In recent decades the economic formula for community nursing homes has shifted dramatically as many alternatives to nursing homes have developed. The result has been not only a loss of residents paying market rates, but also an increase in residents requiring a higher level of care at a higher cost when they finally require the services of a licensed nursing facility.
United Methodist Retirement Community in Enid, Okla., is an example of a nonprofit nursing home that transformed itself to meet its commitment to its community and mission while maintaining long-term financial viability. To accomplish this goal, United Methodist combined multiple funding sources to add four additional levels of care to its nursing facility.
History of Serving the Community
Originally constructed in 1962, the United Methodist Home of Enid, as it was originally called, was licensed for 44 nursing beds. Through the years, the facility expanded to 129 beds. A well-run facility with high occupancy rates, United Methodist had successfully completed two consecutive Department of Health surveys with zero deficiencies. However, several concerns existed about the facility’s long-term financial viability as a stand-alone nursing facility.
United Methodist’s board of trustees and senior management, working with Oklahoma City-based project consulting firm Prime Time Environments, recently developed a campus master plan to add a licensed nursing household for persons with Alzheimer’s and related dementias, an assisted living apartment neighborhood, a light assisted living apartment wing, independent living townhomes and a community center.
By providing a complete continuum of care, United Methodist will have the opportunity to decrease its reliance on the highly regulated nursing home business and the associated fluctuations in the state’s Medicaid program. All of the proposed living units will be private-pay and charge market-level rents. The result not only will be greater control over the community’s annual budget, but also a greater number of private-pay residents entering its nursing facility.
Challenges to Accessing Capital
To make the plan a reality, United Methodist faced the formidable task of accessing capital. Although the nursing home operated profitably, its historical emphasis on serving its mission limited both operating margins and its cash and investments. United Methodist maintained an excellent reputation in the community, but unlike some nonprofit organizations, it did not have access to a foundation or endowment.
After reviewing this background, Lancaster Pollard concluded the best course of action would be a “pro-forma” structure. In other words, repayment of the debt would be based on the projected operating results of the new units. Understanding that a pro-forma project reduced the funding options available to United Methodist, Lancaster Pollard worked with Prime Time Environments to develop a plan to secure funding at financially viable levels.
Split Financing
Key to the plan was the successful splitting of the funding, by which the independent townhomes would be funded through a local bank real estate loan, while the nursing home renovations and additions would be funded through the Department of Housing and Urban Development’s FHA Sec. 232 program.
Utilizing a local commercial bank, United Methodist obtained a construction loan based on the successful sale of the proposed townhomes. Each sale involved an entrance fee that provided security for the construction of the townhome, as well as a portion of the campus’ development costs. The solution allowed United Methodist to fund the independent living project at reasonable terms, while the entrance fee requirement minimized the commercial bank’s concerns about lease-up risk.
Since entrance fees are not marketable for nursing beds or assisted living units, Lancaster Pollard advised the use of Sec. 232 mortgage insurance. The program has extremely limited liquidity requirements and will accept pro-forma projects. In addition, the interest rate is fixed, regardless of the strength of the project, and the program can be structured to fund up to 100 percent of development costs. Both of these factors allowed United Methodist to successfully finalize the project.
A Transformed Organization
With the independent living portion of the project complete, United Methodist broke ground on the community center, assisted living and light assisted living additions. The completed project will greatly expand the facility’s platform of services. As the only faith-based nonprofit retirement community in the area, United Methodist is now uniquely positioned to serve the next generation of seniors.
| Before |
| 120 staffed nursing beds |
| After |
| Renovated 111-bed nursing facility |
| Nursing wing with 18 beds for Alzheimer’s/dementia patients |
| 14,370-square-foot community center |
| 30-unit assisted living building |
| 40-unit light assisted living building |
| Three single-family independent living townhomes |
| 20 independent living duplex townhomes |
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