This is a cautionary tale for both for-profit and not-for-profit providers.
By Steve Moran
One day in 1989 my wife came through the door of our house excited beyond belief. She had just been offered and accepted the position of assisted living director for Air Force Village West, a brand-new, not-yet-open senior living community for retired military officers located between downtown Riverside, California, and March Air Force base.
She was a part of the opening team and continued to work in that position until we moved to the southern outskirts of Los Angeles. During her time there, the community was full, successful and vibrant. She had the opportunity to rub shoulders with real World War II heroes and their spouses.
If you had suggested to any of the residents, board members or team members that 25 years later the community would end up as a financial disaster of epic proportions (maybe that is too strong, only time will tell) you would have been called crazy . . .
And yet . . .
YOU WOULD HAVE BEEN RIGHT
A Sad Tale
Their bottom line is that they are about out of cash. They have too many unoccupied residences, the property is located in a place that was once perfect for retired air force officers from the WWII generation but is not so perfect for enough people now. The debt is too high and while the entity owns the land, it used to belong to the Federal Government and it comes with significant deed restrictions which severely limit what can be done with the property.
Today they have opened the community to anyone who wants to move in and can afford it. They have changed the name to Altavita Village, and they are being managed by Eskaton. With 100% consistency, Eskaton has done a masterful job of improving things. They have increased occupancy and stabilized cash flow. But because of their low, low occupancy, they have also not made any payments on their 61-million-dollar bond obligation for almost a year.
Things are coming to a head, the bondholders apparently believe there is sufficient reason to force the property into receivership. (As I understand it, this action is on hold for the moment.) There is a for-profit senior living company that has the financial strength to take this project on that is doing due diligence at this moment.
How This Happened
What makes this tale particularly painful is that there are not really any bad guys . . . exactly, it is rather a long, long tale of inexperienced leadership and lackadaisical governance. There seem to be 5 key factors:
For most of the life of the community, they were self-governed. There was a board of directors that was made up of a few residents, community members and some retired military folks who were not residents. They were good people, successful people. But they assumed management knew what they were doing and trusted that things would all work out.
The company was not managed by senior living professionals. At least in the early years, management was by retired military officers, again competent and capable managers in a military setting, but not necessarily in the outside world.
They were complacent. At one point they had reserves of 50 million dollars. I can imagine they assumed that would protect them from all bad things. At one point, those reserves had to have been spinning off significant investment income.
The residents were too trusting. While moving is never fun, in a rental property the resident financial risk is relatively low. In a CCRC/Life Plan Community, the stakes are much higher for residents. I would note that even now, as I have chatted with a few residents, they seem to be more trusting that things will all work out than I would be.
There are twin sins we see repeated over and over again in senior living and many other businesses. The first is hoping that things will get better, and the second is doing the same thing over and over again expecting different results.
It appears that both were in full force at Air Force Village West/Altavita.
This is a cautionary tale for both for-profit and not-for-profit providers. I will drill into those lessons in Part Two – “When Board Members and Managers Fail to Do Their Job”