Disruption Is Only A Matter of Time: 2019 in Senior Housing Leaders’ Own Words

It’s been an eventful and in many ways difficult year for the senior housing industry — and it’s not over yet.

But as calendars turn over to December, it’s time to take stock. With that in mind, we’ve compiled some of the most vivid and powerful quotes that appeared in Senior Housing News this year. These quotes — one from each of the last 11 months — convey some of the biggest trends, most difficult challenges, and most attractive opportunities that defined 2019 for senior living.

“Trends from 2018 will spill into 2019 — challenged operational performance due to pressure on the topline from stagnant occupancy caused by continued, though mitigated, new supply, plus pressure on the bottom line from a competitive and static labor pool … Additionally, assets will continue to transition due to operators with broken capital structures, or poor performance due to inability to invest back into their operational platform.” — Kai Hsiao, CEO of Eclipse Senior Living, Jan. 1, 2019

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Hsiao’s predictions for 2019 were on point. Operational challenges persisted throughout the year, and even though construction starts were down, the hangover from the supply glut is more painful and extended than some expected. Notably, Ventas (NYSE: VTR) — a part owner of Eclipse — revised its senior housing forecast after the third quarter was worse than anticipated, with “unprecedented” market conditions leading to pricing pressures for some of the REIT’s operators.

Ventas rival Welltower (NYSE: WELL) has fared better in its senior housing portfolio of late, but has been more aggressive in restructuring operator relationships. In some cases, operators like Silverado objected to the REIT’s decision to move portfolios to new management. In other cases, operators have remained in Welltower’s portfolio but switched from triple-net to RIDEA structures. To Hsiao’s point about broken capital structures, this is what Welltower CEO Tom DeRosa said about Brandywine’s conversion to RIDEA: “Brandywine is just another example of fixing a broken capital structure that resulted from a period of time when REITs where valued at how large they could grow their asset portfolio.”

“My view is that senior housing really is part of the solution to health care reform, and that senior housing deserves a piece of that pie to do more of what we do well. And the only way to make that happen is to do it collectively.” Lynne Katzmann, Founder and CEO of Juniper Communities, Feb. 11, 2019

February saw the official announcement of The Perennial Consortium. This group of three senior living providers — Juniper Communities, Christian Living Communities and Ohio Living — has teamed up to bring Medicare Advantage plans to market.

Medicare Advantage continued to be a major storyline throughout the year. Insurers brought the first plans to market with new benefits aimed at activities of daily living, while The Perennial Consortium and other MA trailblazers such as Erickson Living and Sunrise Senior Living opened up about the potential risks and rewards of providers also becoming payers. Most recently, 10 senior living organizations in the Twin Cities announced they are bringing a special needs plan to market next year.

Katzmann’s reference to collective action captured another theme of 2019. Particularly for small or mid-sized providers, Medicare Advantage is a team sport. But even outside of MA, there’s a growing sense that providers could benefit by working together more. The term “co-opetition” has become a buzzword for this concept, with one example coming from the super-dense Lancaster, Pennsylvania market. MorningStar CEO Ken Jaeger also spoke on this topic recently — be on the lookout for his interview in an upcoming episode of the Senior Housing News podcast, Transform.

“We haven’t seen [major disruption] happen yet for these communities, these retirement centers, but it’s only a matter of time.” Alexis Ohanian, Co-Founder of Reddit and Managing Partner at Initialized Capital, March 14, 2019

In March, tech world luminary Alexis Ohanian weighed in on the coming disruption he sees for senior living. His own venture capital firm is backing some of the tech startups that could alter operations through innovations such as self-driving cars. And he pointed to disruption that companies such as Amazon have created for other industries and predicted that a similar shakeup is on the way for senior living.

This type of disruption might seem like a cataclysmic possibility for established players, but if it helps solve monumental problems like the caregiver shortage while also giving consumers a more appealing product, it may simply be the next phase in the industry’s evolution.

The question for existing players is what they are doing to prepare for and adapt to possible large-scale disruption. Over the course of the year, several C-suite leaders referred to the coming transformation, with Capital Senior Living CEO Kim Lody saying, “I think 10 years from now, the business will look completely different.”

“It’s a time to throw spaghetti against the wall.”Beth Mace, chief economist at the National Investment Center for Seniors Housing & Care (NIC), April 24, 2019

A major story of 2019 was the spring release of a landmark study on the middle market, from the National Investment Center for Seniors Housing & Care (NIC) and academic institutions. The study quantified that the number of middle-income seniors will nearly double to 14.4 million by 2029, and 54% of them will not have the financial resources for private-pay senior living if today’s rates hold.

