The success of a business model often depends on current economic conditions as the saga of Erickson Retirement Communities illustrates. The company built a number of large-scale continuing care projects when capital was readily available and the housing market was strong.

But when the economy crashed, so did Erickson. The company filed for Chapter 11 bankruptcy protection in October 2009. Redwood Capital Investments of Hanover, Md., bought most of Erickson's assets for $365 million. Erickson, which listed assets of $1 billion in the bankruptcy filing, operated a chain of 19 communities.

The depressed housing market has hit continuing care communities hard. Older homeowners often can't sell their homes at prices high enough to cover the big entrance fees required by the retirement communities.

In Erickson's case, two properties that were not part of the Redwood deal have been sold. Senior Care Development paid $40 million in cash for two Chicago-area projects, Monarch Landing in west suburban Naperville, and Sedgebrook in north suburban Lincolnshire. The communities sought Chapter 11 protection in U.S. District Court in Texas last June.

“We got a great deal on two great communities,” says David Reis, CEO at Senior Care Development in Harrison, N.Y. “This is a once-in-a-lifetime opportunity.” The properties were saddled with about $330 million in construction debt, which was wiped clean by the bankruptcy. “Bondholders took a big hit on this,” says Reis, who figures they got back about 20 cents on the dollar.

Senior Care Development specializes in the construction of continuing care retirement communities and assisted living facilities for its own portfolio. In 2006, the company sold all but one of its properties: Meadow Ridge in Redding, Conn.

The 464-unit Sedgebrook is approximately 90% occupied while the 345-unit Monarch Landing has an occupancy rate of about 80%. Life Care Services of Des Moines manages the properties.

Senior Care Development is scaling back Erickson's original plans. The projects were to be built in phases, with an eventual build-out of nearly 2,000 units at each site. “The model was doomed to failure,” says Reis.

Big communities have a hard time maintaining a high level of resident satisfaction, Reis believes. A mature community generally has an annual turnover rate of 10%. That means a 1,000-unit project must resell about 100 units every year, he says.

Senior Care Development will limit the size of each project to no more than approximately 500 units to more easily manage them and provide healthy returns for investors.

Entry fee prices at Monarch Landing have been reduced by 10% due to a drop in local housing prices. The average entrance fee is currently $280,000. Monthly service fees at both properties remain at about $2,000.