If any business proposition ever looked like a sure thing, betting on aging Americans, rising home values and the advantages of tax-exempt companies might have been it.
For a quarter-century it paid off for John C. Erickson, who built the retirement-home chain bearing his name into a billion-dollar operation that spread from Massachusetts to Texas.
Along the way he acquired a yacht and multimillion-dollar homes and started a charitable foundation that had $139 million in assets in 2007, the most recent year information is available.
But Catonsville-based Erickson Retirement Communities got slammed by the same extraordinary forces that hit companies as diverse as Wall Street's Citigroup and Baltimore's Constellation Energy and 1st Mariner Bank. Erickson's travails again illustrate the magnitude of the financial collapse and raise questions about the future of what Fortune magazine named one of America's best 100 companies to work for.
"John has always been very aggressive," says Brian P. Froelich, a former Erickson president who left in the 1990s after a falling-out with the founder. But the company strategy, he added, "is very sustainable over time if done properly and conservatively."
Evidently it wasn't conservative enough. Erickson's stock in trade may be geriatric care and clean, airy communities for seniors. But like other companies, its dependence on credit markets and home values brought it to a low point.
On Monday the company announced it would enter bankruptcy proceedings and sell itself for an undisclosed price to Jim Davis, who with Steve Bisciotti founded Hanover-based Allegis Group in the early 1980s.
While Bisciotti went on to buy the Baltimore Ravens football team, Davis seems likely to end up taking over another Maryland institution: Erickson, its development company and contracts to run its 19 communities.
The deal must be approved by the bankruptcy court. But in any event it looks as though John Erickson, 66, will lose control of the company he founded in the early 1980s when he turned an abandoned seminary in Catonsville into Charlestown retirement village.
The company developed a unique business, creating not-for-profit corporations to issue tax-free bonds and buy management services and eventually real estate from Erickson's for-profit outfit. The system generated huge profits and, by many accounts, well-run communities.
(Full disclosure: One of my sons was an intern at Erickson's Oak Crest Village in Parkville a couple summers ago.)
The company's strategy of promising to refund residents' purchase price (often six figures) to heirs after the older person's death gave it an edge over competitors.
John Erickson became a force in Maryland business, although he operated outside the spotlight in recent years. His sons, Mark and Craig, came to work for the company. Mark is the No. 2 executive, after CEO Rick Grindrod. John Erickson, whom the company did not make available for an interview, is chairman.
In the late 1990s he tried to persuade the General Assembly to cut the state capital-gains tax on big-dollar transactions, promising to consider moving back to Maryland from Florida and increasing charity here if it did.
"For $250, I can get on a Metrojet and go to Florida," he told the Washington Times. "Rich people have that choice."
The legislature balked. Erickson's main residence is still his 5,700-square-foot, five-bath, waterfront home in West Palm Beach, Fla., assessed at $2.5 million, according to Zillow.com. He also owns a multimillion-dollar pied a terre in Baltimore's Harborview.
He has been trying to sell that penthouse property - evidence of larger troubles.
A bad economic recession, a credit analyst wrote early this year, could decrease "the willingness of prospective [Erickson] residents to make financial decisions - including the sale of their home or payment of an entrance fee."
The analyst, Michael Schmidt, who follows Erickson for the Ziegler Cos., was right.
Erickson had accelerated its expansion at just the wrong time, launching developments in Texas, Ohio, Virginia and Kansas before the housing collapse. The number of residents companywide was supposed to eventually grow from about 22,000 to 41,000. In recent months, however, would-be residents had trouble selling their homes.
Cash from new residents missed expectations. Erickson couldn't pay some lenders. And the frozen credit market meant the company couldn't refinance.
Court documents list liabilities of more than $1 billion. Prominent among the senior creditors are several banks active in Maryland, including PNC Bank, Sandy Spring Bank, Bank of America and M&T Bank, according to data compiled by Bloomberg.
So the subprime mortgage avalanche keeps rolling downhill. The effect on Erickson as a company may be relatively minor. Davis hasn't talked to reporters. But he's a Maryland guy, so he should keep the headquarters in Catonsville.
The effect of the bankruptcy on the communities remains to be seen. As nonprofit corporations, they should be relatively insulated from the trauma. Residents worry about getting their money back after moving out, which depends on the company selling the unit to a new occupant.
But the long-term trends that John Erickson bet on 25 years ago still exist. America is getting older. Demand for retirement housing will soar. Plenty of people will make money on the baby boomers as they go geriatric.
But John C. Erickson, if he's involved at all, won't be nearly as prominent among them as he might have been.
