The year was 2011. After 23 years with Life Care Services (LCS), Jim Biggs had risen the ranks to vice president and was overseeing operations for 23 communities, when he decided to make a big change.
He would join two other people to co-found a senior living company in China, and move there to get the venture off the ground.
“This was my mid-life crisis. In hindsight, I probably should’ve gotten a Harley,” he joked in a recent interview with Senior Housing News.
Today, Biggs is back in the United States, as CEO of operating company West Bay Senior Living. But his Chinese venture did bear fruit, and his six years in that country make him one of the most knowledgeable senior housing executives about that massive international market, which holds enormous promise as well as risks for U.S.-based providers and investors.
Biggs broke down some of the most common myths and misconceptions about the Chinese market and prevailing types of senior housing there, including why he pursued a different model than the sprawling retirement communities that typically grab headlines.
Learning the market
Biggs’ initial exposure to Chinese senior housing came in 2007. That’s when Des Moines, Iowa-based LCS — one of the largest senior living providers in the country — hosted a delegation from Chinese conglomerate Fosun, and began discussions to explore a potential partnership to create large retirement communities in China.
That deal did not come to fruition, and Fosun ended up forging a joint venture with private equity giant Fortress. But thanks the connections he made in China during the negotiations, Biggs received the proposition to co-found Vcanland Senior Living Investment Group. He was the only American involved at the outset of the company and would be in charge of running operations.
The idea was to create a different model than the prevailing type of massive senior housing projects being built, which drew inspiration from U.S. continuing care retirement communities. These projects were typically driven by Chinese life insurance companies such as Taikang Life and Union Life, and were sprawling, mixed-use properties taking shape on the outskirts of major cities. For example, Union Life’s Union Health Valley in the city of Wuhan bore an estimated cost of $20 billion Chinese yuan (YMB), with a first stage intended to house 50,000 seniors.
On first blush, these projects appear to capture the heady promise of U.S.-style senior housing in China: Given the massive population and lack of product, it seems to be a wide-open market with dizzying levels of potential demand.
However, for the Chinese life insurance companies, actually filling up these units at market rate rents was not necessarily a pressing imperative, Biggs said.
Rather, the developments serve a two-fold purpose. For one, the buildings can be carried on the insurance companies’ balance sheets in lieu of cash reserves. Secondly, the insurers view the residents primarily as customers for insurance products.
“So, you build this enormous property, it means much better liquidity for the company and for the business — which kind of [raises the question] of whether they ever intended to fill them,” Biggs said. “And that’s why nowadays those rates are so inexpensive, because the Chinese companies really view it as a means to sell additional insurance — on average, about three to four policies [per resident], and they service them through an annuity, so it’s all designed to kind of be a financial instrument.”
The location of these behemoth developments adds another wrinkle. To illustrate this point, Biggs shared an anecdote about the time he advised someone from Union Life, who thought he had identified a “great site” for a community outside the sixth ring of Beijing, meaning it was far from the city center. Biggs suggested that the Union Life worker go home and ask his 79-year-old mother for her opinion.
“He said, that was a very interesting thing you asked me to do — first of all, my mom didn’t even realize there was a sixth ring around Beijing,” Biggs said.
The mother also became angry, and asked her son why he was trying to send her so far away, and what she had done to shame him, Biggs related.
Now, these huge projects are filling up, but Biggs believes that most of the incoming residents are between 50 and 70 years old, because the older generation shares this negative perception of being shunted off to the boonies.
So, while U.S. senior living companies were being asked to help Chinese companies create CCRCs, Biggs said they’ve ended up being active adult developments that have health care-related amenities that won’t be fully needed for another 20 to 30 years.
A neighborhood alternative
Biggs and his partners decided to go in a different direction and bring a smaller, U.S.-inspired product to urban core locations.
Their first project was located in Tianjin, a northern Chinese city of about 15 million people. There, they acquired and converted a multi-story building that formerly housed a restaurant to create their senior living community, dubbed Friendship House.
At first, Friendship House had just 26 beds, located on the second floor. The first floor was reserved for marketing. To ensure that the project got off to a successful start, Biggs himself lived in the building.
“I think one of the more common mistakes people make in China is they go in, they consult — which usually means flying in for a couple days and sharing some speeches, some information, which are done through a translator — and then you come back 30 days later, and you just don’t understand how come your wisdom isn’t necessarily demonstrated in that property,” Biggs said. “ … And so you really need to lay down the foundation, you need the model, and you need to reinforce that with staff.”
After about four months, operations were running smoothly enough that Friendship House expanded to the third floor, moved half the staff up there, and backfilled their positions. Biggs then looked at data and outcomes to measure consistency between floors, to judge that the operation was scaling up well.
Residents ranged in terms of their level of independence, but in general the level of care was about equivalent to a medical model of assisted living here in the United States.
As they built up Friendship House in other locations in Tianjin and expanded to Shanghai, their main competition was China’s state-run nursing homes.
“The myth that there’s no nursing homes in China is wrong,” Biggs said.
The Chinese nursing home is similar to a Medicaid facility here in the States, he said. In China, the typical model is to have six to eight people per room, with each person bringing in about 4,000 YMB per month. So, with revenues of about 32,000 YMB per room, the facility hires about two caregivers per room to work 24-hour shifts on alternating days, and pays for food and other necessities. The buildings are designed with an aggressive “efficiency ratio,” meaning about 75% of total square footage is rentable space.
“It’s surprisingly pretty profitable,” Biggs said.
This competition demanded an adjustment in his thinking. Like others who come to China from the United States, he said, his initial vision was to build to best-in-class U.S. standards. But with the competition operating so efficiently, this was unrealistic.
“So what Friendship House did is, after the second or third ones, we said, look … we don’t need to be the best in China,” Biggs said. “We don’t need to be the best in the city … we just need to be the best in that neighborhood.”
Friendship House began putting three people in a room, but the spaces were designed so that as the market evolved, they could go down to two-person and then single-person occupancy. Similarly, Friendship House offered modestly more appealing dining options than the state-run competition.
In this way, the company was successful in capturing a private-pay consumer and, based on their satisfaction levels, pushing rate about 3% to 4% a year, to current levels of between 7,000 YMB and 7,500 YMB.
Meanwhile, the company focused on opening new locations close to existing ones, creating some market overlap that made staffing easier. There might be 20,000 to 40,000 people living within a six-block radius in Shanghai, so demand is healthy even for two properties that are located just one or two metro stops away from each other, Biggs noted.
Still, China is lacking the robust infrastructure that serves the U.S. senior housing industry, and so Biggs and his partners began to address some of these gaps as well. They created a caregiver training academy and a supply firm called Yongai, which Biggs described as a Chinese equivalent of Direct Supply. This has been an even more successful venture than Friendship House, as it has become the go-to provider for the country’s growing market — including the gargantuan developments that have gone up in the last several years.
Meanwhile, Friendship House now operates about a dozen locations divided between Tianjin and Shanghai.
Biggs is back at work in the United States, but he maintains his contacts in China and views that market as full of potential for talented individuals who are willing to take on its particular challenges. To that end, he’s connected some promising young talents with opportunities there, through his role as a lecturer at the University of Southern California.
And, though he intended to retire upon moving back to California, Biggs could not stay idle for long. As CEO of West Bay, he’s once again living in one of the communities under his company’s management, the Carrington of Lincolnwood, on Chicago’s north side. Still, his time in China continues to pay off in various ways, particularly given the Carrington’s diverse resident population. In the midst of touring SHN through the Carrington last week, he paused to greet a resident in Mandarin, whose face lit up as they exchanged a few words in that language.