financially sound, but that weakness may not be evident. Regulation of the financial soundness of senior housing has been weak throughout the nation.


Some for-profit communities secure resident entry fees by giving them a First Deed of Trust claim on the property. That provides a level of resident assurance that is not seen among the nonprofits. The most recent example is the failure of the nonprofit Air Force Village West in Riverside, California where residents who hadn’t opted for refundable contracts lost their investment and where all residents lost the continuing care contracts on which they had relied.


In the State of Washington, I know that Aljoya, specifically, has given its residents First Deed of Trust protection. That is an important protection for residents who have invested in entry fees that they are reluctant to lose. Many nonprofit communities operate with liabilities greater than their assets, diverting the cash from entry fees from the funding of contractual undertakings for residents toward meeting the debt obligations of the enterprise.


The financial failures of which I am aware have all been among the nonprofits. I know of no such failure of a for-profit, though the nature of the for-profits makes it likely that they are sold before the collapse becomes evident. One regularly sees advertisements for senior housing properties for sale. The common outcome for the failure of a nonprofit is that it is taken over by a for profit, often with changes detrimental to the residents, and that it is thereafter run on sounder business principles.


Many people write of the nonprofit advantage, which asserts that profits are reinvested in the community for the benefit of the residents and that there is no payout of profits to owners. There are numerous ways in which fees for services for which nonprofits contract can be profitable to the providers of those services, so the distinction is not as sharp as it may at first seem.


The authorization for profitable senior housing communities to claim Federal tax exemption is Revenue Ruling 72-124 which requires that the enterprise not evict residents if they run out of money unless the residents are found to have squandered resources. Moreover, senior housing enterprises can reduce the financial impacts of retaining such residents by fundraising, which helps the enterprise itself. Other requirements are that, as a condition for nonprofit status, the senior housing enterprise operate at the “lowest feasible cost” and that it be dedicated to ameliorating the “distress of aging.”

 
I live in a CCRC in Illinois that is owned by a for-profit company. This company bought our community when the Erickson company filed for bankruptcy in 2010. We have been very fortunate in our new owners. The transition was smooth for the residents. The new owners put a lot of money into the community to make upgrades and improvements and finally built the memory care, rehab, and long-term care facility that had been promised by Erickson. The new owners also hired an excellent management company. In my opinion, our community is in much better shape financially and in every other way than it was under the previous ownership. I agree with Monica that the day-to-day issues we have in our community are probably the same as in any other CCRC. If you have responsible owners and competent management, I don't think it matters whether a community is for-profit or not-for-profit.
 
I lived in a non-profit CCRC in Texas that was one of 5 CCRCs in Sears Methodist Retirement System (SMRS).  When SMRS filed Chapter 11 in June 2014 all communities (SMRS owned a care facility and 2 HUD housing communities in addition to the CCRCs) were sold off.  The 5 CCRCs were purchased by For Profit owners.  I don't know how you could reach residents at these five Texas CCRCs:  The Craig in Amarillo, The Parks in Odessa, Wesley Court in Abilene and Meadow Lake in Tyler.  I can't recall the name of the 5th, but I'm checking on it.  It was a 2nd one in Abilene.

Anyway, Texas is not known for regulating the industry very well.  If you are unable to learn anything, you're probably no missing much.
 
Just wanted to start a thread for "For Profit" CCRCs, as I live in one in WA State.  I believe it is the only one of 23 registered CCRCs in WA that is for profit.  Discussions about state legislation spearheaded by our state organization, WACCRA, seem to circle back to this difference; not-for-profit or for-profit.  We are just starting to understand the differences, but issues within CCRCs of both types seem to be largely the same.  Any comments from other states?
 
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