Debt woes put brakes on Village

Anne Danahy

The Village at Penn State retirement community has stopped paying its monthly debt services to bond holders, saying it needs the money to pay for daily operations and repairs, according to officials.

CDT file photo/Nabil K. Mark

Officials of The Village at Penn State say they have hired a financial advisory firm to help deal with debt they incurred during construction.

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Executive Director Marianne Hogg and board Chairman Gary Schultz pointed to several factors behind the decision, including the economy. They said the board has hired financial advisory firm Ziegler Capital Markets to help determine what options are available.

Those options include restructuring the debt and forming an affiliation with another nonprofit senior living center, they said.

Schultz, who is retired senior vice president for finance at Penn State, said the board made the decision last week and told residents and staff about it Thursday. He and Hogg said day-to-day operations will continue as usual.

The Village has about $29 million in debt, used to pay for its construction, which was finished in 2004. The debt service amounts to about $177,000 a month.

“The circumstances that led to this announcement are complex,” Schultz and Hogg said in a prepared statement. “First, occupancy at The Village when we opened was not what we anticipated. Consequently, this did not allow us to retire our debt (accumulated in building The Village) as quickly as we had hoped.”

“The debt and its corresponding interest has become too large a burden for The Village. Our hope was to be able to restructure our debt as we planned for our expansion, but the economic recession

intervened,” they said.

Schultz said plans had always been for a second phase of expansion, and that would have allowed restructuring of the debt. But, he said the economy caused the credit markets to freeze up, and dampened the demand from people moving into retirement communities.

He said that a lot of entities were created “that were overly ambitious and had too much debt. We are not the only ones.”

He said many of those entities have gone through debt restructuring and come out financially viable.

The retirement community has also been dealing with a major problem with the kitchen floor that will likely be expensive to fix. In August, The Village had to close the kitchen after a shift in the soil caused the kitchen floor to become unstable.

Schultz said the kitchen was condemned and The Village is running its kitchen operations out of two trailers.

The Village, 361 President’s Drive, is located primarily in Patton Township and in College Township on land leased from Penn State. It can have 240 residents in apartments, cottages and rooms with nursing services. Hogg said occupancy is about 91 percent.

Schultz said the operations of The Village are strong in other respects, including resident satisfaction.

Hogg said The Village has a debt service reserve fund that has 15 months worth of debt payments in it. She said bankruptcy would be a last resort.

“We don’t think it’s likely,” she said, adding that they’re confident voluntary restructuring will be able to be negotiated.

There isn’t a definite time-line at this point, although Hogg said they hope to have the kitchen floor resolved soon.

Penn State spokeswoman Lisa Powers said while The Village is a “private enterprise, Penn State is very committed to the concept of a retirement community that is connected to the university. We believed when it was launched and still believe it has many benefits for the research and education enterprise of the university, as well as for the residents who live there.”

Anne Danahy can be reached at 231-4648.