That’s the data, and then there’s how senior housing pioneer Bill Thomas described the opportunity at Senior Housing News’ inaugural BUILD event: “The largest growth opportunity in the field of senior housing is not high-end, highrise high-amenity, urban infill properties. It’s frickin’ America … where people want to live where they want and how they want, but don’t have the housing that makes it possible.”

Coming up with a scalable, profitable investment and operational model for middle-market senior living is no easy task, though — that’s why NIC Chief Economist Beth Mace described this as a time to throw spaghetti against the wall.

Thomas is bringing one concept to market with his small, modular Minka homes. And a variety of providers and ownership groups are investigating or executing middle-market plays. A partial list includes Atria Senior Living, Affinity Living Group, Welltower, Clover Management, SHAG, Eclipse, HumanGood and Presbyterian Homes & Services. Leaders from several of these companies are slated to speak at BUILD in 2020.

“It’s about having the courage to say, ‘This is who we are. This is who we’re going to serve.’ There’s not an operating model or design theme or design identity or an experience — a lifestyle programming experience — that can be all things to all people.”Niki Leondakis, president of Wolff Companies’ resident experience company, May 10, 2019

This year saw several prominent new players join the senior living space, including Niki Leondakis, former CEO of Equinox Fitness Clubs and past president and COO of boutique hotel pioneer Kimpton.

In leading the operating company behind Wolff’s upscale Revel independent living communities, Leondakis is applying principles she learned — and created — over her career in hospitality. On the hotel side, she saw the immense consumer hunger for more personalized, local experiences, rather than big chain hotels that delivered generic, replicable services. She believes this lesson should be applied in senior living as well.

Doing so might feel risky, versus building to a model that has already proven profitable and successful. But Leondakis is not alone in her observation that senior living buildings and operations have become indistinct from each other, and that the most successful companies will be those that create competitive differentiation. Aegis Living CEO Dwayne Clark put it bluntly: “Assisted living, retirement homes, independent living, I think we’ve been quite boring with our design.”

“It’s amazing what this active adult crowd will do for you if you listen. They’ll show you how to be successful.”William Bullock, President of Latitude Margaritaville, Minto Communities USA, June 5, 2019

Along with “middle market,” another two-word phrase seemed to be on everyone’s lips in 2019: “active adult.”

With baby boomers beginning to age into retirement but still too young for traditional independent living, active adult communities represent a major opportunity to reach this huge demographic group today. And given that IL and AL are overbuilt in certain markets, active adult could also give organizations a chance to use some of their dry powder while supply and demand sift out in those higher levels of care.

But traditional multifamily players are also seeing — and seizing — this opportunity. Organizations with massive scale and very deep pockets, such as Carlyle Group and Greystar, are making big moves into the active adult rental space, as SHN explored in a recent deep-dive report.

Then there are the sprawling active adult communities in the vein of Sun City, where retirees can purchase a home. There’s innovation happening in this space, as well, with the poster child being Latitude Margaritaville. The Jimmy Buffett-themed communities have drummed up enormous buzz and interest over the last year, and it’s for a simple reason: The model is based on feedback that Minto Communities got from “the active adult crowd” itself.

This idea of listening more closely to consumers was an ongoing theme in interviews with senior living pioneers for Senior Housing News’ “Changemaker” series, which debuted in 2019.

“As it stands, innovation is viewed as another reason to meet at the golf course or some odd beachfront resort and shake the same hands and sign the same deals with the same lackluster outcomes.” — Unnamed tech entrepreneur, July 23, 2019

With margins under pressure, it’s understandable that some providers don’t have the capital or managerial bandwidth to implement new technologies or operating models — even if company leaders see the dire need for innovation.

However, there could be a more insidious problem: A lack of real commitment and understanding among industry leaders when it comes to innovation.

That was the message from a tech entrepreneur who spoke with SHN as part of the ongoing “Confessions” series. Too many senior housing leaders are simply paying lip-service to innovation at fancy conferences, but are unwilling to sign the checks and put in the hard yards to bring innovation to life, the entrepreneur said.

There are exceptions, such as Front Porch, the entrepreneur said. Organizations that “get” innovation have C-suite leaders dedicated to its pursuit, with appropriate budgets; processes and procedures for fostering new ideas and operationalizing them; and realistic expectations about what innovation means and how quickly it can lead to meaningful returns.

