Erickson Retirement Communities, one of the biggest developers and managers of seniors housing with 23,000 residents in 19 communities spread across 11 states, filed for Chapter 11 bankruptcy protection on Monday. The Baltimore-based company, founded by innovative businessman John Erickson in 1983, plans to restructure more than $1 billion in debt.
The company also announced that it has agreed to be purchased by Redwood Capital Investments LLC, which is controlled by Jim Davis, the majority owner of the Allegis Group, a staffing services firm based in Hanover, Md.
The U.S. Bankruptcy Court in Dallas, which is where Erickson Retirement Communities filed for court protection, must still approve any agreement. Other bidders could still emerge. As part of the restructuring, the company plans to separate its management and real estate development businesses.
Erickson Retirement Communities— profiled in a NREI cover story in February 2005 titled “Is Senior Housing the Next Comeback Kid?” — is widely recognized as a pioneer in building continuing care retirement communities that combine independent living, assisted living and skilled nursing care on the same campus.
“Erickson’s strategy is to achieve some of the lowest industry costs through economies of scale,” wrote NREI in 2005. “Each project is essentially a small city with 2,000 units on one campus. Residents need not travel anywhere for services. Located on the campus are doctors, convenience stores, a pharmacy and a bank.” Competitors of the rapidly expanding company were only building 200-unit projects at the time, the story noted.
Erickson Retirement Communities operated 13 projects in 2005 and had plans to go on a building spree that would raise the total number of developments to 40 within five years. Attracted by strong tenant demand for the developer’s projects and rising occupancy rates across the seniors housing industry, banks and investment houses were more than eager to step up to the plate and provide financing in the mid-2000s.
Seniors who became residents of Erickson communities reportedly paid entrance fees ranging from $150,000 to $400,000. The fees were fully refundable if seniors moved out or died. That business was highly dependent on a robust housing market because seniors used the proceeds from the sale of their homes to plunk down the entrance fees.
But the deep recession that began in December 2007 dealt a severe blow to the housing market, making it more difficult for seniors to sell their homes and move into continuing care retirement communities. At the same time, the credit crunch hurt developers trying to rework troubled loans or refinance maturing debt amid softening demand for all types of commercial real estate.
John Erickson, founder of Erickson Retirement Communities, stepped down as CEO in December 2008 to become chairman of the company and Bruce R. “Rick” Grindrod was named president and CEO.
“Erickson has been a terrific provider for many years,” says David Schless, president of the Washington, D.C.-based American Seniors Housing Association (ASHA), an industry advocate that provides leadership on legislative and regulatory matters and conducts research. “Unfortunately, they were caught in an aggressive development cycle when the credit markets seized up and the housing bubble burst.”
As a general rule, however, the seniors housing business has held up quite well over the past year or so, emphasizes Schless. “The Erickson situation is an anomaly because of how aggressively they were developing.”
Among the 50 largest U.S. seniors housing managers, Erickson Retirement Communities ranked No. 7 as of July 1, according to ASHA, with 20,985 units under management. It also ranked No. 7 on the list of the 50 largest owners.