Senior living professionals have reasons to be excited as they turn the calendar to 2018, even in the midst of ongoing occupancy pressure and potential disruption from recent health care mega-deals.
Perhaps most fundamentally, the passage of another year brings the long-anticipated baby boomer age wave that much closer. Yet, most boomers are still a decade or more away from hitting senior living en masse, and in the meantime, providers and developers are eyeing opportunities to serve the younger retiree demographic. Look for this strategy to drive development, and innovation, in the year ahead.
On the operations front, the mixing of younger and older residents presents challenges, and perennial focus areas like dining and technology remain critical to success. Meanwhile, recent blockbuster mergers of CVS-Aetna and Kindred-Humana could start to reconfigure the health care ecosystem in 2018, with senior living threatened in some respects while boosted in others.
Here’s a breakdown of some of these major trends poised to shape the industry over the next 12 months:
1. Old becomes new again
The skilled nursing business saw dramatic fundamental shifts for owners and operators in 2017. Between receivership, restructuring and the Sabra (Nasdaq: SBRA) merger with Care Capital Properties last August, the skilled nursing business is rebooting. The aging of skilled nursing facilities (SNF) in senior housing will make owners, operators and developers rethink how to use these obsolete buildings to propel future growth and adjust strategies for their existing buildings and campuses.
SNF 3.0 may mean repurposing or converting existing nursing homes into assisted living and memory care units. Some new campus developments are being designed and completed without the SNF component to round out the continuum of care as operators are choosing instead to partner with local skilled nursing and post-acute providers. Owners and operators of these new developments will need to convince capital providers that this strategy is safe and sound; a challenge made greater with rising interest rates and a more competitive operating environment. While these challenges raise the risk profile for this trend, purchase price and cost to renovate will be the dominating drivers as to whether repositioning older SNF structures is a viable plan.
2. Dining as a strategic business opportunity
It’s a tremendous budget item, and it’s high on the list of priorities for prospective residents. Dining will continue to be a driver for move-ins and satisfaction ratings. This should come as no surprise.
But the experience has become elevated in recent months and years, to the point where many dining operations mirror their local restaurant counterparts. No longer is the restaurant-style approach a nice-to-have, it’s a need-to-have in order to remain competitive.
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Along with new dining venues come strategic business opportunities. Successful operators are not just doing dining well, but they’re bringing their operations into the community at large to showcase their work. For one successful CCRC, this means opening its station-style restaurant to the surrounding community for paid lunches, which routinely fill during weekdays. For an assisted living community in California, the community’s dining staff holds a booth at its town’s “Taste of” event each year. Those who stop by for a sample of the food are motivated to ask where they can get a sit-down meal—and presto! A new business lead is found.
In addition to direct marketing, operators with standout dining operations are also using branding to their advantage. With house-branded coffee, wine, signature sauces, desserts and more, they are inciting pride among residents who enjoy an exclusive and individual experience. House wine also serves as a talking point for residents and their visitors who are encouraged to come and enjoy the dining on-site.
Expect more of these strategies to hit the market in 2018 as operators up their dining game even further.
3. Technology—connected consumer devices overwhelm community networks
As the younger generation of elderly starts to look at the growing range of independent living options, the use of everyday, connected consumer electronic devices continues to grow. Owners and operators must start to rethink infrastructure and implement community and location policies and procedures to support connected interfaces.
This goes beyond mobile phones, tablets and desktops/laptops to include wearables, watches, gaming consoles, Alexa, Siri, Sonos, Netflix and other streaming services. This growing list of products and services will require throttling for community networks, something that is certainly not widespread in the industry today and may start to resemble premium pricing similar to tiered internet access at hotels. To complicate matters, the reversal of net-neutrality will bring greater uncertainty on how content delivery to senior living communities and its residents as well as those choosing to live at home.
4. Better, not bigger, unit design
In an era where bigger does not necessarily mean better, the future of senior housing design will be varied. As builders and operators seek ways to stand out among the landscape of new senior housing options, they’re pushing the envelope further when it comes to creative alternatives to the tried and true. In many cases, this means units are getting smaller, not bigger. And in some cases, more scattered.
