Sunrise Hopes Dawn Is Near

Ordan, the new Sunrise chief executive, concurred. "During the investigation it was obviously a period of distraction," he said. "People who would otherwise be attending to the business are spending time with investigators or are being asked to leave."

It was around this time that Sunrise decided to head to Germany, purchase the hospice chain and the senior living facilities in Florida, and enter the luxury condo business for seniors. The latter effort was particularly expensive. Earlier this year, the company said it was abandoning its condo plans except for a project that was near completion in Bethesda. The write-off: more than $40 million. As of Oct. 31, the Bethesda condo had sold nine of 240 units, according to a Sunrise filing with the SEC. Ordan said sales traffic has heated up recently.

The effect of the poor deals, according to Ordan, was that Sunrise lost valuable capital on projects that didn't turn a profit while causing the company to grow its overhead through the hiring of a significant amount of employees. "That's an unfortunate confluence," he said.

And then the economy tanked, and the company's operating flexibility weakened. An example of this came in late October, when the weak credit market forced Health Care REIT to terminate a deal to buy a 90 percent stake in an Arcapita joint venture with Sunrise. The deal would have netted Sunrise $41 million to $51 million and could have put the company in compliance with lenders behind its credit line.

Now Sunrise executives say they are working to refinance about $150 million in loans, including the $95 million line of credit. Analysts say the firm will also need to raise as much as $350 million in 2009. Sunrise is largely abandoning further development efforts, which has resulted in $84.2 million in write-offs for the nine months ended Sept. 30, according to SEC filings. Shareholders appear nervous. Last month, the firm's shares traded as low as 27 cents. A year ago, Sunrise was trading at $31.98.

Ordan, 49, is well known locally and in the banking community. He was previously chief executive of the Mills Corp., overseeing its sale to Simon Properties. He has also been chief executive of Fresh Fields, which was sold to Whole Foods. Ordan started his career at Goldman Sachs, which is now working to help Sunrise raise money. He said his theory on working with banks is that "if a pencil breaks at Sunrise, I call the banks to tell them about it."

Ordan said the company, which recently announced plans to lay off 160 workers not involved in resident care, will focus almost exclusively on maximizing revenue at its more then 450 facilities.

But analysts and industry observers say that will be a difficult task. The nation's assisted-living industry is now weathering its most severe economic downturn ever with the predominant source of its growth -- people selling their houses so they can afford the move -- vanishing amid the credit crunch and plunging home prices. Nine out of 10 people use private pay sources like home sales and retirement accounts for assisted living. Sunrise has dozens of facilities in states hit hardest by the housing downturn.

"With the housing market downturn we are experiencing, homes aren't moving as quickly so what you are seeing in the marketplace is that some folks are delaying their decisions to move in for as long as they can," said Dave Kyllo, executive director of the National Center for Assisted Living. "We don't really have precedent or a reference point to know how bad it could get."

The concern among analysts is that if occupancy softens too much, cash flow will slow even more, either because fewer people will be moving in or the firm will have to lower rates to attract more customers. Such a scenario is likely weighing heavily on Sunrise's efforts to renegotiate its credit terms, analysts said.

"Getting any kind of financing is difficult now, and the terms are much more stringent than they were in the past," Englander said. "If demand softens, clearly that could affect rates and cash flow, which is what the lenders are lending off of."

Englander said the company could be forced to borrow at higher rates, then if cash flow slows even more because of the economy Sunrise would have to take on more debt at even higher rates and with more onerous terms. "They will have to keep taking on additional debt to fund operations and that debt service will continue to pressure the bottom line," he said.