Seniors are the fastest growing segment of the U.S. population – and investors smell an opportunity. Across the country, there’s a growing trend: venture capital groups and others with little or no senior housing experience are buying up retirement communities. One result is that these new owners frequently hike the rents drastically, leaving long-time residents with a stark choice: pay up or move out.
This is not an entirely new pattern but it does appear to be on the increase, as described in reports such as this one recently featured on the website of NBC News. As Gretchen Morgenson writes in her story, senior residents are seeing their quiet lives uprooted. “Residents of senior living facilities typically expect to live out their remaining years when they buy into a community,” she states. “But a new dynamic in the industry is altering the deals these residents agreed to.”
One Community in Chicago Typifies a Trend
For her article, Morgenson spotlights a senior living community in the Chicago area called River Glen. Resident Martha Bray had moved there with her late husband, assuming she had found their last home.
“The couple loved the neighborhood’s tree-lined streets, tended lawns and tidy red-brick townhomes,” Morgenson writes. “The Brays paid a $314,000 entry fee for their townhouse in 2013, plus a monthly maintenance fee. They didn’t own the property, but if they decided to leave, their contract promised they’d receive 85 percent of the current value determined by a local realtor.” The rent was a very affordable $1,395 per month.
A Knock on the Door Changes Everything
Bray, now 84, is a Vietnam veteran. After she was widowed in 2016, she continued to live at River Glen and thrived there.
“But,” Morgenson writes, “all that changed with a knock at Bray’s door in late June 2023. River Glen had been sold to a private equity firm and real estate investment group, she was told, and her financial contract was changing.”
The new owners were Jaybird Capital of Cedar Rapids, Iowa, and Citrine Investment Group of Chicago. Bray and other residents were shocked to learn that, effective September 1st, the monthly rent would jump nearly 400 percent – from $1,395 to $6,500. As if to add insult to injury, Morgenson reports, “if she didn’t like the deal and left the community, she would receive only 75 percent of the entry fee she’d paid more than a decade earlier.”
“We had to agree to their conditions by September 1 or move,” Bray told NBC News.
“Don’t Believe a Damn Word,” Says Disgruntled Resident
Bray chose to move out rather than pay the burdensome rent, a choice she estimates cost her at least $100,000 due to lost appreciation and the reduced entry fee refund. In her conversation with reporter Morgenson, Bray’s anger boiled over.
“I just want people to know not to believe a damn word anybody says,” Bray said, referring to senior living contracts. “Your money is not safe.”
A New Dynamic in Senior Housing Puts Residents at Risk
“Residents of senior living facilities typically expect to live out their remaining years when they buy into a community,” Morgenson writes. “But a new dynamic in the industry, fueled by private equity firms and other aggressive investors seeking high returns, is altering the deals these residents agreed to.”
Residents who had believed their contracts would protect them from predatory rent increases “soon learn those arrangements can be canceled by a new owner,” the article goes on. “Among the impacts on residents: soaring rents and reduced amounts returned on deposits.”
Predictably, aggrieved River Glen residents asked a lawyer for advice about challenging the change. “A lawsuit was viable, they were told, but no sure thing,” Morgenson says. As Bray put it, the new owners “could do whatever they wanted. They owned the place. They made the rules.”
Residents are “Casualties” as Investors Seek Profits
Neither Jaybird Capital nor Citrine Investment Group responded to requests for comment from NBC News. But, Morgenson reports, in a CBS News Chicago story in 2023, Jaybird CEO Kevin Russell had said its changes to the residents’ deals were “guided by the increasing demand for rental structures versus buy-in,” and that the rents were based on fair-market value.
One expert in senior living facility financing, Lucas Hammonds of a firm called Ocsus, told NBC News that “changes like those seen at River Glen are increasingly common and driven by investors in search of profits, with residents often ending up as casualties.” Hammonds called the current situation “destabilizing” for senior community residents.
Struggling Non-Profit Owners Often Sell to Private Equity Firms
River Glen is a CCRC – a continuing care retirement community. Residents appreciate the fact that it offers a continuum of care including independent living arrangements, assisted living and memory care. It had been owned by Northwestern Medicine, a nonprofit affiliate of Northwestern University’s medical school. But Northwestern sold River Glen to Jaybird and Citrine for $20 million.
This represents a definite trend, according to a website called Retirement Community Living. “Many nonprofit organizations will likely be forced to sell seniors housing properties and skilled nursing facilities over the next year after succumbing to years of high costs and slowly recovering occupancies,” says the web article. “Several have already come to the closing table.”
Reluctance to increase rents has contributed to the problem. “Some nonprofits have also been hurt by their resistance to raise their prices for the seniors they serve, even as their own costs escalated,” says Retirement Community Living. As one expert stated, “They operated at significant losses in order to carry out their mission of housing seniors.”
But the new investors have no such qualms. “In contrast, many for-profit owners of senior living facilities have pushed annual double-digit rate increases over the last few years,” says the article.
Entry Fee Model Being Supplanted by Higher Rents
The NBC News article points out that, as private investors pour money into senior living facilities, the traditional economic model is changing.
“For example,” says Morgenson, “in prior years most communities worked like River Glen — residents would put down a deposit or entry fee and the facility would agree to return most of it when they left or died.” But for-profit owners find that simply renting the units and charging a higher monthly fee is more profitable, providing better, more consistent cash flow.
Another problem with the entry fee model is that it is heavily tied to the overall housing market. “When housing slows, so do senior living applications,” says the article. That’s because seniors have to sell their homes in order to generate the entry fees, which typically run well into six figures.
New Owners Have Latitude to Change Fees
Senior living facilities operate under state and federal regulations regarding staffing and patient safety. But when new owners take over, the financial contracts with residents can change drastically. “In reviewing the rules governing senior living facilities,” Morgenson’s article states, “NBC News found no language barring new owners from buying a facility and changing the residents’ contracts.”
Still, in the case of River Glen, it was the abrupt, arbitrary nature of the change that left former residents feeling especially bitter. “It’s just the way they did it with no discussion,” one 82-year-old ex-resident said. Now, both current and former neighbors are mourning the loss of a community that will never again be the same.
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(originally reported at www.nbcnews.com)