Affordable Rent & Assisted Living

5 min read

Medicaid Helps Vermilion Development Residents 

Affordable assisted living can be a triple winner if it is done right using Medicaid waivers, according to a developer that has an active portfolio of properties in Indiana.

Low-income seniors can be housed at discounts of 25 to 35 percent from market-rate assisted living, taxpayers benefit because the costs to build and run these properties are lower than the cost of nursing homes, and developers can make a profit if they can get north of 85 percent occupancy (95 percent is better).

The potential for this kind of long-term care facility is huge, according to Dave Cocagne, president and chief executive of Chicago-based Vermilion Development.

“Yes, there is need for this and demand,” he says.  Cocagne says 60 to 65 percent of seniors 75 and over in the areas Vermilion serves can qualify for the Medicaid waivers and demand will only increase as Boomers age.

“It’s an underserved demographic,” according to Cocagne. “And it gives us an opportunity to serve a real need in society.”

Affordable assisted living is an industry he likes and plans to expand in. “We’re going to be in this business for a very long time,” he says. “We’re going to manage the properties for a very long time.”

Ohio and Arizona Are Next
Cocagne says he is mostly in Indiana now but is hoping to expand his affordable assisted living portfolio to states like Ohio and Arizona. Each state has its own set of regulations that must be navigated.

But he feels his facilities offer seniors more autonomy, less of a medical model of care than a skilled nursing facility and a place where they have much more determination over their lives. “To expand, it really requires the confluence of the right rate structure and the right regulatory framework across a variety of state agencies.”

Vermilion finances the properties with four percent Low Income Housing Tax Credits and tax-exempt bonds through the state agency, the Indiana Housing and Community Development Authority. Usually it is the local municipalities that issue the bonds. Vermilion has a single investor, Affordable Housing Partners, a unit of Berkshire Hathaway. Each of the developments has cost about $23 million.

The properties, most of which carry the “Silver Birch” brand, tend to generally resemble each other and have the same floor plans for resident studios and one-bedroom apartments, though Vermilion has used three separate designers as it has ramped up construction.

Some of the properties are at a high enough occupancy rate to be profitable, he says, while others are working towards it. Cocagne notes seniors have other housing alternatives, like living with children or using home health workers.

Its first property, Silver Birch of Hammond, IN, came online in 2017. It has 125 units in a four-story building on 4.7 acres. It is connected to downtown Hammond by a bike/walking trail. Eight of the nine Vermilion properties are in Indiana, with the other one in Illinois.

Besides the one in Hammond, Vermilion also has Silver Birch properties in Muncie, Kokomo, Mishawaka, Michigan City, Evansville, Fort Wayne and Terre Haute, IN, and a property called Gateway at River City in Peoria, IL. Vermilion also has concentrations in market-rate developments and public-private partnerships.

Keys to success at these properties? Having great workers and nice-looking properties are definitely up there, he says.

Valerie Kretschmer, principal at Kretschmer Associates, Evanston, IL, is Vermilion’s consultant on its affordable assisted living portfolio, scouting locations and doing studies. “We do feasibility and market studies they need to go for tax credits,” she says.

She looks for what the best opportunities are for Vermilion: safe and desirable neighborhoods, with good visibility and enough income-eligible people to make the project work.

Kretschmer notes these kinds of projects are a lot more regulated than many others in the state of Indiana. “There are a lot of basic requirements in terms of unit sizes, what services there are, what reimbursement rates are.”

One feature of the Vermilion properties is that they have a continuum, with private pay customers and Medicaid residents and the ability to shift between the two designations. If a private pay resident gets below the $2,000 asset maximum, they can become Medicaid residents without having to change addresses.

The level of healthcare in these facilities has really been tested this year with the onset of the Coronavirus. Cocagne says his facilities are coming through with flying colors.

“We’ve been very fortunate. Of roughly 880 residents and 450 employees, I can count the number of diagnoses on one hand,” he says. “We were pretty much in front of this.”

Making It Interesting
Expanding into managing more healthcare workers is “a challenge and an opportunity,” he says, since developers tend to be small shops. “It makes it interesting and you get the opportunity to let people achieve an aspiration they might have had.”

Vermilion even had to hire extra workers to carry out additional services during the pandemic, like serving seniors meals in their apartments rather than in a communal dining hall.

“On the clinical side, we continue to see great tightness in the market for clinical staff,” he says.

On the Medicaid side, Vermilion deals with Indiana’s Family and Social Services Administration, which includes a Division of Aging and a Division of Medicaid. And adding the Medicaid side has given Vermilion a new set of corporate muscles to develop, adding clinical care and a more robust customer relationship management to traditional skills of tax credit compliance and financial reporting.

Cocagne gives the state of Indiana a lot of credit, though, for easing potential regulatory frictions. What once could take 90 to 120 days has been streamlined to a process that takes 48 to 72 hours to complete.

Mark Fogarty has covered housing and mortgages for more than 30 years. A former editor at National Mortgage News, he has written extensively about tax credits.