Continuing Care Retirement Communities (CCRC’s)

A senior living community that caters to a broad category of needs including independent and assisted living, and permanent skilled nursing care. CRC’s (also known as “life plan” communities) typically have high occupancy levels as they provide residents with the ability to “age in place”.

Putting ‘Continuing Care Retirement Communities (CCRCs)’ in Context

Scenario:

Desert Sage Capital Partners, a real estate private equity firm specializing in value-add investments, is evaluating the acquisition of Sunrise Ridge Retirement Community, a CCRC located in Scottsdale, Arizona. The property consists of 200 independent living units, 75 assisted living units, and a 50-bed skilled nursing facility.

Background:

Sunrise Ridge has been operating for 20 years and boasts a strong occupancy rate of 92%. However, many of the facilities and common areas have not been significantly updated since its inception. The existing owners are motivated to sell as they lack the capital and operational expertise to perform the necessary renovations and improvements. Desert Sage Capital sees an opportunity to add value by modernizing the community and increasing its appeal to potential residents.

Value-Add Strategy:

Desert Sage Capital’s investment strategy involves a $15 million capital improvement plan. The plan includes renovating the independent and assisted living units, upgrading the skilled nursing facility, and enhancing the common areas with new dining options, wellness centers, and outdoor spaces. These improvements are projected to increase occupancy to 97% and allow for an average 10% increase in rental rates across all unit types.

Investment Details:

• Purchase Price: $80 million
• Capital Improvements: $15 million
• Projected Stabilized NOI: $9.5 million (post-renovation)
• Current NOI: $7 million
• Target Hold Period: 7 years
• Exit Cap Rate: 6%

Contextual Insight:

CCRCs like Sunrise Ridge offer residents the ability to “age in place,” transitioning from independent living to assisted living and eventually to skilled nursing care as their needs evolve. This makes CCRCs an attractive option for seniors and leads to high occupancy rates and longer average tenancies compared to other multifamily property types.

In this scenario, Desert Sage Capital Partners recognized the inherent stability of Sunrise Ridge due to its high occupancy and diverse service offerings but also identified significant upside potential through targeted renovations. The planned improvements align with the CCRC’s goal of providing comprehensive care while enhancing the living experience for current and future residents. By executing this value-add strategy, Desert Sage Capital aims to increase both the property’s income and its overall market value, ultimately delivering strong returns to its investors.