Is private equity good for anyone other than the PE gods themselves?

I know, I know. As economist Paul Krugman has it, "Not all private equity people are evil. Only some."

But I'm scratching my head here, trying to think of the last time I read anything about a time when private equity stepped in and took over that has had a positive outcome: Jobs saved! The town prospers! Everybody's happy!

Instead, the story pretty much always goes like this:

Private equity spots a business or industry where they can swoop in, play around with the financials, destroy the capacity of a business to survive (e.g., set up a separate real estate entity that now "owns" the company's property; the company has to rent from the entity and goes broke while their PE masters rake in big money). The PE gods are masters of the spot an opportunity and sharpen the pencil approach that has crippled/destroyed plenty of companies.

Hospitals? Steward Healthcare, come on down. Retail? Sears, anybody? Neiman-Marcus, anybody higher up the retail foodchain? Restaurant chains? We're not quite at "Last Night at the Red Lobster," but almost. Mobile home parks, grocery stores, prison services? 

Increasingly, PE's got their eye on businesses that cater to the elderly. There are plenty of us, and our ranks, while thinning on one end, are growing on the other. So PE firms are grabbing up nursing homes and, for the old folks who aren't yet ready for nursing homes (or fortunately won't ever need them), senior living communities.

River Glen of St. Charles is an attractive, pleasant senior community outside of Chicago. When Martha Bray and her husband Richard Ryjacek moved there in 2013, they figured this was their last move. They paid an entry fee ($314)K and a monthly "maintenance" fee. 

They didn’t own the property, but if they decided to leave, their contract promised they’d receive 85% of the current value determined by a local realtor. (Source: NBC News)

Well, for Richard it was his last move. He died in 2016. But Martha stayed on, "thriving" in the community. 

But all that changed with a knock at Bray’s door in late June 2023. River Glen had been sold to a private equity firm and real estate investment group, she was told, and her financial contract was changing.

River Glen’s new owners, Jaybird Capital of Cedar Rapids, Iowa, and Citrine Investment Group of Chicago, were jacking up Bray’s monthly maintenance from $1,395 to $6,500, a 365% increase, Bray said. And if she didn’t like the deal and left the community, she would receive only 75% of the entry fee she’d paid more than a decade earlier.“We had to agree to their conditions by Sept. 1 or move,” Bray recalled.

She decided to move. But she estimates that she lost out on at least $100,000 because even though her home had risen in value, she only received 75% of the original entry fee.

I just want people to know not to believe a damn word anybody says,” Bray said, referring to senior living contracts. “Your money is not safe.”

But the money PE makes seems to be.

To quote Serene Highness Donald J. Trump, "All very legal..."

But it doesn't seem "all very cool." In fact, it seems pretty damned lousy. And is it just me or does the name "Jaybird" sound a lot like "Jailbird?" Which a lot PE people aren't but maybe ought to be. 

Oh, yeah. I get it.  Market based...increasing demand...fair market value...blah-di-blah... 

But there's plenty of downside when it comes to unfettered capitalism, where all that matters is profit making/profit taking. For the owners, of course, it's half the meat and all the gravy. And just the leavings for the little guy, who - in the case of senior living communities - sees their nut (their buy-in costs) dwindle while their monthly fees increase. Rock, meet hard place. 

Lucas Hammonds, a specialist in senior living facility financing, said changes like those seen at River Glen are increasingly common and driven by investors in search of profits, with residents often ending up as casualties.

“For the people affected by this, these are big issues,” added Hammonds, who is a senior legal analyst at Octus, a provider of in-depth credit analysis. “The bargain has changed. It’s destabilizing.”

As if getting old isn't destabilizing enough. Health issues. Wealth (or lack thereof) issues. And it, of course, promises to get worse. 

(MAGAs may think that croaking Medicaid is just going to kick all those non-deserving poor/near-poor in the head, the rear, the pocketbook - wherever the non-deserving poor/near poor deserve to be kicked. But somewhere between half and two-thirds of long-term nursing home care is paid for by Medicaid. That's a lot of old folks.)

Kevin Russell is the founder of Jaybird, named for his mother, whose nickname it was. 

“For me, the Jaybird brand is a reminder that we are taking care of someone’s mother or father,” Russell says in a quote on the site.

But sometimes it's not much of a reminder. 

There's Martha Bray et al. being screwed out of a good part of their nest eggs, and forced out of their homes in their old age.

And then there's the fact that:

In 2021 and 2022, two residents of Jaybird communities in Iowa froze to death when they wandered away from their memory care facilities, state regulatory records show. A 95-year-old woman at Keelson Harbour in Spirit Lake died in December 2021. The following month, a 77-year-old woman died at Courtyard Estates at Hawthorne Crossing in Bondurant.

Maybe neither was anyone's mother, but they still didn't deserve to die because of shoddy care at a Jaybird facility. (The company has been hit with several civil penalties over the last few years.) 

I don't hate capitalism. Mostly, I believe the old epigram that capitalism is the worst economic system, except for all the others.

Still, capitalism these days is sorely trying my patience. And a lot of my antipathy is due to the rise of private equity. Seriously, is private equity good for anyone other than the PE gods themselves?