Founded in 2016, Innovation Senior Management (ISM) has carved out a niche in operating middle-market and affordable communities, and has bigger ambitions.
Going forward, the company is focused on building up its independent living offering and targeting the market for adult day services, which founder and CEO Pilar Carvajal sees as a missed opportunity for many senior living providers.
For about 18 years, Carvajal worked in the family business, Mia Senior Living Solutions. During her time with Miami Beach, Florida-based Mia, the company managed over 1,000 units of senior living and adult day facilities across 23 states.
Carvajal went into the Goldman Sachs 10,000 Small Businesses program with the intention of gaining more expertise to expand Mia, but came out of that program with the realization that in order for her to grow personally and professionally, the time had come to leave the family business.
She went on to start ISM, also based in Miami Beach. Today, the company provides third-party management for six senior living properties, and owns and operates one, all in Florida.
The portfolio is an eclectic mix of care levels and building sizes, but is united by the fact that all the communities serve a middle-market or lower-income consumer. This is an area where Carvajal has particular expertise. With Mia, she learned how to license large public and low-income housing for assisted living.
“That’s all I’ve done for my career,” Carvajal told Senior Housing News, of serving the middle market.
The operating model is not easy to execute, but it can produce healthy margins, she said. There is also ample demand for management companies in this niche, and Carvajal can envision taking ISM to 50 or 60 properties, while building other revenue streams such as the adult day services segment.
ISM’s middle-market formula
With current average monthly rates of around $5,000 for assisted living nationwide, the private-pay senior living industry has struggled to devise a scalable operating model to serve middle-income older adults. It’s a challenge that has garnered healthy attention lately, thanks to research into future demand.
For Carvajal, serving this demographic has become second-nature.
“I’ve always been trained, in all the years I’ve been doing this, to think economically and creatively,” she said.
To achieve average assisted living rates of around $2,000 to $3,500 a month — depending on the prevailing market rates in the area — ISM employs a variety of strategies.
Carvajal is well-versed in subsidy programs such as Medicaid waivers and Section 8 housing assistance, and believes that expanded Medicare Advantage coverage of senior living services “makes absolute sense” and is something she is exploring.
ISM helps residents access these programs as needed, and if their assets become depleted, the company takes other steps to help residents remain in the community. Sometimes, this involves moving someone into a smaller unit, or from a private unit into a “friendship suite” with a shared bathroom.
Flexible building designs are a must. Dining rooms that can double as activity rooms, for example, help keep construction-related costs down and maximize the amount of revenue-generating space in a building.
Careful consideration of staff licensure is important as well. ISM generally opts to employ in-house staff at the certified nursing assistant (CNA) and med-tech level, and partner with outside providers to address residents’ higher-level nursing needs. This helps ISM avoid costs related to more robust licensure requirements for employing nurses.
Success is tied closely to discipline on the expense side, but that does not mean a bare-bones offering. Proper investment must be made to create a fully professionalized business bringing an attractive product to market, Carvajal said.
“I’m very accustomed to a product that’s simple, that’s clean, that’s economical in its design, whereas we put our efforts in staffing, programming, food — those are the things that the middle market is wanting and appreciates,” she said.
The returns and operating margins are tighter for middle-market senior living than higher-end products, but they can still be healthy, in Carvajal’s experience. ISM targets a 20% to 25% operating margin for assisted living.
The company does have one dedicated memory care property, and margins are thinner there, given the more robust labor requirements and overall operational complexity. Still, while occupancy is being eroded in higher-end memory communities as new competition has ramped up, ISM has been able to maintain its census by serving a different population segment, Carvajal said.
ISM is seeing substantial interest in its management services, particularly from family owners who have just one or two properties and need more professional operations, or from aging owners who need to upgrade their buildings in order to sell them. In most of those instances, Carvajal has an option to ultimately acquire the property.
‘Ripe for the picking’
At the moment, Carvajal is particularly focused on bringing more technology into independent living to allow residents to age in place, and in building up ISM’s adult day care services business.
ISM is in the process of incorporating adult day into all its assisted living communities.
“I don’t see why you wouldn’t incorporate it into your assisted living facility,” she said. “You’re already offering what an adult day center would need — a meal program and activities.”
She also views adult day as a feeder of future assisted living or memory care residents, and as a way to build trust in the community at large.
Another option that Carvajal is considering: standalone adult day centers.
“In terms of a standalone adult day, I believe that’s a market that’s been overlooked,” she said. “It’s been dominated by cities, counties, nonprofits, and I think it’s ripe for the picking.”
There are some challenges that come with adult day, including the aggressive marketing effort needed. That’s because rather than entering longer-term leases, customers are in effect making a day-to-day commitment.
A branding issue adds to the marketing challenge.
“I think it has a massive branding problem,” Carvajal said. “Who wants to go to an ‘adult day care?’ We’re thinking about terminology.”
Competition is another factor to keep in mind. Adult day centers have proliferated around the country in recent years.
“There is an enormous amount of adult day down here [in Miami], but it’s very unsophisticated,” Carvajal said. “Large rooms with very basic types of services.”
The idea is that ISM can make a big impact by bringing a creating a more sophisticated version of adult day. That goes for the operations and also where its standalone day care centers would be located — ideally, in commercial areas that would be convenient for family members to access and conducive for intergenerational mingling between older adults and children.
“I think there are great rewards for young and old to be together,” Carvajal said.