Trends, influenced by tailwinds and headwinds, blow strong and then can change course over short periods or over a span of many years.
On an airplane, these tailwinds and headwinds create turbulence, causing temporary discomfort that typically passes with smoother air ahead. So even though a slight tailwind at the senior housing industry’s back is helping it gain momentum, we recommend you keep your seatbelt fastened this year. Here are the top trends to keep watch on in 2016:
#1 People Power – Attracting, Developing and Retaining Employees Amid a Pending Employment Crisis
The senior living and senior housing industry’s greatest challenge for 2016 lies not within bricks and mortar, nor bits and bytes, but in the flesh and blood that works on a daily basis.
The challenge is both to attract, develop and retain current employees and bring in new talent. With the industry needing 2.5 million more long-term care workers in the U.S. during the next 15 years, senior living does not have a solution at hand. Addressing poor engagement and high turnover with technology is part of the solution but is not the silver bullet, as the the challenge lies at all levels, from the maintenance staff to the CEO, front office and back office.
Not only do owners, operators and developers face this challenge, but capital providers, technology vendors and the many other ancillary products and services that touch senior living and senior housing also need to bring in new talent. Employers in the private and public sectors need comprehensive strategies. Various private and non-profit organizations have major initiatives to develop future leaders through training, education and certification that will begin to take shape during the next 12 months. The talent pipeline in the industry may be in a good shape for the next 24 months, but the challenges of meeting the employment needs of the industry are just beginning.
#2 Consolidation – Is pressure a good thing?
Last year was met with rising pressure among top senior living companies, especially on one public operator to make the most of its real estate by spinning it off and focusing instead on operations only. Brookdale received pressure in 2015 from a vocal shareholder group that implored the company to spin off its real estate into a REIT and unlock the intrinsic value of its stock. It went as far as to push for a management shake up that would replace acting Brookdale board members.
Then again later in the year, a similar alarm sounded on Capital Senior Living [NYSE: CSU], with one of its major shareholders urging the company to act on opportunities to boost shareholder value, which may include selling to a private equity investor or other strategic acquirer.
Most recently, Five Star Quality Care [NYSE: FVE] was approached by a real estate holding company led by the owners of fellow operator Senior Star, seeking to purchase a portfolio of the company’s under-performing senior housing properties.
Prominent REITs have not been immune to pressure, either, as share prices have dropped despite solid market fundamentals. New Senior Investment Group (NYSE: SNR) and NorthStar Realty Finance [NYSE: NRF] are both are feeling heat to restructure or consider a sale.
The coming year will continue to put pressure on the publicly traded senior housing businesses as external parties demand results and returns. The pressure brought upon the industry by external influences is both good and bad.
In the interest of industry consolidation, the inevitable evolution will take place in order for the largest operators to enjoy the best economies of scale. In the short term, the changes are uncomfortable and uncertain, but the industry needs to trust that bigger can be better and that consolidation happens in all industries; it just hasn’t happened in this industry to the degree it has in other, environments..
Expect this pressure not only among operators and owners, but among vendors in 2016. The highly fragmented market for senior living technology can and will be made more efficient through M&A. Not all parties will survive. (See Trends, 2015.)
#3 Political Focus on Senior Care & Housing
In election years, senior housing issues tend to get batted around on the heels of health care, social security and other major initiatives that are impacted by the aging population of the United States. By nature of the baby boom and the “Silver Tsunami,” senior housing issues will be brought to light on the political front. The overall awareness is a good thing; it will draw even more investment and funding to the space, and clearly the more research we have about aging, the better.
Case in point: Democratic hopeful Hillary Clinton has publicly backed the Fight for $15—a union-supported drive for a higher minimum wage for fast food, child care and home care workers. With home care workers in the wage spotlight and discussions swirling about minimum wage requirements rising across a handful of states and counting for all workers, political pressure on this issue is likely to continue.
Also in the spotlight of political discourse: Alzheimer’s disease and other forms of dementia. On her platform, Clinton has called for $2 billion more in government research funding—per year—in an effort to cure the disease. (Current estimates place annual Alzheimer’s research funding at around a quarter of that amount.) And the most recent budget deal signed into law by the president included $350 million more for this research than the previous budget allocated.
But not all policy is friendly to the industry from a business standpoint. Owners and operators need to keep a close pulse on political platforms and proposed legislation in the coming year that is bound to impact their businesses.
