Carefree files for Chapter 11 protection

Burnsville-based Carefree Living of America Inc. has filed for bankruptcy in relation to three of its assisted-living facilities located in Burnsville, St. Cloud, and Brainerd.

"We definitely plan on keeping them open," said Kate Zeller, president of Carefree, based in Burnsville. She declined to comment besides saying that the Chapter 11 bankruptcy was filed to reorganize the business.

Carefree has said in court that one of its reorganization strategies might include selling the three facilities, according to an informed source who asked not to be named. Carefree America also has a facility in Minnetonka that is not in bankruptcy proceedings.

The bankruptcy filing was prompted by a lawsuit filed in Dakota County District Court in May by Carefree's lender, First Union National Bank, based in Charlotte, N.C. First Union filed the suit after Carefree missed a payment in February on its $11.3 million mortgage on the three facilities, documents said.

Carefree voluntarily filed for Chapter 11 bankruptcy, and the two parties have agreed that Carefree will keep up to date on its property taxes and other ongoing expenses as it develops its reorganizational plan, documents said.

Total debts on the three facilities are about $11.8 million, with assets of about $8.6 million, court documents report.

Facilities, such as Carefree's, that are not part of a senior-care campus have been struggling in the Twin Cities.

Carefree's facilities are considered independent and free-standing assisted-living facilities because they aren't part of a senior-care campus with, say, a nursing home nearby, or an established, local senior-care organization, said Rick Fenske, vice president/director of senior housing for Minneapolis-based Maxfield Research.

"For the most part, the free-standing assisted-living facilities aren't doing as well as those that are part of a campus," Fenske said.

The overall assisted-living vacancy rate for the Twin Cities is 9 percent. Free-standing facilities face vacancy rates ranging from 8 to 20 percent; those located on campuses have vacancies of 3 percent, he said.

Free-standing assisted-living facilities suffer because they lack the name recognition of a large organization and don't have the relationships with nursing homes that can feed residents to the facility and provide a place for people to go after leaving an assisted-living residence, Fenske said.

Carefree's units also are more like suites than apartments because they don't have kitchens, and this type of product hasn't performed well in the Twin Cities, he said. Finally, Carefree had been unable to fill its units with private-paying residents during the past few years and started taking in a number of residents receiving some public financial assistance, he said.

Nationally, assisted-living facilities are performing well in some markets, but are struggling where overbuilding has occurred, said Ken Preede, research director for American Seniors Housing Association, based in Washington, D.C. Preede noted that investment in developing assisted-living facilities has steadily been declining since peaking in 1998.

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