Bricks and Mortar Still Reigns in Senior Housing

The concept of senior living “without walls” is growing in popularity as providers seek innovative ways to prepare for the future, but long-term strategies can’t ignore traditional senior living communities, writes a former Sunrise Senior Living development executive.

While many senior living providers, both for-profit and not-for-profit, are looking into or actively pursuing business lines that branch into the community at large, the impending silver tsunami has significant implications for bricks and mortar communities, says Frank Rockwood, who in addition to prior experience with Sunrise was most recently a Ziegler banker before forming a West coast-based senior living consultancy with his wife, Susan.

The husband-and-wife duo recently launched Rockwood Pacific, a Berkeley, Calif.-based firm that will provide development advisory and program management services, primarily for not-for-profit senior living organizations. Long-term strategy should be a balance between hard and soft business development investments, Rockwood says in Topics, his firm’s newsletter.

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“I’ve heard people imply they need to put their emphasis beyond the bricks and mortar, to really focus on non-bricks and mortar from a strategic planning perspective,” says Rockwood. “I’m not [necessarily] disagreeing, but don’t let go of bricks and mortar in terms of the long-term planning approach.”

In the 1990s when there was an assisted living boom as some developers got ahead of themselves when thinking of future demographics, he says. “People took a top down approach—’There will be this many seniors, it will be disproportionate [to the rest of the population], it will justify this many units.’ But it turned out wrong, and it turns out the penetration rate in general is fairly low, because people prefer to live at home or down’t have the means to not live at home.”

There are all kinds of reasons why the penetration rate remains relatively low, Rockwood continues, but it takes a disciplined approach to get long-term strategic planning right.

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“Don’t expect that penetration rate to increase dramatically—or even at all,” he says. “But as the population continues to grow, we’ll see new demand for some bricks and mortar units. Staying at historical norms, it’s a reasonable conclusion that the market will support more bricks and mortar as that age cohort grows.”

Non-profits and public entities generally have hard-wired competitive advantages that can be especially valuable in the realm of bricks and mortar communities in a few different ways, says the Topics article, “In Defense of Bricks and Mortar.”

Those advantages include a lower cost of capital in the form of readily accessible tax-exempt debt or even capital grant allocation—both generally limited to bricks and mortar assets—along with the ability to carry out a deliberate decision process.

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Competitive edge can also be found in having strong local reputations at a community level and the ability to operate from a long-term perspective for development deals that may take any number of years to bring to fruition.

“A comprehensive strategic planning process should clearly address both hard and soft business development opportunities,” Rockwood concludes in Topics. “The connection of ‘without walls’ is mostly positive: freedom from the high cost of bricks and mortar. But consider that abandoning those walls may also lead your organization down a path of a business model without walls—with great upside for the winners but limited defensibility.”

Written by Alyssa Gerace

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