I recently had a chance to talk with Ed Plasha, our CFO, about my recent blog post about the tradeoff involved in expanding our independent-living population to pay for the expansion of our healthcare wing. Ed pointed out a number of issues with my analysis. In this post, I will explain the issues he raised and how I think about them now.

Current IL residents. His first point was that my number for independent-living (IL) residents was way off. I gave the number as “about 250”, but it is really (as Ed pointed out) “In the low 300s”. I can confirm that: it varies a bit from month to month, but currently there are 330 IL names in the online directory of the KRA website. I have corrected the number in my previous post. The number of IL cottages (not residents) is “about 250”.

One floor vs. two. In my previous blog post, I discussed the possibility of “a one-floor approach with no apartments below”. The expanded floor would either be sitting on posts (with the space below open to the air and used, for example, as a parking area) or the space could be enclosed but not heated/cooled and perhaps used for storage or some kind of recreational space.

Ed tells me that this possibility has not been explored. If there were to be an expansion on a single floor, there would be IL apartments below. Thus, we are left with just two options: expansion on two floors (costing $37 million) or expansion on one floor (costing $55 million, but financed in part by adding IL residents in the apartments below). I still believe it would be useful to have some idea of the cost the “one floor with no apartments” approach.

Financing the expansion. Ed is opposed to the concept of using more of our reserves (beyond the $25 million already proposed) for this project. He points out that we have lost $17 million in the recent market declines. We are facing about $6 million in costs for the Mott and Woolman projects beyond the amount that entrance fees will cover; it will take several years for the additional monthly fees to make that up. And the Kendal café work will cost around $5 million.

In addition, Ed is concerned about a possible large increase in the cost of utilities once the expansion is built. That’s a legitimate concern, but I would argue that, if we do it right, the expansion could be “net-zero ready”, like the Mott and Woolman projects. With rooftop solar and solar canopies in the parking lot, it could actually reduce our utility bills below current levels. We have not yet gotten to the stage at which options like those will be considered.

My conclusion. I continue to feel strongly that increasing Kendal’s resident population should not be used as a funding mechanism. For the reasons outlined in the previous post, and explored in depth in an earlier post about optimum size, I think the quality of Kendal’s community life will suffer if it grows any more. If our only choices are a $37 million expansion on two floors with no additional residents or a single-floor expansion with additional apartments at $55 million, then I personally feel that we should expand on two floors. A bit more money from the reserves, a fee hike of less than 1%, and perhaps some creative fundraising will cover the costs. Let’s discuss those options.