One of the nation’s largest nonprofit continuing care retirement communities is citing pandemic losses in filing for bankruptcy as the COVID-19 pandemic continues to have a ripple effect on the senior living industry.
Evangelical Retirement Homes of Greater Chicago, doing business as Friendship Village of Schaumburg, filed for Chapter 11 bankruptcy protection on Friday in US Bankruptcy Court for the Northern District of Illinois, Eastern Division. A hearing on the filing is scheduled for today. Friendship Village was represented by Polsinelli.
“Without the ability to tour prospects for nearly a year, occupancy dropped significantly, leaving Friendship Village with the financial hardships that are being resolved through this debt restructuring process,” Friendship Village President and CEO Michael Flynn said in a statement. “By taking these steps toward a healthier financial structure, FVS will gain the financial flexibility to make material improvements that will further enrich our campus, amenities and services.”
According to a news release issued by the company, “Stakeholders believe the best solution is to utilize the bankruptcy process to run a marketing and sale process to select a potential purchaser and, after an auction, a winning bidder.”
An auction is slated for Oct. 3, with a goal of finalizing a sale by the end of the year.
Resident deposits received after April 17 will be held in escrow to protect deposited funds, according to the company, which indicated that it would address resident refunds “after a successful realignment and outcome is reached.”
The COVID-19 pandemic was cited as a major contributing factor of the community’s financial challenges. Friendship Village of Schaumburg experienced occupancy and revenue declines, leading to the bankruptcy protection decision. Occupancy at the CCRC fell to 78% in September 2020. Although the community had obtained a Paycheck Protection Program loan, it still had to spend half of its cash reserve at the time to make up for lost revenue.
In addition to the bankruptcy filing, the CCRC asked the court to support its ongoing operations and facilitate the restructuring process by authorizing the maintenance of pre-petition bank accounts and providing adequate assurances of utility payments and employment-related matters to ensure the stability of the community during the bankruptcy process.
Pre-pandemic, the community accepted entrance fees for eight to 10 units each month, according to the release. Demand evaporated during the pandemic, and sales plummeted, leaving the community owing $131 million, including unpaid interest, to investors that own bonds used to finance the property, the Real Deal.
Friendship Village of Schaumburg, which opened in 1977, is ranked as the No. 22 largest individual campus among the nation’s 150 largest not-for-profit senior living communities in the nation in the 2022 LeadingAge-Ziegler 200.
Fitch Ratings recently reported that high wage inflation remains a major credit risk for US continuing care retirement / life plan communities and skilled nursing facilities, where payrolls remain well below pre-pandemic levels. CCRCs and SNFs, Fitch said, will have to implement productivity enhancements and cost savings as well as manage skilled nursing admissions to successfully operate through labor challenges.