“We can control our destiny.”Loren Shook, Co-Founder and CEO of Silverado, Aug. 11, 2019

The senior housing industry as a whole has been battered by headwinds in recent years, but the standalone memory care sector has been the hardest hit.

Years of occupancy erosion and operational challenges came to a head in 2019 with some dire and surprising headlines. One was the Chapter 11 filing from Dallas-based developer The LaSalle Group. Another was Welltower’s unexpected transition of 20 Silverado communities to a new operator, Frontier Management.

But just a month after that transition took place, Silverado Co-Founder and CEO Loren Shook struck a resilient tone in an interview with SHN. The Irvine, California-based company had just opened a new building in Milwaukee, and Shook said that he is committed to further growth through new development and in having ownership in the company’s real estate. He is determined to maintain control over the destiny of the pioneering memory care provider that he co-founded.

Meanwhile, memory care fundamentals appear to be improving, but the road to recovery is likely to be a long slog.

“I, for one, don’t believe we’re in a cycle. I think we’re in a sea change.”Brenda Bacon, Co-Founder, President and CEO of Brandywine Living, Sept. 13, 2019

As pain persisted over the course of 2019, many senior living stakeholders predicted that 2020 would mark a turning point.

Next year, the argument goes, supply and demand will come into greater equilibrium and recent occupancy upticks will turn into an upward trend. Even a potential recession in 2020 could be good news, providing some labor market relief.

But Brandywine Living co-founder and CEO Brenda Bacon is less sanguine. The challenges that senior living faced in 2019 are not going away as market conditions change, she believes. Rather, providers need to accept that the industry is more competitive, worker shortages and rising wages are a long-term issue, and the business practices that succeeded in the past are not going to drive future profitability and relevancy.

It’s a message that others also delivered over the course of 2019, including Belmont Village’s new president, Mercedes Kerr, who views senior living as entering “the next phase of our lifecycle.”

“I am horrified and irritated by seeing us cede all the advantage of our field to for-profits.”John Cochrane, CEO of HumanGood, Oct. 29, 2019

Nonprofit senior living providers have become too risk-averse and slow-moving, while for-profit providers are rapidly scaling in markets across the country. By letting this happen, nonprofits are failing to live up to their historical legacy of being leaders in senior housing innovation and are compromising their missions by limiting the number of people they serve.

So said HumanGood CEO John Cochrane at the annual LeadingAge conference in San Diego last month. His impassioned warning and challenge to the nonprofit sector has been seconded by other industry leaders, including Ziegler’s Lisa McCracken and Buckner Senior Vice President Charlie Wilson.

HumanGood itself is leading by example. The Pleasanton, California-based organization was formed through the 2015 merger of ABHOW and be.group, creating the largest Golden State nonprofit senior living provider. And just this year, HumanGood gained more scale and established an East Coast beachhead by affiliating with Philadelphia-based Presby’s Inspired Life. Further expansion is planned for the years ahead.

Other nonprofits also grew through affiliation in 2019, but Cochrane is concerned that the pace is still too slow. And the contrast with for-profits is even greater when new development is thrown into the mix. Ziegler analyzed Senior Housing News’ 2019 “In the Pipeline” coverage of construction projects, and found 243 new ground-up building projects and 27 expansions and repositionings being pursued by for-profits. Meanwhile, nonprofit sponsors were affiliated with just 14 new campus projects and 14 expansions/repositionings.

“When you have other companies going in and doing what I’m going to call crazy things with prices, it does put pressure on us.” — Chris Collins, CFO of Harbor Retirement Associates (HRA), Nov. 6, 2019

Price wars have occurred as competition ramped up over the past several years, and the challenge became acute in the back half of 2019. Ventas noted that aggressive pricing contributed to its disappointing Q3 senior housing operating results, and HRA’s Chris Collins also highlighted intense price pressures in a “Bottom Line” interview with SHN earlier this month.

In this climate, operators like HRA are trying to bend without breaking, remaining competitive on price in the face of extremely low prices being offered by newcomers to the market.

The reasons why pricing has become so heated remain somewhat murky, although Capital One analyst Daniel Bernstein floated the theory that recently built communities are hitting certain covenants on their construction loans and so are becoming more desperate to hit occupancy thresholds.

Look for rate-setting and price structures as another area for innovation in the next year. Early examples include Watermark Retirement Communities’ membership fee approach, and Discovery Senior Living expanding a-la-carte pricing by leveraging business intelligence data.

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