#4 Technology – Upgraded user experience
The last few years have seen a dramatic growth in the number of apps, sensors, platforms and technology services that have either direct or indirect senior care uses.
These applications, such as electronic health records (EHRs) and monitoring platforms, will be reviewed and enhanced as part of the IT development lifecycle. These mature apps will incrementally improve their interfaces and data management in ways that may not be specifically visible by the end user or the resident, but those improvements will have profound long-term effects. For new entrants into the senior housing industry or those making new investments, organizations such as the LeadingAge Centers for Aging Services Technology (CAST) have developed tools for not only selecting tested products but also providing information to help with 2015’s Strategic IT Planning for Long-Term and Post-Acute Care (LTPAC) Providers: A “How To” Workbook.
Technology vendors in the industry continue to work on improving their core systems and interfaces, but those tweaks hardly get the attention of a product launch. The technology that has propelled industry development and operations shall continue to improve in 2016. It’s not to say that the best will get better, but the lifecycle of technology development continues, so owners and operators should push their tech vendors to enhance and deliver, especially if there are support and maintenance agreements in place.
Press releases and new product announcements may tease the promised land of the technological silver bullet, but experienced technology vendors and well thought out technology plans by providers will help ensure that proper care is provided in an efficient manner.
#5 – Home Care Gold Rush Trickles Down to Senior Living
$81.5 million. That’s how much three home care startups—Honor, HomeHero and Hometeam—have raised collectively from investors, mostly in 2015. When Honor announced a $20 million round last April, it was dubbed by some the “Uber of home care.” Like the popular ride-sharing app, Honor utilizes technology to make home care a more on-demand experience. Clients can find caregivers, schedule appointments, and handle payments all on the app, and the company also uses technology to record what happens when the caregiver is in the client’s home.
HomeHero and Hometeam operate on similar models and have announced $20 million and $27.5 million funding rounds, respectively.
Hometeam already is working with assisted living providers, offering facility-based care programs and aiding in transitions of care, CEO and founder Josh Bruno says. The startups are using their tech platforms to collect data on their clients, which could be useful to senior living providers seeking more insight into their residents’ health status and likelihood of hospitalization.
With serious backing from high-profile investors such as Andreessen Horowitz, the home care startups also may be viewed as a threat to senior living, if they succeed in making it easier for people to age in their own homes. The senior housing industry may have to grapple in a more intense way with an increasingly robust home care market in 2016.
Ultimately, home care might merely be the gateway for major investors in the senior living space, but home care players will have incredibly value data associated with referral patterns, hiring practices, and caregiving methods. Home care companies might provide the disruption in the industry as they will have the pre-amble for senior housing’s future customer base. .
#6 Is Skilled Nursing Sexy (Again)?
On the heels of reimbursement changes that positioned SNFs at the bottom of some investors’ wish lists, the industry is once again seeing skilled nursing bring sexy back (cue Justin Timberlake). Investors are paying top dollar once again for skilled nursing assets as the search for yield ventures out further on the risk-reward curve with other industry cap rates still sitting at considerable lows.
Quite literally, there are sexy and new post-acute care constructions that have blurred the lines around what “skilled nursing” is today. Welltower (NYSE: HCN) notably is tied into a pipeline of these properties being built by Carmel, Indiana-based Mainstreet in a deal secured in 2014.
But relative to other asset types, skilled nursing properties are also garnering new favor, fetching higher per-bed prices than in the recent past, and in some markets, the highest-ever.
Nationally, pricing may have peaked around 2010-2011, according to data compiled by the National Investment Center for Seniors Housing and Care, but prices in Q42015 were up a notch from pre-recession prices for SNFs in 2007.
There is also a more targeted approach to skilled nursing assets among some of the largest investors in the space, as demonstrated by Ventas’s spinoff of the majority of its skilled nursing portfolio into a separate REIT in 2015. The new REIT, Care Capital Properties [NYSE: CCP] will be on the hunt for SNF acquisitions in the coming year.
#7 Senior Living Providers as Health Care Power Players
The CEOs of Sunrise Senior Living, Silverado, and Benchmark Senior Living all agree: 2016 will bring more partnerships with physicians, hospitals, insurers and other organizations in the U.S. health care system.
