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David Ammons

David Ammons is president of Retirement Living Associates, Inc. (RLA), a company which provides planning, development, marketing, and management services for new and existing retirement communities. He has worked in and with Senior Living Communities since his graduation from Wake Forest University in 1985. Contact David Ammons at david@rlainc.com or 919-783-0044 ext 21.

In today’s article I address a common question about retirement communities. Specifically Continuing Care Retirement Communities (CCRC), which some call Life Plan communities. The question varies but is around which financial plan is best for me or us.

CCRC’s are generally available as either:

  1. An Entrance Fee Community with varying levels of refunds when the resident no longer lives at the community
  2. A Rental Community usually with an upfront community type fee that is usually only in the several months of rent range
  3. An Equity model where units are legally condominiums and are purchased by the resident.

I believe the industry will continue to respond to consumer preferences and create additional options. There have been more creative solutions like an entrance fee where a portion of the payment is refunded and the resident shares to some degree in appreciation. It seems to me a next step, and one that we are discussing in a few situations, is to combine one or two of the types listed above. For example, a community may be in the category of an Entrance Fee plan but may allow for a smaller entrance fee if the monthly fees are increased. This type of solution could offer several choices where the resident is in fact buying down the rent by paying an entrance fee or choosing to preserve their capital and pay more rent. This type of arrangement is found in equipment or vehicle leases today.

In Equity models where the units are sold as condominiums with full ownership rights there are purchasers who elect to not be the resident living at the community. In that case, the community will assist in locating a prospect that wishes to rent and they will live at the community renting a unit that another prospect purchased.

The bottom line, I believe, is tied to how far developers, sponsors, and lenders will go towards allowing more flexibility. In addition to options being tied to flexibility, the pricing is not currently weighted towards age or life expectancy. But those factors may come into play as actuaries and lenders gain more insight into questions such as “can a non-refundable entrance fee be less for a person with a shorter projected life expectancy compared to the fee necessary for a person with a long life expectancy?”

In my experience, most depositors, (to be residents or members) tend to choose the retirement community they prefer and then they come to understand the price structure and they choose from those options the one that best fits their needs. In new developments, I believe, prospects may put price structure higher on the list because the community is new and not being toured.

I am sure the future will continue to bring refinement and more options.