Nonprofit senior living providers experienced a 2015 marked by an aggressive push for affiliations, and the year ahead will likely follow suit.
Technology adoption, repositionings and staff recruitment and retention will play an increasingly important role in the sector, as well, according to predictions from Chicago-based specialty investment bank Ziegler.
In 2014, Ziegler tracked roughly 60 changes in ownership and sponsorship among nonprofits, and that increased to about 80 in 2015, Lisa McCracken, senior vice president of senior living research and development, tells Senior Housing News. In 2016 and the years ahead, those numbers will follow that upward trend.
“We anticipate for the next several years there will be a very high level of activity with consolidation,” McCracken says. “The number one driver today is not financial distress. It’s really just the increased complexity of running our business and the need for more resources.”
Such complexities stem primarily from health care reform continuing to unfold and bundled payment mandates entering the mix, but leadership turnover and technology demands also persist in the nonprofit sector, she says. These factors, among others, aren’t anticipated to disappear.
“The forces that are really the triggers for consolidation right now, we don’t see them going away any time soon,” McCracken says. “Quite frankly, there may be more triggers, more pressures out there to take a hard look at affiliations.”
Nonprofit providers will further grow their business models through expansion of existing communities in 2016 and beyond, more than through new construction, McCracken says. This prediction is exemplified by a move toward revamping independent living, for example, with one nonprofit provider in the midst of refurbishing more than 15,000 independent living units across 23 existing communities along the East Coast.
“When you look at the capital investment, what we at Ziegler have been financing, it’s really been that maintaining and upgrading and reinvesting in their physical campus,” she says. “The reality is, new location development has gone down for a number of reasons, but a big part of that is there have been so many other things the providers have been focused on that have really drawn their resources.”
And, according to Ziegler, 2016 will be the ideal year for providers to tap into capital with low borrowing costs, before gradual rate increases really take their toll.
“To be a tax-exempt borrower today—there are very few times in our history that it’s been any better,” McCracken says. “This is the time to be reinvesting and refinancing and getting cheap cost of capital.”
Other predictions from Ziegler regarding nonprofit senior living in 2016 include:
More home and community-based service options: About 35% of the largest 150 not-for-profit multi-site providers in the 2015 LeadingAge Ziegler 150 report indicated their engagement in a joint venture or formal partnership, and the majority of those relationships involve home and community-based services, McCracken says. Beyond partnerships or joint ventures, providers might acquire a home health or home care agency or purchase equity ownership in an agency.
“We see providers saying, ‘We want to continue to expand our continuum beyond our bricks and mortar,’” she says. “The pace of growth is much quicker when you partner or if you acquire an existing agency as opposed to creating a whole new brand. Plus, competition is pretty significant.”
An increasing role of technology: Technology has the potential to assist nonprofit senior living providers in terms of operations, care coordination and staff documentation, but it’s crucial that the implementation of technology is strategic, McCracken says.
“Organizations cannot get by and really keep up with just a help desk IT person. We all love that person that can help fix the printer, but that strategic CIO or CTO is really important,” she says.
Staffing and Succession Planning: As providers scramble to address caregiver shortages, not-for-profit senior living providers are increasingly prioritizing their company’s staffing needs.
“We see some of the larger system providers hiring corporate level staff to focus on recruitment and retention,” McCracken says. “It’s top of mind for many providers.”
C-suite retirements are also a prevalent factor in transactions occurring across the nonprofit space, McCracken says, as many smaller providers don’t necessarily have a successor in line.
“I would not say it’s the sole driver, but it’s definitely, when you look at different not-for-profit affiliations, it’s part of the equation for a handful of them,” McCracken says.
Written by Kourtney Liepelt
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