Erickson Retirement Communities files for Chapter 11

Erickson Retirement Communities, a pioneering senior-living developer founded 26 years ago with the opening of Charlestown in Catonsville, filed for federal bankruptcy-law protection Monday with a plan to restructure more than $1 billion in debt and sell the struggling company to a local investment firm.

Erickson said the Chapter 11 filing was necessary to restructure debt, split the core management and real estate businesses into separate entities, and pave the way for a sale.

Erickson, which has 23,000 residents in communities around the U.S., said it was being purchased for an undisclosed amount by Redwood Capital Investments LLC. That company is controlled by Jim Davis, who is the majority owner of the $5 billion, Hanover-based staffing firm Allegis Group; he could not be reached for comment Monday.

In an interview Monday, Bruce R. "Rick" Grindrod Jr., Erickson's president and chief executive officer, said neither the court filing nor the sale would mean any changes for residents or jeopardize their refundable entrance fee deposits, which can top $400,000.

But some residents, unaware of the financial troubles, were still waiting for more information.

"I don't know what to think because I don't know anything about it," said Jim Greeley, 85, who has lived in Charlestown for eight years.

The company has grown significantly since the founding by John Erickson: It has more than 12,000 workers at the headquarters in Catonsville and its 19 communities in 11 states. In Maryland, Erickson's three communities are Charlestown, Oak Crest in Parkville and Riderwood in Silver Spring.

Erickson's real estate arm, which acquires land for campuses and builds projects, has been hurt by the recession, as seniors who couldn't sell existing homes put off moving to continuing-care communities. In its bankruptcy filing in U.S. Bankruptcy Court in Dallas, the company listed more than $1 billion in liabilities, more than $1 billion in assets and nearly 250 creditors, including The Baltimore Sun.

"We've been in negotiations for quite some time now with all the various lenders and. ... It became clear that in order to execute on the ... sale of the company we were going to need to turn to the courts for supervision," Grindrod said.

The bankruptcy will enable the company to separate Erickson's management business from the real estate development business. "Court supervision will enable us to separate out the volatility and risk of a real estate development company from the stability of a management company," he said.

The complex legal arrangements in these developments, in which nonprofits often own communities that are managed by Erickson, means that residents' deposits are not held by the company.

Robert Kramer, president of the National Investment Center for the Seniors Housing & Care Industry, said that Erickson was hit by a "triple whammy" of the housing crisis, a bad credit market and the collapse of the stock market.

The structure of the Erickson payments system, in which residents paid an upfront fee, also made the company vulnerable when the economy tanked, Kramer said.

Seniors in Erickson communities generally paid their refundable entrance fees - ranging from $150,000 to upward of $400,000 - by selling their homes.

When the housing market collapsed, values declined and seniors either couldn't sell their homes or didn't feel they should, Kramer said. "For most seniors, they still had an enormous appreciation compared to what they paid for their homes, but it wasn't worth what it was two or three years ago and that is what they saw."

Erickson was in the midst of large developments outside Maryland but couldn't get seniors to put down the money to move in. When the credit markets collapsed, Erickson couldn't restructure its loans.

In the announcement Monday, John Erickson, who is also the company's chairman, said he has known Davis for years and described him as committed to the company's vision. Grindrod, the CEO, said that John Erickson had been in discussions with Davis for more than a year about becoming an equity investor.

Kramer said Erickson was a pioneer in the retirement community business. The communities had more than 1,000 units, as opposed to a more typical 300- to 400-unit community. Each of Erickson's communities offers housing, related health care and support services to people 70 and older. They include various housing options such as independent living, assisted living and skilled nursing facilities.

Erickson also offered a full refund of entrance fees to seniors who moved out of a development or died. The size of the property allowed teachers and government workers to live in communities with upscale amenities, Kramer said.

The economy has hurt the entire retirement community industry, prompting many companies to offer incentives just to move in, experts said. Many new developments have been delayed because of the tight market.

But continuing-care facilities such as Erickson, which allow seniors to progress from independent living to assisted living, have suffered more, experts said.

People who move into assisted-living facilities usually don't have a choice, said Rick Grimes, president and CEO of the Assisted Living Federation of America. "The problem that Erickson seems to be facing is that they're not getting as many people in on the independent-living side, so they're not getting people into the cycle."

The company had said earlier this month that it was working toward separating the building and management entities, and was hoping to bring in an equity investor.

Erickson management had met recently with residents at Oakcrest and sent out a letter describing the financial problems.

Ruth Pundt, 76, who has lived in Oak Crest for more than 13 years, said she wasn't entirely surprised by the bankruptcy. She said Erickson executives, including John Erickson, told residents the company was looking for a financial partner.

But Pundt, who is retired from state government, isn't concerned about the future of her home and has no plans to leave.

"We feel secure here because we own the place," she said. "This is a wonderful way of life. It's like being on vacation."
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