Eclipse CEO: Middle-Market Solution Likely to Come From Outside Senior Living

Solving the middle-market challenge in senior living might require disruption from a major player outside of the industry.

That’s according to Eclipse Senior Living CEO Kai Hsiao, who moderated a panel discussion of senior living operators during a National Investment Center for Seniors Housing & Care (NIC) investor summit in New York City on Tuesday. The panel — which included insights from Benchmark Senior Living founder and CEO Tom Grape and Leisure Care CFO Judy Marczewski
centered on the possible operational models and financing structures it would take to tap into the vast middle market for senior living.

Hsiao, who attended the New York City event and an earlier one in Washington, D.C., spoke with Senior Housing News on Thursday about what it might take to truly tap into the cohort, which is projected to number 14.4 million older Americans by 2029. The group is defined as those who don’t qualify for government housing assistance based on their income, yet they cannot afford private-pay senior living at today’s rates.


The following interview has been edited for length and clarity:

You were one of the only operators to attend both the New York and D.C. summits NIC has hosted on the middle market conundrum. So, what’s your general sense now that both these events are behind us? How’d they go?

It definitely caught a lot of attention. People have felt that it is a market that hasn’t really been spoken to as of yet.


I think the question is: is the real estate side going to try and solve for this, or are you going to have more of a health care perspective to try and solve for it?

On the real estate side, people are used to certain returns, and there are certain investment hurdles that the middle market may not be able to get there. [I’m] talking about compressed margins and investment targets.

Given the smaller returns for investors, it almost seems like there would have to be a philanthropic angle to this, someone willing to take the hit to make this work for the middle market.

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My perspective is, what is the measurement of success? That’s how we’ve been defined from a real estate point of view. The question is, does someone else come in and measure success differently?

I would go back to the comment I made before, it might be someone like an insurance company. Their job is to basically decrease what it costs to care for a person in their system. And if they can do that by having someone stay in a community where they provide better outcomes, then that’s probably where they want people to go.

I could see where an insurance company says, sort of like in HMOs, if you use in-network provider, this is what it will cost. Outside of the network, this is what it would cost. And you would prefer to go in-network because eventually you’ll save some dollars on that person.

Their definition of success is different. So they’re going to say, how can I reduce the cost on a per-person basis? If they can do that by putting them in an assisted living community where they can better manage the outcomes, then I think that’s a better result for them. So, that’s a different measure of success.

[NIC Founder] Bob Kramer said there “will be hell to pay” if this industry doesn’t solve affordability in senior housing, especially if regulators and policymakers get involved first. What’s your take?

If [the public sector] feels that the private world isn’t doing it, then they may start imposing things on us that we don’t necessarily want. They might say, look, if you want to qualify for a Fannie or Freddie loan, then here’s what we need to do in order to get it.

From an operator’s perspective, what are the next steps the industry needs to take to hit that middle market?

I think these experimentations and trials that people are doing need to continue. I think they need to be able to capture better data to actually show it. When I look at the examples that were given by Tom Grape of Benchmark and [Judy Marczewski] at Leisure Care, how replicable is what they’ve done? And can you actually build that on a national scale?

If it did really well, finance would be asking them to do more of that, please. But if they’ve had to find different capital partners to work on their various products, that is probably indicative of how much appetite they have for that particular result, and maybe they’re looking for a better result before they line up for it.

Having one or two is great. But again, can you replicate this across the country in multiple locations? That’s the question.

I heard some folks discussing how we need to cut down on high-end amenities. Bob Kramer in particular said the industry is focusing too much on the bells and whistles. Any thoughts on that? Can we strike a balance between amenities and affordability?

I think it’s in how you define the value proposition. You could look at hospitality. The value proposition that you get from a Ritz is different than what you get from a Hilton Garden Inn. As a consumer, you know that going into it. I don’t think anyone stays at Hilton Garden Inn expecting Ritz service.

So, if you accept those expectations upfront and say, look, here’s the value we’re going to provide, his is the cost, and therefore here are the services that you’re going to get for that — if you’re upfront about it, I think you’re fine.

But I agree, right now it’s all about real estate and who can out-bling the [competition]. I think that makes it tough.

I’d be remiss not to ask this — do you think the key to hitting the future middle market is to price senior living communities more like hotel brands, with a range of cheaper to more expensive options? I know Eclipse is already doing multiple brand verticals.

I do. I still go back to our penetration rate in senior housing. It’s been static at 10%. That’s because what we’ve built is really for a certain group of people. So that’s why that penetration rate hasn’t increased. If we start diversifying what we’re building, we’ll start attracting different people and that penetration rate [will rise].

The good news for this industry is, and it sounds bad from some of the data, but it’s actually good for us — is that [baby boomers will have] fewer kids, so your necessity to find senior living options is greater. From a care standpoint, they’re living longer with more acuity, so that’s another reason to look for senior living

But it sounds like there’s a lot more work to be done on the affordability front.

There is more work to be done.

One takeaway I had after [the NIC summit] was: I do think that the middle market is being somewhat addressed by the 55-plus product. I just don’t think the 55-plus product knows that yet.

I think there’s a reason why that genre is beginning to catch on. It’s because of the price point and because of the middle market. Again, you can move into 55-plus and if you’ve got care needs, you can bring in home health to supplement.

What do you see as the biggest hurdle to clear in order to better serve the middle market? During the summit, we heard labor, we heard equity. What do you think?

I think it’ll be people who are brave enough to give it a try. We’ve got oversupply right now because everyone is building the same thing. And everyone’s comfortable in a certain range, because it’s tough for people to break away and try something new.

Yes, labor is going to be a concern. Yes, equity is going to be a concern. But part of it is the ability to walk on a different path and try a different route. People are creatures of comfort.

So how can the industry break out of that cycle and try something new?

I think the tough answer is that the person who’s willing to do it is going to be someone who is outside the industry right now. I think people in the industry as are so set that I’m not sure they’ll be willing to make those adjustments. And that’s why I point to folks from insurance industry or ones who may have a different perspective.

What do you think the industry is not doing that it ought to be doing right now?

That’s a pretty long list. There’s a lot of improvement needed in senior living. But it’s still a young industry. I use the analogy that I think we’re 20 years behind hospitality and 10 years behind multifamily. The things that they learned 20 years ago, we’re beginning to learn now. So, those things will catch on. You’ve got another generation coming in, as well. Most of the people in senior living today started out as developers. And when you’re a developer, you think real estate first.

Do you think this is going to take a total reimagining of the senior living business as we know it? Or can we tweak the existing model to help meet the middle market?

I think it’s going to take tweaking, but I think, again, it’s who’s measuring success and what success looks like in their model. So, who’s the person who’s judging that? If you have a different set of eyes judging what success looks like, I think it will work.

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