Locking Rents Could Be More Gimmick Than Game-Changer in Senior Living

Senior living providers across the country have done some creative things to attract new residents, from installing touch-screen tables in community sales centers to offering potential residents the chance to “try before they buy.” Some tactics are riskier than others, though, including offering locked-in rents in which initial rates are frozen for a set period of time.

Offering rent-based incentives might be especially appealing in certain markets where shiny, new buildings are opening on a regular basis, like Southwest Florida.

Some senior housing providers in this particular market, as well as competitive markets nationwide, are offering locked-in rates for new move-ins—and Bonita Springs, Florida-based Discovery Senior Living is particularly transparent about the practice. Other providers have also embraced similar pricing strategies, sources have told Senior Housing News, though inquiries to the communities went unanswered.

Discovery currently operates approximately 45 communities across 13 states. Several of the communities in Florida, Texas, Alabama, South Carolina and Virginia boast of the company’s “Rent Lock” program on their individual websites, through which new Discovery residents “receive 36 months of no rent increases guaranteed.” Some of these communities offer a continuum of care, from independent living to assisted living and memory care, while others just offer one level of care.

Additionally, two Discovery communities—a memory and personal care community in Pennsylvania and an assisted living and memory care community in Maryland—offer no rent increases for life, guaranteed.

Richard Hutchinson, president and CEO of Discovery Senior Living, told Senior Housing News that the Rent Lock program creates a “competitive advantage” for the provider, though he declined to elaborate on the matter further. The practice has critics among providers and industry consultants, who believe rent lock programs are a gimmick that will ultimately backfire.

One such provider is Bloomfield, New Jersey-based Juniper Communities, which operates two communities in Florida.

“Price-based competition is not the thing I want to compete on,” Juniper CEO Lynne Katzmann told SHN. “Ultimately, I don’t think it can be successful.”

An unwise gimmick

At least some senior living industry consultants share Katzmann’s point of view with respect to locked-in rents.

“I think it’s a bad idea,” Dana Wollschlager, practice leader at senior living development consulting firm Plante Moran Living Forward, told SHN. “I think that people are going to do it as a gimmick, and it’s going to fill their buildings, and they’re going to regret it long-term.”

As residents age, they’ll inevitably need more services—and the practice of locking in rents simply ignores that, Wollschlager explained.

“The residents are going to be the healthiest they’ll ever be when they move in,” she said. “If you lock stuff in, you’re going to get upside down pretty quickly.”

It’s unwise to assume that a resident will require the same amount of care over three years, she added.

“We know for sure that their care is going to change,” Wollschlager said. “Their plan and their payment is going to change with it. How can you hedge your bets like that?”

There are other reasons to think critically before adopting a “rent lock” program, including optics, Kimberly Hulett, president and co-owner of sales and marketing consultancy Creating Results, told SHN. Creating Results specializes in marketing to people over the age of 50.

From a consumer’s point of view, it may seem suspicious that a senior housing community would need to offer this type of guarantee.

“Well, why are they locking fees for three years?” Hulett asked. Prospective residents and their adult children could very well negatively pre-judge a community’s quality based on the fact that they’re offering a gimmick.

Additionally, prospective residents could assume that, if they live in the community for more than three years, their rent will increase exponentially.

“If my rates are locked in for three years, what happens in year four?” Hulett said. “Will there be a 10% increase?”

Additionally, Irvine, California-based memory care provider Silverado has chosen not to offer locked-in rents at any of its approximately 35 memory care communities across the country.

“Our strong FTE to resident ratio, innovative model of care and personalized engagement program is critical to delivering among the top 5% industry leading clinical outcomes,” a Silverado spokesperson told SHN. “For these reasons, we do not offer ‘locked in’ or guaranteed rates as those choices often lead to a reduction in staffing and programming levels which could compromise care and we’re simply not willing to do that.”

As of 2010, the average length of stay for assisted living residents nationwide was only 22 months, according to the National Center for Assisted Living’s (NCAL) National Survey of Residential Care Facilities.

Careful considerations

Despite the various perceived shortfalls of “rent lock” programs, it may be possible for providers to execute them effectively, especially in the independent living setting.

“The only place that I potentially would do it is independent living,” Wollschlager said. “But I think it’s dangerous and you’re going to lose money in the long run.”

There are certain requirements assisted living and memory care communities must meet before deciding to offer locked-in rents, according to Hulett.

“In order for a provider to lock in rates for any long term period of time, I would want to make sure that, number one, they were in a highly competitive environment, and number two, that they had weighed the cost of their vacant inventory against the cost of potentially not being able to cover anticipated operating costs,” she said.

Still, providers like Juniper Communities aren’t likely to offer locked-in rents anytime soon.

“I would rather compete on value, the best quality of life, and hence value for money,” Katzmann said.

Written by Mary Kate Nelson