Senior Housing Operators Seek Value-Adds Before Boomer Wave Hits

| March 3, 2013

As the senior living industry gears up for the next generation of consumers, some operators are looking to divest struggling communities in their portfolios while others are hiring third parties to maximize value in ways that will attract the boomers. 

Expanding resident services, activities programs, and staffing in general to a 24/7 business model can be a simple but immediate way to enhance value in a struggling community, says Stephanie Harris, president and CEO of Turnaround Solutions, and tides are starting to change regarding incoming residents’ preferences.

“Our business is currently heavily influenced by residents from the World War I depression era—they’re frugal, and it’s tough for us to sell them on the value of the community and investing in themselves to receive those kinds of services,” she says.

That climate will shift as boomers with their strong preferences continue to age, says Harris, and in recent weeks, the phone for her company—which specializes in turning around troubled business and improving cost efficiencies—has been ringing a lot as investors look to maximize the value of existing portfolios.

“I’m getting more calls for third-party services from groups that are working with some of the top operators in the business who just can’t get traction in an underperforming asset,” says Harris. “It could be as simple as decluttering the physical plant, doing deeper cleans of the building, and creating more clarity in that product’s position in the marketplace.”

That’s the basic formula generally found in projects, she says, which are out there “in just about every market.”  

Harris’s company generally seeks out projects where there aren’t severe physical plant challenges, with projects more along the lines of operational improvements with some interior upgrades if necessary.

Turnaround Solutions’ management arm, Arrow Senior Living, is partnering with Chicago-based Cerulean Partners LLC to improve the operations and occupancy of a recently acquired Las Vegas independent living community that had been in foreclosure. 

“We typically focus on raising the market lens and building value within the sale, more than we do on increasing the rents on existing tenants,” she says. “In independent living, the first thing we look for is what basic services we can add to enhance the current offerings and meet longer-term need for residents who were previously moving out.” 

That could look like partnering with a rehab company or home health agency, or building an in-house home care service line. 

With added value, there’s opportunity in the Vegas acquisition for increasing rates for incoming residents, which would essentially go straight to the community’s bottom line, says Rick Shamberg, who with co-principal Kerry Haskins is a managing partner at Chicago-based Cerulean Partners, LLC.

“We believe the community’s effective, current rents are below the market, so we can raise rents on new residents upwards of 20% and still be able to maintain or increase occupancy—and in so doing that, double the net operating income in three years, conservatively speaking,” Shamberg says. 

A better bottom line can also be achieved through better management, he says, as the community has been operated for the past couple years by a special servicer. 

As consumer expectations for senior living accommodations continue to evolve, Harris expects to see a lot of mom-and-pop owners and even larger portfolio owners focus on value-adds. 

“They’re going to say, how do I solve this problem or maximize value in this community,” she says, “whereas before, they might have just tried to sell.” 

Written by Alyssa Gerace


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Category: Senior Housing

Comments (2)

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  1. Chris_Foley says:

    In the Seniors Housing (as with any business with huge fixed real estate costs), achieving break-even (cost = revenue) is the first key benchmark. Thereafter, any operating profit directly improves the bottom line.

    Also, since NOI is key to valuation, achieving higher occupancy combined with the 20% increases in revenue unlocks the value of the property and the Return on Investment (ROI) to the Owner. Ultimately, a sale to other family members or a 3rd-party sale, then locks in the return to be used on another project or saved. :-)
    Chris Foley
    Sr. V.P.
    Equity National Seniors Housing Brokerage & Advisors
    cfoley@Equity.net

  2. Dan hayes says:

    One of the most under-appreciated amenities is well designed in-unit laundry facilities. For decades, developers of mufti-family housing, both conventional and senior living, have view laundry as having no role in boosting rental values. Consequently, they have tended to put the cheapest machine in the smallest space. Witness the 24" top-loading stacks in hall closets.

    Laundry is an essential life function and one that is critical in senior homes for physical, psychological, and social reasons. I am 69 and people my age start to leak. Individual laundry is then a matter of sanitation and privacy. It is literally about washing your dirty linen in public.

    The other aspect is social. When a woman moves into a typical facility, many the life functions that have been part of her existence are either provided or minimized. Consequently, laundry assumes a disproportionate importance. This is especially true of the older generation but applies to younger generations as well. In-unit machines become essential and front-loaders with a "sanitizing" cycle are particularly popular. Equally important is design, which takes me back to the opening paragraph.

    Doing laundry requires a place to conveniently store detergent, fold clothes and put them on hangers before they wrinkle. In the typical closet installation, the only storage is on the floor. The folding area is the bed and the hanger rod is a doorknob. This is mostly a failure of imagination.

    New front-load washers, ventless dryers, and floating pans make it possible to design a fully functional laundry center in a 52" x 26" space. However, it requires looking at laundry as an amenity that enhances rents, not a no value component like a sink.