As the partnership between Atria Senior Living and real estate developer Related Cos. continues to take shape, Atria CEO John Moore remains committed to the multi-brand portfolio approach — and he says an expansion is on the way this year.
Currently, Atria operates communities under three brands, and Moore believes the company will reach five by the end of the year, he said last week at Senior Housing News’ BUILD event in Chicago. The Louisville-based operator provides management for about a dozen different owners across 230 senior living communities.
When Atria and Related first announced their joint venture last fall, they described a planned $3 billion pipeline of urban senior living projects that would be operated under a new, distinct brand. Moore “absolutely” believes that multi-brand portfolios are the future of senior living, he said at BUILD.
Price point will be one consideration as Atria differentiates its brands, but a middle-market product is a tough proposition, Moore said. Overall, Atria plans to leverage its scale and technology infrastructure as it diversifies its brands and potentially even undertakes a new business venture.
Seizing the urban opportunity
Related is one of the highest-profile real estate firms in the United States, thanks to projects such as Hudson Yards in New York City. The $20 billion project is the largest private real estate development in the nation by area, and is slated to include a panoply of housing, dining, shopping and amenities.
Moore defined Related’s approach as “placemaking,” and said that the firm sees a niche for senior living in developments meant to serve the full spectrum of the population. He did not say that senior living would be integrated specifically into Hudson Yards — and noted that the project is “pretty well-baked” — but Moore did say that senior living could be a part of similar projects in the future.
The cooling of the residential real estate market is also smoothing the way for senior living to be built in urban infill areas, where there is likely to be unmet demand, he added.
Metro areas like New York City have been undersupplied because senior living has not been considered the highest and best use of that land, and as a result, the supply penetration rate in big U.S. cities is about a quarter of what it is nationally.
Atria is not the only senior living company to see significant opportunity in previously undersupplied urban areas. In Manhattan, real estate investment trust Welltower (NYSE: WELL) and developer Hines are working on two projects, and Omega Health Care Investors (NYSE: OHI) and Maplewood Senior Living are creating a senior living highrise.
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Forecasted rents for these projects run as high as $20,000 a month.
This is not unreasonable, Moore said at BUILD. Atria operates about 28 buildings within a roughly 25-mile radius of Times Square and can command rents at this level or higher, he said. Targeting an affluent demographic is a natural strategy when building on prime real estate in pricey urban markets, but it is not the only play that could pencil out.
“There are a lot of retired city workers with decent pensions, and nobody’s trying to aim a product that serves that resident base in particular,” Moore said.
No easy answers for the middle market
Serving the urban cohort on pensions is not exactly the same as creating a middle-market senior living product that can scale widely.
That is a “really, really tough problem to solve,” Moore said.
It’s a problem that has been in the spotlight lately, given recently released research from the National Investment Center for Seniors Housing & Care (NIC) and several academic institutions. This showed that 54% of middle-income seniors will not be able to afford private-pay senior living by 2029 if current rates hold.
The care component of private-pay senior living is what drives up costs most significantly, and Moore does not currently see a way to diminish care costs to a middle-market price point.
Others have pointed to Medicare Advantage (MA) as a potential part of the solution to the middle-market dilemma. As MA payers start to offer benefits packages that cover some senior living services, this insurance product could become a way to defray the care costs that residents currently pay out of pocket, the argument goes. Some senior living providers have even begun launching their own MA plans.
McLean, Virginia-based Sunrise Senior Living is offering a plan branded as Sunrise Advantage, and a group of three providers — Juniper Communities, Christian Living Communities and Ohio Living — have created The Perennial Consortium to begin offering plans. Erickson Living, a large provider of continuing care retirement communities, also offers an MA plan.
However, this is not a road that Atria is likely to go down at this time, given that Medicare Advantage is a hybrid government and private-sector insurance product.
“Any time you’re partnered directly or indirectly with the government, you can expect some component of that business that’s arbitrary,” Moore said.
Furthermore, starting an MA plan demands that a provider implement a very robust health care delivery component to its operation, and Moore expressed reluctance to change the proven assisted living delivery model to care for higher-acuity residents. Although many residents live out their lives in Atria buildings, those that develop more intensive needs move out to other settings that are better suited to serve them — and Moore called out some of his peers for sending the wrong message, or even implementing the wrong strategy, in trying to keep too many people in their buildings for too long.
“People will say, CEOs of public companies have said, we’re going to increase occupancy by closing the backdoor,” he said. “Think about that. We’re going to lock them in?”
Even if a large-scale middle-market play is a tough proposition, Atria’s future brands will be differentiated by price point and value, he said.
While it remains to be seen exactly what form Atria’s multi-brand portfolio will take, there are some other providers also going down this path. Lake Oswego, Oregon-based Eclipse Senior Living has created two differentiated brands based on rents and level of care: Elmcroft by Eclipse and Embark by Eclipse.
Creating a scalable operation
Atria is well-suited to pursue the multi-brand strategy because of the company’s scale, which allows it to capture efficiencies and also gives it the resources to manage the complexities that come with brand diversification, Moore said.
For example, nearly all of Atria’s backend technology — such as its customer relationship management and care management platforms — are homegrown. The company evaluated off-the-shelf products in the early 2000s and determined that they generally did not translate well to senior living, and so built its software in house.
These systems can be portable across brands and in fact would even work for other senior living providers, creating a potential new business for Atria.
“We may be considering spinning of a software company,” Moore said. “ … We think that it could be an interesting product.”
Similarly, Atria’s scale should give it an advantage in terms of being able to afford the training programs that will be needed to train up its workforce to deliver the particular services appropriate for each sub-brand. The company considered itself sub-scale until it was about 100 buildings, Moore said, referring to the ability to invest in the fixed costs, back office, support center and similar capabilities.
That said, current labor challenges are real, and even as a supply glut has put pressure on occupancy for many providers, they must find a way to pay workers more to staff up and reduce turnover.
“I’ve always hated in senior housing that everybody always says, ‘There’s a satisfaction you get with working with seniors,’” he said. “That’s true, but people also have to pay their bills.”
By leveraging technology, providers can staff more efficiently, he believes. Cutting overtime and reinvesting that money into higher wages is one potential way to raise pay rates. At the same time, providers must be willing and able to invest upfront to hire the right people and onboard them effectively to reduce turnover and the associated costs.
“It’s hard to do, and people who are focusing on that now as a way to make the current environment make sense will be that much better prepared to create a lot of value when demand [increases],” he said.
In the meantime, he believes that providers must focus on the basics of care quality and creating sustainable, repeatable business models rather than implementing practices that do not have staying power in an effort to fill buildings, warning developers and owners to choose their management partners with care.
“Management is not a commodity,” he said.