The traditional definition of senior housing is under attack.
Looking back at the last 10 to 15 years, the asset class as defined by investors had distinct lines between independent living, assisted living, memory care and nursing homes. All of these communities were surrounded by 55-plus master planned communities, traditional multifamily and single family options, as well as options such as skilled nursing facilities that were more focused on a senior in need of more robust health care. The overall care continuum seemed clear.
As we are nearly ready to enter the next decade, the distinct lines in senior housing have been blurred and faded. With newer concepts and monikers such as active adult, micro CCRC (oops, Life Plan Community), granny pods and more, consumers, industry professionals, and investors have many new names and options to consider as part of the asset class. A distinction of hospitality or health care is too simplistic, and a blend of these seems trite when diving into the detail. The industry will become bifurcated into two sub-segments: low-acuity senior housing and high-acuity senior housing.
As the cost of care continues to rise, especially in acute settings, these traditionally defined segments of senior housing are being disrupted. The disruption is a result of the junction of a variety of technological and service advancements and is enabling the lower acuity senior housing definition to expand.
On-demand services, cheaper technology and internet connectivity enable lower costs, increased efficiency and the capability to deliver care in nearly any location, provided the labor is available and the acuity is not too high. Lower acuity settings may still involve dealing with multiple chronic conditions but with technology and access to care, the risks of rapid escalation of these conditions are reduced in many, but not all, cases.
Without delving deeper into income distribution and social determinants, consumer choice and means are the primary drivers for this range of senior housing. As health care delivery becomes more location agnostic, with cheaper and faster technology, this will redefine independent living for consumers, operators and investors.
The variety of options and choice for yesterday’s definition of independent senior living is set to explode as baby boomers are demanding specific lifestyle choices and individualized customization. The trends of wellness and lifestyle, urban development, the desire for intergenerational living and mixed-use properties being developed for combinations of housing and care type services are creating the foundation for the next generation of senior housing.
These blurred lines of accessible care in the community and housing are a blessing and a curse, as the need for a setting with dedicated, moderate levels of care becomes less critical. The middle ground of acuity will fade as care will be amplified, and possibly exhausted, before the need to go to a higher acuity housing setting.
The higher acuity spectrum will change as well, as the care settings for longer-term stays will be rooted in efficiencies and payment models. As owners and operators look beyond private pay to Medicare Advantage, and traditional Medicare and Medicaid, finding the right balance of revenue will be a challenge as the definition of senior housing evolves. For operators that can find the right revenue combination and balance of expense management, efficiency and an ability to reinvest cash flow into physical plant and technology upgrades (and provide a return to investors), the higher acuity setting will continue to evolve into its own sub-segment again.
In order to accommodate the “high acuity spectrum” of the next generation of senior housing, the physical plants will need to be more flexible to provide a range to the levels of care like an accordian, contracting and expanding as demands dictate. Having a fixed inventory of beds for assisted living or skilled nursing is a recipe for disaster, and many owners and operators will find the next few years challenging to keep those consistently filled. Higher acuity settings will require higher amounts of capital versus the lower acuity senior housing options.
For example, some skilled nursing operators are seeking to diversify their businesses through shorter-term rehab and therapy (both inpatient and out) as well as components of behavioral health. While regulatory changes such as the patient-driven groups model are driving some of this transformation, the higher-acuity end of senior care is realizing it needs to provide the highest quality of care in the lowest cost setting over longer periods of time. This is the tight rope that all operators must walk in the future in order to be financially solvent. It is as simple as that.
This divergence in senior housing is just starting and it is an exciting time to see how investors, consumers and industry players navigate the fork in the road.
Interested in learning more about the trends driving development in senior housing? Consider attending the Senior Housing News BUILD event this spring.