5 Ways Senior Living May Reach the Middle Market

While it’s clear the senior living industry must cater to the growing middle market of older adults over the next decade, what isn’t clear is how exactly that will occur.

There are fresh ideas percolating, though. That was made evident during a “hackathon” at the National Investment Center for Seniors Housing & Care (NIC) fall conference in Chicago Wednesday.

The hackathon, which comprised 25 different stakeholders from across the industry broken up into five small groups, was meant as a starting point for further discussion on how the industry can best serve the millions of older adults who, by 2029, won’t qualify for public assistance but also may not be able to afford private-pay senior housing as it exists today.

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The general idea is that reaching this growing demographic will require driving down rates through a mix of new and old ideas, including some that are disruptive or novel. The solution will likely require new public-private partnerships, and perhaps necessitate radically new thinking regarding the financing, design and construction of senior living communities.

Wednesday’s brainstorming session was only a starting point, according to NIC Chief Economist Beth Mace.

“This will be the beginning of a many-year conversation we’re going to have about middle income,” Mace said. “We’re going to need new financial structures, operating models and probably a reconfiguration of real estate to really address the needs of this cohort.”

Idea 1: Disrupt traditional capital structures

One idea was that current capital structures are too prohibitive for operators to experiment with models that truly break the mold.

“We felt that the real disruption, and where the biggest opportunity is, is looking at disrupting the traditional capital structures,” said Nancy Swanger, associate dean and director of the Carson College of Business at Washington State University, home to the Granger Cobb Institute.

“What we came up with was looking at paying non-accredited investors 8%, and also looking at tax incentives and abatements … that would help this all happen.”

These types of shakeups would reduce the pressure on operators related to investment returns and servicing real estate-related debt, and give them breathing room to invest in innovative ideas or technology.

Idea 2: Separate operations, real estate costs

Another idea was to decouple the costs of running a senior living operation from the costs of owning and maintaining real estate.

This idea hinged on a new tax credit for senior living companies similar to the existing Low-Income Housing Tax Credit (LIHTC).

“Conceivably, you could have the buildings and land provided by a third-party investor who receives tax credits in return for that investment without ever requiring the operating side to generate the revenue to pay them back,” said Doug Williams, co-chair of Maynard Cooper’s senior living and long-term care practice group.

On the OpCo side, providers could create a model focused on adult day services as a “hub” for services in order to drive down costs, according to Pilar Carvajal, founder and CEO of Innovation Senior Management (ISM). This model would also include partnerships with local or regional hospital or health systems.

“The services would occur in the adult day, and then residents would go back to where they live in independent living,” Carvajal said. “In order to reduce the cost, we looked at an abbreviated service model through the adult day care.”

Idea 3: Unbundle services

This model — dubbed “NICville” by its creators — would drive down costs by unbundling some of the traditional senior living services.

In this concept, buildings would lack a commercial kitchen in favor of an a la carte meal delivery or nearby grocery stores for residents. Transportation would be provided by ride-hailing companies like Lyft and Uber. And, some health services could be provided remotely via telehealth.

“People would choose what they wanted, when they wanted, on an a la carte basis,” said Mary Helen McSweeney-Feld, associate professor of health care management at Towson University.

Along the theme of keeping costs low, these communities would be located inside large mixed-use developments, such as malls or medical office buildings, where other commercial tenants could offer complementary services.

Idea 4: Decouple amenities and health care

Another way to drive down costs is separating health care and hospitality from senior housing while instead leaning on third-party concierge providers to offer those services.

“All the services that traditionally are offered in senior living today … all of that is now available through third parties,” said Jamison Gosselin, vice president of senior living with marketing firm G5. “The question is, how can we successfully coordinate that within the community for all the various types of residents and their needs?”

To further save money, senior living stakeholders could look to develop more locations in inexpensive urban sites.

Idea 5: Involve multiple sectors

The senior living private sector cannot meet the middle market alone. So, it would make sense to include the surrounding community, insurance companies and perhaps even policymakers in crafting a solution.

“It comes down to … the community, investors and insurance companies, all working together to make this happen,” said Rick Taylor, executive vice president of integrated technology firm Sentrics.

This wide cross section would focus on things like health and wellness to keep residents from falling victim to acuity creep, which is where the “real cost comes in,” Taylor said.

All these ideas were offered as starting points for creating a scalable middle-market senior living product, and were presented to a standing-room crowd. So, while it remains to be seen which ideas have staying power, it seems clear that there is an intense interest among industry stakeholders in carrying on this discussion.

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