A unique partnership between a Continuing Care Retirement Community and a developer has created what could be both an appealing housing option for younger seniors and a financially sound way for the CCRC to expand market share and attract new residents.

Palm Village, a CCRC in Reedley, Calif., needed additional independent living units to support its strong skilled nursing facility, but lacked the debt capacity to take on property acquisition and development on its own. Working with developer Quiring General, it has created a new housing option in which residents own their homes and have the choice to opt into the CCRC.

The arrangement works like any other development in that Quiring fronted the cost to build the homes and will sell them to owners, who will pay maintenance dues to a homeowners’ association. Buyers, who must be 62 or older, have the option of staying in the 1,700-square-foot two-bedroom homes and selling them whenever they wish, and they have access to Palm Village fitness and dining amenities.

With the home comes the option to opt into Palm Village as an independent living unit. In this situation, homeowners merely “put” the house to Palm Village, a transferal transaction with elements of a sale, and they are enrolled in independent living services without having to relocate. They also move to the front of the line for assisted living and nursing home space over non-Palm Village residents, a valuable feature in a community that David Reimer, president, says has about 10 vacancies per month and upward of 200 skilled nursing inquiries in the same time period.

If the homeowner opts into the CCRC, Palm Village then owns the house and the resident is issued a credit of a portion of the house’s fair market value. CCRC fees are drawn from this credit. Residents do not have to pay entrance fees or come up with payments as long as their credit lasts, and Palm Village gains a new private-pay resident who has paid for services up front. If a resident predeceases the house credit, any excess is refunded to the resident’s estate. The house can then be resold on the general market, or Palm Village, as owner, can convert it to independent living and sell entrance fees as residents move through the CCRC program.

“If you partner with a developer, the capital investment is minimal,” Reimer said. “You’re bringing your name and your marketing to his program. A lot of the capital investment that was his is now yours. That’s also a word of caution for whoever you partner with -- are you like-minded?”

Reimer and Paul Quiring of Quiring Development had worked together before; Quiring built Palm Village. They discussed Cottage Commons, as the 16 units are known, after the California Department of Social Services, which regulates CCRC licenses, issued an opinion saying such an arrangement would be within current laws.

Quiring Development owned a 2.2-acre parcel of land adjacent to the existing 17.8-acre site. The parcel “wanted to seem like it was part of Palm Village,” Quiring said, a factor that presented development challenges because not every potential independent living resident wants to be associated with a skilled-care senior community. Quiring needed a viable development option. Palm Village needed more independent living cottages and wanted to attract younger seniors.

Although minimal upfront investment was required, Palm Village chose to put its financial house in order before taking on Cottage Commons. A $12.1 million refinance, underwritten by Lancaster Pollard, replaced a rigid structure to give Palm Village the flexibility to better invest a trustee-held reserve that had been kept in a low-interest account. The transaction saves Palm Village $80,000 annually and improves nearly every financial ratio in its credit profile, a smart move at any time but particularly when the future includes considerable growth plans.

“We need to do everything we can to work as smartly as we can to survive in various business climates,” Reimer said at the time. ”If you don’t change and adapt, you’re going to be obsolete in 30 years.”

Palm Village hopes the flexibility of Cottage Commons will attract younger seniors and serve as a pipeline to the CCRC.

“For us, it’s a promise to make a future promise of continuing care,” Reimer said. “And that opens up opportunities for new models.” As the 16 homes are completed adjacent to the property, Palm Village is working with other developers on plans for additional homes nearby, with thoughts of additional expansion to satellite locations in the hopper. For the stand-alone CCRC, it’s a way to compete with larger, multi-site facilities in a growing sector.

“We’re David, and we’re going to tackle Goliath, I guess,” Reimer said. “We’re seeing that there’s adequate numbers of skilled nursing beds and enough -- and in some markets more than enough -- of assisted living. But what we’re seeing a need for is the active senior living community,” Reimer said. An external market analysis indicated that Palm Village could fill 300 to 400 homes in satellite communities located in adjacent cities.

“As you build a relationship, hopefully you’re going to have some of those homes convert [to independent living],” Reimer said. And even if they don’t, the proximity to Palm Village offers the potential for income from short-term stays in the CCRC’s nursing units through Medicare Part A and B referrals.

Palm Village’s mission began in 1942 and has evolved and expanded through name and location changes. The community of 270 skilled nursing beds, assisted living beds and independent living cottages is owned by Mennonite Brethren Homes.

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