Older adults are not well-served by today’s retail banks, entrepreneur and former senior living executive Elias Papasavvas believes. He’s out to change that with his new venture, Second Act Financial Services — including by offering more attractive financing to help people move into senior living communities.
Second Act had its soft launch on Tuesday. It is a division of Dallas-based United Texas Bank, which was founded in 1986 by its current chairman, Jeffrey Beck, who also co-founded Capital Senior Living (NYSE: CSU).
Discussions with the bank began earlier this year, but Second Act has been about seven years in the making, Papassavas told Senior Housing News. The idea for the venture stemmed from his experience with Elderlife Financial Services, a company that he founded in 2000.
“In my prior life, I provided credit to people seeking to move to senior living communities … I began to recognize that they felt like an abandoned or neglected consumer class,” he told SHN. “They are swimming out there in the great wide open on their own, with banks pushing product on them but demonstrating little understanding that hey, you’re in this life stage that is multi-decade now, and you’re trying to navigate it.”
Whereas most retail banks — distinct from investment firms like Fidelity and Schwab — are “pushing products” on seniors without fully understanding their wants, needs and circumstances, the vision is for Second Act to provide expert “navigation” while also offering products that are more tailored for this demographic.
The initial product is a bridge loan at attractive rates to help people move into senior living communities — and already, providers representing over 1,000 communities are interested in working with Second Act, Papasavvas said.
Serving seniors, and senior living
Papasavvas left Elderlife in 2012, and went on to become vice president of finance for McLean, Virginia-based memory care provider Artis Senior Living from 2014 until last December. During all that time, he was engaging in “reflection and rumination” about how banks interact with the growing cohort of retirees and near-retirees, and the potential for a better alternative.
While he saw a gap in the market that a venture like Second Act could fill, he did not want to start another specialty finance company. That’s because only a bank or credit union would have the cost-of-capital advantage to enable the efficient loan pricing that he wanted to offer seniors.
So, Papasavvas and Second Act co-founder Douglas Dolton refined their business plan and sought out a bank that understood their vision. They finally found success with United Texas Bank, thanks in no small part to the Beck family’s intimate knowledge of senior living.
“Having served as the founder of Capital Senior Living Inc., Chairman of the American Seniors Housing Association and Chairman of United Texas Bank, we are excited to offer this quick and cost effective solution to help seniors transition from their homes into senior living with our Bank’s HELOC loan product,” Jeffrey Beck said in a statement provided to SHN.
That loan product will provide bridge financing to enable older adults to move into senior living while their single-family home is still on the market. For a smaller senior living rental community, the loans will run at an interest rate of around prime +2.99%, with a one-time 2.0% origination fee. Papasavvas is confident that this stacks up very favorably compared to other, similar products available.
For an 80-bed assisted living community, Papasavvas anticipates that three to five families per year would need this type of financing. By facilitating these move-ins, Second Act could help these communities boost occupancy by 3% to 4%. Given these numbers, it’s not surprising that initial interest from the provider community has been strong, he said.
Furthermore, demand for the home equity lines of credit may increase in the coming years, as home sales could begin to lag for several reasons.
Millennials are not buying homes at the same rate as previous generations, putting pressure on the residential real estate market. And home sales could slow down if the economy enters a recession, which some economists are predicting in light of the recent yield curve inversion.
“We recognize that a home may take 12 to 24 months to sell in a bad market, but if a parent needs housing, we need to figure out how to get them in [now] and sell the home [later],” Papasavvas said.
A senior living provider can’t quote rates and terms of a loan product, so it’s essential that whatever organization is providing the financing is readily available to take a phone call, assess the situation, and offer services. This responsiveness and expertise is a key part of Second Act’s value proposition on the HELOC product — Papasavvas considers the senior living provider as much a client as older adults themselves.
Down the line, he anticipates adding other offerings unique to retirees or near-retirees. Possibilities include money market accounts and mortgages.
A typical mortgage is based largely off an applicant’s W-2 income, but this approach does not work for a senior who might be working part time but has significant assets. By recognizing and responding to these nuances specific to the older adult population, Second Act Financial Services can achieve success by improving the banking experience for this large and growing demographic, Papasavvas anticipates.
“We recognize, as one recent study in England pointed out, that one is more likely to change their spouse than change their bank,” Papasavvas said. “We are not seeking to grab every mature consumer out of every bank. What we seek is to become known as the banking home for the mature consumer and that, in time, we would be sought by those in that demographic segment.”