The troubled Clare at Water Tower, a luxury seniors high-rise in downtown Chicago, is the latest property to be purchased by Senior Care Development Inc., which has plans to expand its portfolio of distressed assets. The Harrison, N.Y.-based company had the winning bid of $53.5 million in cash at a recent bankruptcy auction for the Clare. The replacement cost of the building is about $250 million, says David Reis, CEO at Senior Care Development. “This is a one-of-a-kind community.”

The 53-story building sits a block off Michigan Avenue, Chicago’s famed shopping district. The project is a continuing-care community with 280 units, including apartments for independent seniors, as well as assisted-living and nursing-care suites. Units range in size from about 800 sq. ft. to 4,000 sq. ft. With community space and parking on the lower floors, apartments start on the 23rd floor. “The views are incredible,” says Reis.

The building opened in 2008 just as the residential real estate market started to slump. Entrance fees averaged about $750,000. When the building filed for bankruptcy last November about 33 percent of the units were filled.

The property was saddled with $229 million of debt. “Operationally, this is a well-run building,” says Reis. “The problem was the debt.”

The property is being sold by the Franciscan Sisters of Chicago Service Corporation. Bond holders who financed the original deal will receive about 20 cents on the dollar, reports say. Senior Care Development’s capital partner is Fundamental Advisors L.P., New York.

The sale is subject to certain regulatory approvals, including the transfer of a certificate of need (CON). “We don’t foresee any problems,” says Reis.

Changes ahead

Reis plans to lower entrance fees and modify the refund policy. Entrance fees will be lowered by about 20 percent with the average fee about $600,000. “This is more in line with the market,” says Reis.

The refund policy will also be brought into line with standard industry practices. New residents will be offered a 90 percent refund of the entrance fee when the unit is resold. Plans will also be available with refunds of 50 percent and zero percent, lowering the average entrance fee to about $450,000 and $340,000 respectively.

Reis is quick to point out that original residents won’t be harmed by the changes. “No resident is losing a dollar,” he says.

Reis thinks the building will fill quickly, though he won’t predict how long it will take. He plans to launch a new marketing campaign this summer. Plans also call for marketing assisted living and nursing care to those from outside the community.

Life Care Services, a continuing-care property manager based in Des Moines, Iowa, is being brought in to run the building.

More purchases planned

The Clare is the third distressed property in the Chicago area to be bought by Senior Care Development. Last year, the company purchased Monarch Landing in west suburban Naperville and Sedgebrook in the north suburb of Lincolnshire. Both projects were in bankruptcy. The projects were originally developed by Erickson Retirement Communities for about $330 million. Senior Care Development bought them for $40 million in cash and assumed $28 million in outstanding debt.

“The Erickson projects are doing well,” says Reis. Entry fee prices were reduced at Monarch Landing, but prices were raised at Sedgebrook. About 90 percent of the units at Sedgebrook are occupied, and about 85 percent of the units at Monarch Landing are filled. Both properties are managed by Life Care Services. A new nursing facility with 112 units will break ground this fall at Monarch Landing.

“We’d like more properties like these,” says Reis. He’s tracking about two dozen large-scale continuing-care communities that are ripe for acquisition. Like the Clare, he says, the projects are relatively new, opened during the housing downturn, and have had trouble selling units. The properties are highly leveraged, but have good locations. The development of similar projects today would take five to seven years to complete, he figures.

Reis likes continuing care communities because they are relatively stable assets. The communities have a slower turnover rate of residents than other seniors housing projects, such as stand-alone assisted-living buildings. Reis’s goal is to buy six to 10 distressed communities. “We are happy going after those deals,” he says.