It's better to own than to rent.
That's the sentiment driving a growing movement in retirement living: luxury developments aimed at affluent seniors that not only provide a full range of on-site medical care, but also allow them to own their residences.
That's a sharp contrast from traditional nursing homes, assisted-living centers and senior apartments, which generally impose monthly charges and don't allow residents to accumulate equity that they can pass along to heirs.
But here's the catch: Seniors cannot get in if they need the medical care. Before prospective owners can buy, they must provide medical proof that they can live independently. In fact, in some complexes residents still work full time. Once they're in, they're guaranteed on-site assisted-living or skilled-nursing care when the need arises, often at prices substantially less than what they'd pay by waiting until their health deteriorates.
Because these residences can cost millions, retirees essentially have to decide whether they want to pony up big money to move before health problems arise, or remain at home and wait until health problems mandate such a move _ often into a pricier institutional facility.
Marketed to wealthy retirees who want to preserve their estates, these so-called equity-ownership communities are popular with people like Patricia Pennock, a 76-year-old resident of the Forum at Rancho San Antonio, in Cupertino, Calif. "I want to leave an asset to my kids" equal to what her home would have been worth, she says. "Also, I spent a long time looking to find the right nursing home for my own mom, and it was not easy. I'm relieving my children of having to do that for me." Units at the Forum range from $225,000 to $1.5 million.
Equity ownership briefly made a splash during the late 1980s but was eclipsed in the 1990s by assisted-living centers, where the business model is based on monthly charges. Traditional facilities still control the vast majority of the market. But in the face of increasing demand for equity-ownership projects _ and with wait lists in some cases stretching for more than a decade _ developers are once again building them.
This summer, residents will move into the first 192 units at the Cedars of Chapel Hill in North Carolina. In Charlotte, N.C., a five-year-old community known as the Cypress has a waiting list of 180 people. At the Stratford in San Mateo, Calif., bidding wars have erupted for condos that cost as much as $2.5 million. Meanwhile, Los Angeles luxury-home developer PCS Development Inc. is now selling units at Bella Vita, a condominium complex being built within the shell of a former hospital in Sherman Oaks, Calif. The company is looking to build another project in Los Angeles and a third in Phoenix.
In all, there are an estimated 60 continuing-care communities across the country offering equity ownership. Developers, who typically spend $75 million to $200 million building these communities, are chasing a particular demographic: individuals older than 70 who have accumulated sizable assets, largely through homeownership. PCS Development, for one, is specifically targeting retirees 70 and older with annual household income of $75,000. Overall, 11 percent of the 21.7 million senior-citizen households in the U.S. report at least that level of income.
The population of these communities tends to be younger, more active and more couples-oriented than that of assisted-living or skilled-nursing facilities. Though the average age is in the low 70s, many couples still in their 60s are moving in. At the Forum, a few residents still work as lawyers and doctors. The minimum entrance age is 62, though a spouse can be younger _ sometimes by decades.
Couples in particular are attracted by the active lifestyle as well as the on-site health care; when one of them moves into nursing care, the other is within walking distance for daily visits and meals together. At Bella Vita, 70 percent of the buyers so far are couples.
The residences don't come cheap. Depending on location, studio apartments of about 300 square feet can start at $100,000. One-bedroom units between 700 and 900 square feet generally fetch between $175,000 and $500,000. Larger villas and cottages up to 4,300 square feet start at about $650,000 and go into the low millions.
At the upper end, the living is tony, resembling a cruise ship collided with a nursing home. At the Forum, there's gourmet cuisine and so many daily activities that residents joke that they move there to die of exhaustion. The tiled-roof villas are airy, with 12-foot ceilings, large windows and balconies overlooking the Coastal Mountains. Upgrades include plantation shutters, double crown-molding, granite countertops and hand-crafted built-ins. At the Stratford, a standard three-bedroom condo has two balconies, a wet bar and Jacuzzi, among other niceties.
Along with the purchase price, residents pay monthly fees that cover services and amenities _ from maintenance, utilities and replacing the roof to weekly laundry service, dog walking and meals. The fees at Bella Vita, for instance, will range from $1,800 a month for one person in the smallest one-bedroom, to $3,000 for a couple living in the largest condo.
One benefit of these monthly fees: Access to between 30 days and six months of assisted-living or skilled-nursing care at no added cost. After that, residents are required to pay a monthly fee for the care _ anywhere from $80 a day to nearly $5,000 a month. Typically, residents forced into the health center permanently sell their home and, thus, trade the community fees for monthly health-center fees.
That's when these communities can suddenly seem more reasonable. At the Cedars of Chapel Hill, a resident who permanently relocates to the health center would pay about $100 a day for the most expensive private care. That same level of care in the surrounding area would cost double that or more. At Beaumont at Bryn Mawr, outside Philadelphia _ where the waiting list for some units is as long as 15 years _ a private room with private bath at the health center costs residents a flat $3,500 monthly. Similar facilities in the area would cost closer to $8,000.
Retirees aren't the only ones buying these properties. Their children are too. Along with the security of knowing a parent can move into the health-care center when that need arises, the homes can be an investment. The Cypress in Hilton Head has seen the value of its resales escalate at an 8 percent average annual rate; at the company's Charlotte community, cottages that originally sold for $400,000 five years ago now sell for $800,000. Dick Flower, one of the earliest residents at the Forum and now president of that community's board of directors, says the two-bedroom apartment he and his wife bought for $405,000 in 1990 is now valued at more than $600,000.
Owners don't pocket all of that profit, though. Some portion usually goes to the nonprofit association that runs the community. That money subsidizes the services and health costs for all the residents. At the Forum, for instance, when a home is sold, the owner shares half of the appreciation with the nonprofit association. At the Stratford, owners get back 100 percent of their purchase price _ minus a 7 percent fee _ and receive 25 percent of the appreciation.
"Other places we've been to are nice, but we don't want to lose the money" that they otherwise would have spent in a more traditional retirement facility, says Pat Clancy, an 81-year-old retired Navy admiral who lives at the Forum with his wife, Betty. "We want to leave the asset to our four boys, and equity ownership was the most compelling option to do that."