A Financial Decision

My name is Kevin Gore. I live in Tulsa, Oklahoma and am a partner with the 8th largest public accounting firm in the US, FORVIS, LLP.  I have spent the past 32 years serving health care clients, including continuing care retirement communities (CCRC).  My experience with CCRCs has been primarily with multi-campus nonprofit CCRCs, including organizations with as few as 100 units to over 3,000 units.  The rest of my family, including my mom and two brothers live in Plano.

In June 2022, my mom started to consider her living situation.  She is a widow and currently lives in a 3-bedroom house in Plano by herself.  She lives less than a mile from one of my brothers and within 5 miles of my other brother.  So being close to family was important to her but she wasn’t sure home ownership was the best option for her going forward.  Her parents had moved into assisted living when my grandfather had medical issues and she had other friends who were “forced” to make the transition to assisted living or independent living due to health issues.  She is in good health but wanted to make the decision to move to a CCRC on her terms and began looking at options in north Dallas.

The size and location of The Outlook were the two most important reasons for initiating an interest in The Outlook for my mom. She wanted to remain in her “neighborhood” and she had already stated that she was not interested in moving to one of the larger communities. As she began visiting and learning more about the actual facility she started asking her sons to become involved and to help in the evaluation of options. In addition to the location, the fact that the facility was brand new was an additional benefit.

She viewed at least 3 other communities before deciding on The Outlook as well as visiting with friends who moved to different communities. There was always a missing factor that kept her from pursuing those communities. The Outlook was by far the most advantageous.

Based on my professional work, I was well informed on nonprofit CCRC financial structures. I have several clients that are nonprofit CCRCs and with that knowledge I was able to assist my mom in looking at the financial structure of The Outlook. Some of the key areas I looked over included the bond financing and the forecast associated with the financing. Those documents include an occupancy projection and cash flow analysis. I also reviewed the bond covenants related to financial requirements such as liquidity and profitability to support the debt service. These items looked favorable and reasonable based on my prior professional experience.

Some of the key financial items we evaluated related to The Outlook included the refund provisions of the deposit and the entrance fee. Since the Outlook is not opening until 2024 (or basically two years after making a deposit on a unit), the refundability of the deposit and entrance fee were important. Since the deposit was 100% refundable until occupancy, there was limited financial risk to signing the agreement for a unit. Part of my family’s concerns were whether my mom would have sufficient resources to live at The Outlook. To assist with this, we looked at my mom’s expenses for household upkeep and other items that would be handled by The Outlook. This analysis helped provide a comparison of monthly expenses of home ownership to the monthly service fees at The Outlook. While there were slightly more expenses with the monthly service fees, we looked at her available cash and investments and trended out those costs to ensure she could afford to live at The Outlook for an extended period. In addition, the sale of her house, which will help fund some of the entrance fee, is essentially replaced by the 90% refundable component of the entry fee. So in essence she was exchanging one real estate asset for another. 

As I told my family, the refundable component of the entrance fee has risk associated with low occupancy of The Outlook whereby the unit can’t be resold due to lack of demand. However, we evaluated this risk as minimal. The other risk associated with the real estate asset held as the entrance fee is that if the real estate market goes up, then my mom’s “investment” does not increase. However, there is limited downside real estate risk. If the goal of the real estate investment is to increase generational wealth, then an entrance fee is not the right investment. However, for my mom that was not the goal. We just wanted to be sure she could afford to live at The Outlook as long as needed without changing her lifestyle.

We were looking for a place where my mom would be in a community and have people and activities around her to provide additional social interaction. While she is still very engaged in the community and with grandchildren and their activities, we thought a CCRC setting would be beneficial. As demonstrated by the ice storm a couple of years ago and the pandemic, the risk of isolation is real and being in a CCRC with people she knows can be very beneficial even with a large family support group in Plano. 

There is always risk associated with a long-term financial holding. While there is no guarantee that the entrance fee will be refunded, part of our analysis in selecting The Outlook was in reviewing the forecast and financing. I have seen CCRCs with financial difficulties. The struggling CCRCs tend to have low occupancy and high cost structures. With the location, nonprofit operator and newness, we evaluated this risk to be reasonable. Nonprofit CCRCs are not required to generate profits to satisfy owners or investors. The goal of the nonprofit CCRCs is to maintain financial sustainability and generate cash flow to support their mission. As such, the focus of nonprofit CCRCs is often more on the residents and their needs and providing services and options that help attract and maintain residents. In addition, The Outlook like many nonprofit CCRCs has a benevolence fund or a resident assistance fund to provide for residents who have unexpected financial difficulties with the monthly service fees. While we do not expect that my mom will need to rely on that assistance fund, it is nice to know it is there if needed.

I do plan to review the annual financial statement audits that The Outlook will receive and continue to monitor the financial performance and stability. Due diligence in selecting a CCRC to move my mom to was important and should be performed by all new residents. Each resident will have their own goals and objectives for moving into a CCRC. Most will be focused on the social interaction, security and health care availability provided by a CCRC. Our family felt that The Outlook provided those benefits and had reasonable financial security related to the investment my mom was going to make with her entrance fee. 

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