It’s been a long time coming. Five years ago, the Affordable Care Act created new payment systems and other policies meant to get health care providers to collaborate more, in order to provide better care for patients at a lower cost.
But while hospitals, physician groups, skilled nursing facilities, managed care organizations and other players have forged partnerships, senior housing has been stuck largely on the sidelines.
Some senior living companies have been putting pieces in place over years so that they can be valuable participants in these sorts of partnerships. They’ve added service lines such as therapy, implemented technology, and begun to collect and be responsive to data about residents.
Now, the big payoff for these types of efforts may be near. A senior housing provider that can, say, identify a resident at risk of being readmitted to the hospital and intervene has a valuable competitive edge. Hospitals, facing Medicare penalties if readmission rates are too high, are realizing that they have a lot of incentive to discharge seniors to this type of community.
And senior living companies may be realizing the power they wield. Rather than going hat in hand to Accountable Care Organizations (ACO) to ask for inclusion, they may seek out like-minded, high-performing partners and create integrated networks on their own.
Are we ready for the next match.com for partners in the ACO space?
#8 Person-Centered Care Delivery on Demand Evolves, Grows
The trend for on-demand services will continue to evolve during the next twelve months as core service providers such as Uber] and Lyft look to grow their platforms.
These services are both a help and hindrance to many operators that may want to provide maximum flexibility to their residents, but operators will be challenged in their ability to grow the ancillary services by utilizing these on-demand apps. Niche players will develop quickly in this area, but can they expand and / or integrate their offering by partnering with existing on-demand delivery platforms (Uber, Lyft, Grubhub, Instacar, Peapod) or integrate with other technology platforms that already are installed in communities? And these services are well equipped for urban and suburban markets but have yet to translate well to rural markets.
Nevertheless, the growth in on-demand, personalized services will become more ubiquitous as connectivity and devices provide a simple(r) means to call upon specialized providers.
#9 What’s in a name? Rebranding Mania Continues
Health Care REIT (NYSE: HCN) and the Assisted Living Federation of America (ALFA) were just two of many recognizable senior housing brands to get an overhaul in 2015.
Whether rebranding HCN to Welltower and ALFA to Argentum will make a positive difference remains to be seen—to say nothing about how successfully “Life Plan Community” will replace “Continuing Care Retirement Community.” But it’s likely that the mania for rebranding will only gain more traction in the year ahead.
Increased competition between nonprofit and for-profit companies also is playing a part. In the last 11 years, 53 of the top 150 largest nonprofit providers have changed their names, according to investment bank Ziegler. Many are dropping religion-specific terms to broaden their appeal to a wider resident base.
The trend also is driven by the industry’s consolidation, as mergers and acquisitions can necessitate rebranding. It might be a matter of unifying two separate companies under a new, singular identity. But strategies such as “micro-branding” also are catching on, as a way to add individuality to communities that are part of a national or regional company.
And as the Life Plan Community initiative demonstrates, there’s also an ongoing effort to rebrand not only organizations but some senior housing concepts. Even more dramatic changes could be on the horizon: Influential voices have floated the possibility of even finding a different term for “senior.”
#10 Avoiding and Re-Defining Obsolescence Through Flexible Design
This year will see slight pain in new development pockets of overbuilding will start to emerge and present risks to owners and operators in these markets as they compete to fill occupancy.
As more development continues in markets to coincide with projected demand, current owners and new developers will need to create spaces that not only provide a means to grow but also for flexibility, to ensure assets not only last long but can be converted to other uses as much as possible.
With new technology and boomer expectations, developers, owners and operators need to rethink obsolescence as something that transcends physical plant deterioration and the basics of simple functionality, to further consider style and technology. Obsolescence in senior housing is not nearly as rapid as as that of consumer technology, with feature changes and processing improvements every 18 months. Redevelopment life-cycles will shorten as demand for up-to-date features and services continue to grow and owners and operators look to expand their revenue bases. While debt capital remains at all time lows, the need to reinvest into physical plants for future flexibility should be job one.
Companies featured in this article:
Argentum, Benchmark Senior Living, Brookdale Senior Living, Capital Senior Living, Five Star Quality Care, HomeHero, Hometeam, Honor, LeadingAge, National Investment Center for Seniors Housing and Care, New Senior Investment Group Inc., NorthStar Realty Finance Corp., Silverado, Sunrise Senior Living, Welltower