America is graying. One in six Americans is over the age of 65 and this trend will continue at an increasing rate in the coming years. Older Americans are going to need more places to live and more people to care for them as they age. Private equity has noticed.
Many seniors choose to live in assisted living communities. Typically, there is a buy in and a monthly maintenance fee. As the seniors needs change, he or she may move to another part of the facility where they can receive a higher level of care. Should the senior choose to leave or when the senior passes, some part of the buy in is returned to them or their heirs. A contract between the senior and the community documents the relationship and the rights and obligations of the parties. The contract is one drawn by the owner of the project and usually contains a number of provisions which favor the owner over the purchaser.
It is no secret that housing is in short supply in the United States and that rents are rising in dramatic fashion. Retirement communities have not escaped this economic fact of life. People are getting older faster than developers can build retirement communities for them. The need for more retirement housing units and facilities is going to continue to increase.
Many seniors, who bought in years ago, got deals that are well-below today’s market values. This makes them ripe targets for private equity looking for hefty returns on investment. If the seniors could be induced to leave, the new private equity owner could sell or rent their units for far more than the senior is paying today. The senior has got to go.
This drama is playing out across the United States. Private equity buys a retirement community and immediately raises the monthly maintenance fee, sometimes by hundreds of percent. The resident seniors, most of whom are living on fixed incomes, can no longer afford to live there and must move out of what they rightly thought was going to be their final residence. The new private equity operator either resells the unit for far more than it had to pay the departing senior or rents it out at the current market rates.
Although the senior had a contract with the owner, the contract usually provides that the owner can set the monthly maintenance fee at his discretion. The contract also usually permits the owner to make certain changes in the relationship to the disadvantage of the senior.
Even if the senior stays in the community, the new private equity owner may cut staff to reduce expenses. The senior ends up paying more for less care than before. The private equity investor pockets the profits.
As Bette Davis once famously remarked, “Getting old isn’t for sissies.” In addition to the indignities of old age and the need to make do on a fixed income, seniors now must worry about being pushed out of their retirement communities and having to essentially start over at a time when they are neither physically or financially able to do so.
If you do choose to move to an assisted living or retirement community, read the contract carefully. Don’t let them leave themselves the power to take advantage of you. Remember that all of their verbal assurances mean nothing in the face of the contract. No matter how honest the people you buy from may be, they will not be the people you deal with if private equity buys your community.