From an affordability standpoint, this is a logical approach. It’s practical, too. With new and varied options for residents, operators are attracting a different type of resident. Expect to see more operators piloting more affordable models, a la Benchmark Senior Living’s newest community in North Attleboro, Massachusetts, where each pair of resident units shares a common space, creating roommate dwellings the company likens to college suitemates. Or, take Minka for example, a style of small, modular houses, equipped for senior residents being piloted by Dr. Bill Thomas, of Holiday Retirement, who is credited with pioneering the Green House model of design. As part of the “MAGIC” approach, which stands for “multi-ability/multi-generational inclusive communities,” these small dwellings will be constructed at the University of Southern Indiana in Evansville.
As young Americans are flocking to micro units, so too will American seniors. They’re cheaper and more efficient, and savvy senior living operators will learn to incorporate them into their models. But the challenge lies in the variety of these options that are popping up in certain markets. As PwC put it in summing up research from 2017: “Put aside any thoughts of uniformity in the context of the housing needs of America’s seniors.”
5. A growing crop of new operators with familiar faces
Two years ago, senior housing investors were bemoaning a lack of quality operators. Since that time, new operating companies have been cropping up, many of them founded or led by industry veterans. With an increasing number of distressed properties offering attractive turnaround opportunities for those with senior living know-how, expect to see more industry leaders start new provider companies in 2018.
Charter Senior Living, Solera Senior Living, Vitality Senior Living and Solstice Senior Living are among these new brands with experienced leaders in the C-Suite. Most recently, Charter—founded by former Senior Lifestyle COO Keven Bennema—added Jayne Sallerson as an investor, partner and chief sales and strategy officer. Her resume includes 20 years in the industry with companies such as Benchmark and Emeritus. And then there’s Kai Hsiao, former Holiday CEO, who started a new operating company that is taking over Ventas’ Elmcroft portfolio.
Real estate investors will be glad to have additional operating partners to tap. On the other hand, as veteran executives are leaving their leadership posts with established companies to become entrepreneurs, their former employers will face the challenge of filling their positions.
6. Occupancy concerns
As the industry sees headlines showing occupancy challenges for various segments and geographic locales in the senior housing continuum, the opportunity for distressed assets may be more muddled than meets the eye.
Given the strong economy, record-level stock market and the positive outlook with the passage of tax reform in the U.S., the distressed moniker should be dropped in favor of the more accurate “value-add opportunity” or “under-performing” assets. Bankers, REITs and private equity players will force more owners and operators to sell at discounted prices relative to their original acquisition or construction costs. Without corrective action plans that have teeth or improving results, lenders will put more covenant defaults and forbearance agreements in place to protect themselves and use these pain points as an exit for underperforming assets, owners and operators, thus paving the way for more value-add opportunities in 2018.
7. Diverging generational preferences
Talk about senior housing, and you’ll undoubtedly hear about baby boomers. Yet, born in the years 1946 to 1964, the oldest baby boomers are still more than a decade away from the average assisted living move-in age. And the youngest boomers are around 30 years away.
Attracting the “next generation” however, through marketing, technology, construction and design, is top of mind for today’s senior housing operators. At the same time, they are catering to current residents: those in the silent generation or the greatest generation who may not have an Amazon Alexa and who may very well prefer meat and potatoes to sushi on the dining menu. Building for the future and serving the present will be a continuing challenge for operators in the coming year and it spans several areas.
Smartwatches and voice-activated technologies are growing in popularity, but more so among boomers and less so among their silent generation counterparts. From design to dining and activities, operators will also have to be mindful of attracting the future resident while bearing in mind the resident who currently lives within the community walls. Owners and operators will be well served to remember that the baby boom is still years away from assisted living.
8. New developments target young seniors
Though most boomers are not yet ready for traditional senior housing—where the typical resident is older than 80—many do want to change in their living arrangements. In an effort to attract this group, expect more senior living providers and investors to undertake development and repositioning projects in 2018.
The 55-plus demographic is increasingly opting to rent rather than own their homes. Between 2009 and 2015, the number of renters over the age of 55 increased 28%, according to U.S. Census Bureau data analyzed by RentCafe, a rental listing website. That’s the largest increase of any age group.
