The older and richer people get, the more they may be interested in finding out what a CCRC is.

It stands for continuing care retirement community. These are luxurious retirement communities that start with a cottage or condo for independent living — one or two bedrooms, room for guests.

The campus-like layout typically also offers assisted living facilities for people who could use some help cooking, dressing and bathing. And for those who need it, there are more intensive medical care facilities with hospital beds and nursing staff.

For a couple, part of the lure is that they would not need to be widely separated in their sunset years, no matter how things go.

A major feature of the financing is a huge entry fee, in the neighborhood of $750,000 to $900,000, which doesn’t generate interest for the unit purchaser, but is 85 percent refundable when the person moves, dies or permanently enters the assisted living facilities or health center.

There’s such a CCRC in Redding, built on 134 acres of previously rural land. Like most other property owners in Connecticut, developer Redding Life Care has to pay real estate taxes to the town.

In valuing the property, Redding’s tax assessor used a hypothetical assumption — that those millions in entry fees were placed in an interest-bearing escrow fund — to account for the value of the fees. The property’s owners countered that there was no such fund in existence or required by law, and that the money was spent largely to pay off construction loans.

And so why does it matter? Because if there is assumed to be an interest-bearing fund, the town’s assessment value of the property was nearly $30 million more than the owners’ themselves say it’s worth. Needless to say, that would drive up Redding Life Care’s tax bill.

In a state where property owners challenge much smaller valuation disagreements, it’s no surprise that the case made it into the court system and all the way to the state Supreme Court.

In a decision officially released this week, Redding Life Care v. Redding, a 4-3 majority held that it was legitimate and legal for the town of Redding to use a hypothetical fund as a valuation analysis tool. The ruling is a case of first impression for Connecticut.

Redding Life Care bought land for the Meadow Ridge complex in 1998.

"It’s one of the most lavish places you’d want to go," says Elliott Pollack, a Pullman & Comley partner and property tax lawyer who represented Redding. "It’s on a huge site, on a ridge off Route 7. It is super, super luxury."

The developers created 338 apartments for which entry fees were required, a community building, a health center with 20 assisted living units, and 50 skilled nursing beds. Justice Peter T. Zarella, writing for the majority, described the buildings as "surrounded by interior driveways, paved parking areas, resident garages and landscaped areas, including three large courtyards."

When Redding valued the property as having a fair market value of $117,621,000 in 2007, the retirement community’s owners countered with appraisals made by Michael G. Boehm, a private appraiser, who asserted the market value was just $89,100,000.

Redding Life Care, represented by William S. Fish Jr. and William H. Champlin III, of Hinkley, Allen & Snyder, protested that the valuation was too high due to the use of the hypothetical interest-bearing account to represent the value of what were, in reality, non-interest-bearing and partially refundable entrance fees. Meadow Ridge went to court, accusing the town of over-valuation and unlawful assessment.

The over-valuation claim failed at the trial level, largely because New Britain Judge Trial Referee Arnold W. Aaronson didn’t find Boehm’s testimony credible. Boehm’s appraisal focused on tangible depreciable assets, such as furniture and equipment, Aronson observed, with little focus on the intangibles that make a "going concern" like Meadow Ridge valuable.

All of the Supreme Court justices agreed that the taxpayer had not sustained its burden of proof on its first claim — overvaluation — and upheld Aaronson’s decision. It was the harsher count, alleging an unlawful assessment, that split the high court so dramatically.

Justice Dennis G. Eveleigh, who was joined by Christine S. Vertefeuille and Lubbie Harper, thought that the judge trial referee should have found that "the town disregarded state statutes" by pretending Meadow Ridge earns $4.8 million annually from escrowed entrance fees. It was that hypothetical assumption that had the effect of increasing the value of Meadow Ridge by nearly $30,000,000.

The dissenters didn’t like the sheer unreality of the hypothetical valuation approach. Eveleigh quoted approvingly the argument put forth by Meadow Ridge: "Connecticut law does not require that entrance fees be escrowed after the resident has occupied the facility and in fact [Redding Life Care] does not maintain entrance fees in trust or otherwise." There isn’t any "investment income" to be earned from the entrance fees, the company argued. It concluded: "This error causes the report to significantly overstate net operating income and hence the valuation."

But in the majority opinion, Zarella emphasizes that a CCRC is worth a lot more than its real estate alone, since its developers have pulled together a network of licenses, staff, management expertise and know-how.

In court briefs and an interview, Pollack, Redding’s lawyer, expanded on that point.

Part of what makes the Meadow Ridge CCRC successful — and valuable — is a combination of luck, timing and psychologically attractive pricing features, Pollack explained. The second phase of the development went on the market in 2007, right at the peak of the real estate bubble, he noted.

Typically, retirees sell their primary residence to create the funds for the entrance fee, rolling it over into the apartment purchase with favorable tax consequences. The 85 percent refundable nature of the entrance fee makes it a less onerous decision because the resident still retains a substantial estate to pass on to heirs. At the same time, the monthly fee required to provide the array of services is kept lower.

Althought the developer could attain the same financial result by charging much more in monthly fees and less for the entrance fee, Pollock said, "in reality, it’s not possible."

Because of the large entry fees, the monthly payments are in the $2,000 to $2,500 range. "If instead of being asked to pay $2,000 a month, if you were asked to pay $5,000 a month, there are few people who would be willing to do that. The rental market has a psychological ceiling," he noted.

In his work for Redding, private appraiser James Tellatin recognized that the aggregated funds from the entry fees was used as a method to pay off the construction loan and reduce the amount of permanent financing required to operate the facility. The entrance fee proceeds were not held in an interest bearing fund, but they were tremedously beneficial to Redding Life Care because they reduced the need for construction or permanent mortgage money.

"You can understand that the property owner would say, ‘Oh, pshaw, I spent that money. It doesn’t exist anymore.’ But it’s a gift that keeps on giving," Pollack said, because it allows for the entire financial structure of the business. "Our appraiser took the position that you have to take the [non-interest bearing fund] into account. It’s clearly on [the property owner's] books."

William Fish, who argued the case for Redding Life Care, declined to comment, saying the company was still considering its legal options.•