Introduction
In August 2023, Certus Living was engaged by the Board of The Oaks at Bartlett, a Continuing Care Retirement Community (CCRC) located in Bartlett, Illinois, to address critical financial and operational challenges. This case study outlines Certus Living’s interventions and outcomes that not only stabilized the community but also prepared it for a successful sale in 2024 that unlocked years of legacy defaults, ensuring long-term viability for the residents and staff at The Oaks at Bartlett.
Background
The Oaks at Bartlett, a 37-acre campus with 283 units spanning Independent Living, Assisted Living, Memory Care, and Skilled Nursing, went into default with its lender May 2023. Facing approximately $150,000 in reoccurring monthly operating losses and only approximately three days of cash on hand, the Board was required by its lender to hire a qualified management company to stabilize operations and develop a plan forward. Certus Living was chosen due to the proven track record in managing distressed senior living properties, including CCRC entrance fee models including CMS billing.
Challenges
- Financial Distress: Monthly operating losses of $150,000 and minimal cash reserves.
- Debt Obligations: $50 million in entrance fee liabilities carried over from prior bankruptcies.
- Operational Inefficiencies: Accounts receivables exceeding $2 million due to inadequate collection systems.
- Market Disparities: Pricing models that failed to reflect the rising costs of care, particularly in the Skilled Nursing Facility (SNF).
- Transparency Issues: Residents and families were weary of leadership and concerned of the severity of the financial challenges.
Certus Living Interventions
Strategic Planning and Operational Stabilization
Certus Living worked closely with the new Executive Director they brought in, and the leadership team to develop a comprehensive strategic plan aimed at optimizing revenue and reducing expenses without compromising quality of care. Key initiatives included:
- Revenue Optimization:
- Competitively repriced Independent Living (IL), Assisted Living (AL), Memory Care (MC), and Skilled Nursing Facility (SNF) services.
- Introduced a four-tier level of care system in AL.
- Revamped SNF private rates to reflect actual cost increases.
- Expense Reduction:
- Implemented daily staffing and overtime tracking systems.
- Developed internal controls and spend-down sheets.
- Reduced overall expenses by 10% through strategic cost-cutting measures.
Financial Management
- Collections Systems: Overhauled accounts receivable processes, resulting in significant recovery of the $2 million outstanding by year-end.
- Budget and Capital Planning: Delivered a 5-year capital expenditure plan and a Fiscal Year 2024 budget.
- Immediate Capital Expenditures: Value Engineered and deployed cap ex plan to rehab key elements of the 1st floor throughout the community including all common areas in IL, AL, and MC carpet and paint through the 1st floor as well as unit turnovers in IL and AL.
Resident and Family Engagement
Certus Living prioritized transparency by holding town hall meetings and individual family sessions to explain the financial situation and address concerns. These efforts fostered trust and collaboration among stakeholders.
Entrance Fee Model Revamp
Acknowledging the unsustainable nature of the existing entrance fee model, Certus Living developed a new approach that was approved by all stakeholders, including its lender. Key attributed included:
- A restructured and discounted 0% refund entrance fee model.
- New residency agreements were drafted as well as voluntary settlement agreements with nearly 100 estates whereby they would receive a reduced refund but highest and best.
- Adjusted life care benefits for new residents to better align with financial realities.
- Marketed and relaunched the effort.
Results
By the end of 2023, Certus Living delivered on all board-mandated objectives:
- Operational Turnaround: Achieved positive NOI by Fall 2023 and +$100k/mos. throughout 2024.
- Compliance and Reporting: Satisfied forbearance requirements, ensuring continued lender support.
- New Entrance Fee Model: Gained resident and family approval for agreements to enable unit resale on restricted units.
- Improved Stakeholder Confidence: Enhanced communication and trust with residents, families, and staff.
- Quality: 2 state surveys resulting in 5 star CMS rating in SNF
- Occupancy:
- MC achieved 100% occupancy (First time since pre COVID)
- SNF averaged 90-95% occupancy.
- AL was 95%-100% occupied.
- IL achieved 100% occupancy of units that were not restricted by defaulted resident agreements from prior operator.
Sale and Long-term Stability
Despite these achievements, The Oaks at Bartlett faced an unexpected challenge in February 2024 when the lifecare licensing agency suspended its license due to historical issues predating Certus Living’s involvement. This development halted our restructured entrance fee agreement. Recognizing the need for a strategic exit, the Board, and trustees, with Certus Living’s support, engaged Continuum Advisors to broker the sale of the property.
Thanks to Certus Living’s interventions, The Oaks emerged as a more attractive asset to a sponsor who wanted to invest more in the community, to improve those that call the Oaks home for years to come. The property was sold in December 2024 to a well-healed qualified buyer for $42 million, ensuring long-term financial stability and setting the stage for new capital investments.
Conclusion
The transformation of The Oaks at Bartlett exemplifies Certus Living’s expertise in managing distressed senior living communities. Through operational stabilization, transparent communication, and innovative financial strategies, Certus Living not only navigated immediate challenges but also laid the groundwork for a successful transition of ownership. This case study underscores Certus Living’s ability to deliver sustainable solutions, even in the most challenging circumstances.
