Economic Update — Seniors Housing Specialist on Tenterhooks

The prospect of un-refinanceable debt has yet another commercial property company on thin ice, in this case McLean, Va.-based Sunrise Senior Living. The assisted- and independent-living specialist not only lost $305.6 million in the fourth quarter of 2008 (and $439.2 million for all of 2008), it’s also facing an imminent–end of March–deadline on renegotiating about $95 million in debt and $24.4 million in outstanding letters of credit.In particular, the former Fountains portfolio, some 420 properties that Sunrise bought in 2005, is causing problems for the company. “The operating performance of these communities continued to deteriorate in the fourth quarter of 2008 and in January 2009,” Rick Nadeau, Sunrise’s CFO, said during a conference call this week. “We have been unable to restructure this debt… We are in discussions with our venture partner and our lenders to attempt to resolve these matters.” Nadeau also pointed out that cash flow from operating activities was a negative $124 million for 2008. “While difficult to quantify, the economy is having a significant negative impact on the decision to move into senior living as seniors and their families face declining savings and challenges in selling their homes,” he noted. Sunrise may have problems peculiar to its circumstances, but the pressure seems to be on seniors housing as a whole. According to the National Investment Center for the Seniors Housing & Care Industry, loan performance in the seniors housing industry has started to edge downward, from 99.5 percent in 2Q08 to 98.9 percent in 3Q08, the latest quarter for which data are available. “Since there is likely a good amount of debt that needs to be refinanced over the next few years and considering the current turmoil in the credit markets, refinancing will be a challenge in the short term,” said Robert Kramer, president of NIC, regarding the dip. “As such, we may see some deterioration in loan performance during the next 18 months.” In the retail world, Blockbuster Inc. was reported to be considering bankruptcy. After the news broke–which the retailer is denying–its stock cratered, dropping about 77 percent on Tuesday. According to Blockbuster, it’s trying to find financing to make a debt payment due late this summer, but could survive without doing so. It all gives a new meaning to the “late fee” concept pioneered by video rental chains back in their 1980s heyday. Fed Chairman Ben Bernanke, who may be pining these days for his old job at Princeton, testified before Congress today that American International Group operated “like a hedge fund” and “made huge numbers of irresponsible bets [and] took huge losses.” At least he didn’t call it a Ponzi scheme, which has been all the rage in the financial world lately. After a string of sizable losses, the equity markets dropped only a little on Tuesday. The Dow Jones Industrial Average lost 37.27 points, or 0.55 percent, while the S&P 500 was down 0.64 percent and the Nasdaq down 0.14 percent.