These renters are flocking to some perennially popular retirement hotspots, such as Florida and Arizona. But they are not all seeking out the modest ranches of a Del Webb-style retirement community, and filling their days with golf and card games. Many want to live within walking distance of shopping, cultural activities and health care, and in proximity to urban centers.
And a significant number also want to live with like-minded individuals in their age cohort, and take part in organized activities, according to focus group research done by Capitol Seniors Housing (CSH), an acquisition and development firm. CSH is branching out to develop a pipeline of “active living” communities that it believes will meet these consumer desires and fill a needed gap in the market.
In favor of appealing more to lifestyle and less to aging, mainstream lifestyle brands are also increasingly looking to 55-plus housing as an opportunity. Take the recent success of a Jimmy Buffett Margaritaville-inspired community in Daytona Beach. The response was so strong, that a second Margaritaville community is underway. Look for affinity branding, whether based on religion, sexual orientation, ethnicity or simply interest, to rise, while age-centric identification falls in its wake.
Some senior living providers are skeptical that the opportunity really exists to cater to this segment of young boomers. They point to long-standing challenges in attracting younger seniors to age-restricted communities. In addition, boomers will have more choices than previous generations in where and how they live as they age, and they are already embracing options like all-inclusive micro-apartments. Still, expect providers to create offerings—such as “crash pad” apartments—to capture a younger clientele.
9. Storefronts transform into health care access points
As retail storefronts close and the local drugstore transforms, senior living operators need to think about how these changes will affect their communities.
The proposed merger between CVS and Aetna could change the face of senior living if it is approved and is completed. The business combination will bring more affordable and accessible health care closer to the consumer, enabling people to live healthier, longer at home. This merger is good for assisted living operators and troublesome for independent living operators. As seniors want to remain in their homes as long as possible, better access to health care can extend their independence and longevity with healthier habits and more convenient and regular access to doctors and pharmacists. This local access can help manage multiple chronic conditions a bit longer in the home (but not forever) and provide a more practical and easier alternative to emergency room visits for non-acute illness. Assisted living and memory care providers could start to see their average age increase even further by this business combination and others such as the recent Kindred-Humana deal.
If these transactions are completed, senior living operators will need to extend their reach further into the community for home health and home care or sharpen the value proposition and marketing for their independent living offering when it comes to medical care and services.
10. Senior living sees advantages in managed care
The mergers of CVS-Aetna and Kindred-Humana show that major insurance companies are putting post-acute and senior care front-and-center in their strategies. Private pay senior living providers perceive an opportunity to boost and diversify their revenue streams as the insurance landscape evolves.
By combining with Kindred, Humana believes it can better manage its population of Medicare Advantage beneficiaries, keeping these seniors healthier and out of the hospital and other high-cost settings. Similarly, by turning retail pharmacies into community health centers, CVS and Aetna want to keep beneficiaries at home longer.
Senior living providers, particularly those with robust health and wellness offerings, believe that they can help these companies achieve these objectives. They say that their ability to keep residents thriving and out of the hospital make them attractive partners for Medicare Advantage and similar managed care plans. With the big insurers now tying up with post-acute players, and the already large Medicare Advantage market predicted to keep expanding, 2018 could be a watershed year for senior living to make moves.
Lynne Katzmann, CEO of New Jersey-based Juniper Communities, is a strong voice on this topic. She points to Juniper’s success in slashing hospitalizations and the tremendous related cost savings. She believes Medicare Advantage plans should quickly start to cover some of the services that senior living can offer. Another possible route is for providers to start their own MA plans, as Erickson Living and others have done.
Companies featured in this article:
Aetna, Amazon, Benchmark, Capitol Seniors Housing, Care Capital Properties, Charter Senior Living, CVS, Elmcroft Senior Living, Erickson Living, Holiday Retirement, Humana, Juniper Communities, Kindred, Margaritaville Holdings, Netflix, PwC, Sabra, Solera Senior Living, Solstice Senior Living, Sonos, Ventas, Vitality Senior Living