Untested Developers Shake Up Senior Housing

As various types of investors ramp up their presence in the senior housing space, seasoned industry members must adjust to rapid changes fueled by new entrants.

Senior housing’s attractive investment returns and favorable demographics are drawing interest from development and management companies in the multifamily and hospitality sectors. Some boast multi-million dollar pipelines, while others are smaller or more regional players making an impact, such as the Tennessee-based developer that SHN also reports on today.

But what do industry leaders think about the new entrant invasion, and what does it mean for the future? While many senior living veterans agree new faces in the sector are welcome, many acknowledge they also pose some risks in the short term.

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Ultimately, preparing for those risks and choosing the right partner will be key to thriving in an evolving landscape.

Short-term uncertainty

“It is scary in the short term,” said Kathryn A. Sweeney, co-founder and managing partner of Boston, Mass.-based Blue Moon Capital Partners LLC, during SHN’s recent annual summit in Chicago. Blue Moon Capital Partners is a capital provider.

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“Despite all the best efforts from those coming from multifamily and hospitality, they’re going to make mistakes,” Sweeney said. “The inexperienced will create some stress against the experienced, and that will take some time to work its way through the system. Ultimately, I expect some of the inexperienced won’t prevail and will provide a buying opportunity for more experienced operators.”

Indeed, many new entrants underestimate the importance of community operations, Jason Childers, principal of 2Ten Consulting, told SHN. 2Ten Consulting, which launched recently and is based in Seattle, Wash., specializes in senior housing management, operations and acquisitions.

“Operations of the community are the biggest difference between multifamily and seniors housing—the amount of employees and services you’re providing,” Childers said. “While new entrants understand, they seem to underestimate how crucial that component can be.”

New entrants’ growing pains could also result in residents being endangered, or worse, and the consequences could mean more regulations across the entire industry, Sweeney said, stressing the importance of being “cycle tested.”

Long-term opportunity

While new entrants may create potential buying opportunities for more seasoned industry members down the road, they also bring with them fresh perspectives that may benefit the industry in the long run.

“I’m excited that new groups are coming into the industry,” Childers said. “They’re bringing new ideas. Current providers stick with a model because they know it works.”

If a new entrant is able to prove the success of its approach, veteran providers are likely to adapt that concept into their current model, he said, noting that veteran providers are able to learn from other providers’ successes and mistakes without expending their own resources.

For Chicago, Ill.-based Senior Lifestyle Corp., new entrants have created opportunities to do joint ventures with groups attracted to senior housing but who lack the expertise to go it alone, said Matthew Phillips, executive vice president of Senior Lifestyle Corp., during the SHN summit. The company has about 165 communities nationwide; the communities include independent living, assisted living, memory care, skilled nursing, affordable seniors housing and other services.

In fact, the knowledge that experienced management teams provide is critical, making established industry leaders all the more valuable in this changing landscape, Phillips said.

“Senior housing is not a real estate business,” he said. “It is providing care and attention to the needs of seniors, especially as you go up the continuum. Individuals who come in and who are not focusing on the operational aspects of a community will likely have serious problems.”

Attention from the multifamily and hospitality sectors may also help to draw an even larger demographic of older Americans to senior housing, Childers said.

“The products we have today are great, and maybe 10% to 15% of people will consider moving into them,” Childers said. “That leaves over 80% of people who don’t even consider seniors housing. More innovations provide a better opportunity to break into 80% or more of that population, attracting more residents to the space. The more that multifamily- and hospitality-based groups focus on this space and bring with them new ideas, the better.”

Written by Cassandra Dowell

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