It’s no secret that Covid-19 is disrupting the current state of play in the senior living industry — but it remains to be seen how much of an effect the pandemic will ultimately have on capital markets, or how communities of tomorrow are designed or developed.
When the novel coronavirus first roared to prominence in mid-March, Capitol Seniors Housing (CSH) Founder Scott Stewart thought it could result in a long, painful recession that suppressed active adult and independent living demand and led to potentially seismic design changes across senior living. But now he is not so sure.
“I thought that the housing market may get hit pretty badly as it usually does during a recession,” Stewart said during an appearance on the Senior Housing News podcast, Transform. “But a lot of that has changed.”
Stewart believes that government stimulus, coupled with low interest rates, will help stave off a collapse of the housing market, which in turn will help keep demand alive for active living and independent living, a product type that the Washington, D.C.-based senior housing company specializes in among its 35 communities across the country. And although his company has spent the past 100-plus days mitigating the threat of Covid-19 and helping its operating partners instead of pitching new developments, he does see signs that capital markets are starting to thaw.
Crucially, he also believes that public sentiment around senior housing is changing, thanks in part to a paid advertising effort that 45 senior housing groups initiated in total, including CSH. The effort, called the People of Seniors Housing (POSH), is meant to help give the industry and its caregivers sorely deserved recognition. Since its recent launch, POSH has resulted in more than a million hits on Facebook and Twitter, Stewart said — and it’s only getting started.
Highlights of Stewart’s podcast interview are below, edited for length and clarity. Subscribe to Transform via Apple Podcasts, SoundCloud or Google Play.
On capital markets and debt for new projects:
We came to the realization quickly that it probably wasn’t the best time to be floating new ideas, new concepts, while we had Rome burning. So, we focused on putting out the fire as opposed to promoting or presenting new opportunities. And that’s been going on in the past 110 days or so that we’ve been in this Covid period.
While we like to view ourselves as contrarian in looking at new opportunities, we’re doing that on the development front because, if you think about it, if we get a piece of ground that we like, it’s going to take 18 months to get it entitled — we like high-barrier-to-entry markets. So, it would take another 18 months to construct it, another year to get it stabilized. We’re talking three years from today to cutting the ribbon, and four years from being a stabilized community. So, we think that the world is going to be a vastly different place.
But for the most part, capital markets, it feels like they’re loosening up, to me at least. All of it is being driven by debt, by the banks. And the banks, understandably, had to turtle in because they’re involved in so many other sectors that are hit harder than seniors housing. They had to wait to see how things shake out in the departments down the hall before they can start thinking about lending again. There, too, I think that things are loosening up. And so, the length of this whole shutdown for new opportunities and new development is going to be shorter than most people think.
Whether Covid-19 could dampen demand for urban senior living:
Dampen it? Yes. Close it down for good? No, absolutely not.
We are not urban developers. We strongly believe that this is a suburban product. And the reason for that is, that’s where the caregivers live and the adult children live. This is true certainly for assisted living and memory care, and that’s our focus. I see the value and I see the attraction of doing an urban development, but it’s just not for us. This business is risky enough without building a highrise that has a lot more units in it than we’re comfortable with. I don’t want to bash it, but I think that it’s really more of a question on urban centers and what’s going to happen with them.
What made Covid-19 so dangerous — things like confined spaces, elevators, subways — those are going to set the tone for how quickly cities come back. But once they do, while people will always keep an eye on Covid and what’s going on, I think that their lives will largely get back to the way they were before. So, I think that the long-term prospects are fine for both: [suburban] centers where you live, work and play, and also for cities.
On whether Covid-19 is changing how communities are developed or designed:
Yes, but for different reasons. One is related to the virus, and one is related to the economy. In the beginning of this, I thought, okay, here we go, we’ve had a great, 11-year run with a bull market, and this is the start of the recession. Recessions last for a long, long time, typically over a year at least, and [I thought] that’s what’s going to set the tone for active living as well as independent living. And the obvious answer for that is because those are dependent on the housing market, and so I thought that the housing market may get hit pretty badly as it usually does during a recession. But a lot of that has changed.
The Fed pumped in the equivalent of $5.3 trillion into the economy. And interest rates are going to be hovering at zero for the foreseeable future, at least for the next several years. That’s huge. That has already had its impact on the housing market. Interest rates, even the 10-year Treasury, it’s at 70 basis points, or close to it. That’s really low. And that’s going to drive the housing market, which is going to drive the demand for active living and for independent living.
As far as other lessons to be learned, regarding design and execution, there’s no question it will have an effect, and we’re jumping on those as well as everybody else. And for your existing properties, I think the norm is going to be for folks to do an audit of their HVAC systems. Airlines are obviously going to be doing something similar. I believe providers will do drills for if Covid hits again. They’re going to have a better game plan, not only for stockpiling PPE and testing, but also compartmentalizing the current population if there is another infection. I think that new builds are going to incorporate that, as well.
The basic model of assisted living and memory care, for years, had smaller rooms, because you want folks to come out and socialize and use the larger communal rooms. But [the thinking was] that was in jeopardy based on Covid, and that people are going to want bigger rooms because they’re going to spend more time there, right? And I just don’t see that playing out as I initially thought. My knee-jerk thought was that that was probably the way things were going to happen, but I think that the model, and the mousetrap that’s built currently, is the one that’s going to, with modifications, be built in the future.
On whether Covid-19 might drive more companies to consider the small-house trend:
I think that, certainly for active living and for independent living, that will be of interest for folks who are considering that prototype. But I think once you’ve started adding services that you find in assisted living and memory care, and the caregivers who are helping with the activities of daily life, then it becomes a little more complicated. It’s taken decades for this industry to calibrate the right mix of staffing and hours committed to each resident with getting a reasonable margin for doing so. I think the higher you go up on the acuity scale, the smaller homes are not going to be as big of a factor.
We’re comfortable with a model for assisted living and memory care: Call it 85 units, with 25% of those units in a secure, first-floor memory care [wing]. And we think that works, and in the right markets, allows you to get to mid- to high-30s on margins, which is what has proven out to be the industry norms. And I think that we’re going to stick with that model, [while also] making the modifications we talked about earlier, airflow and designated common areas. What we’re building right now is going to experience small modifications as opposed to a major overhaul.
On People of Seniors Housing, a new public relations effort from 45 senior living organizations, including CSH:
I’ve got a great group of folks who I consider friends in the industry as well as competitors. The experience we had with the operators [collaborating] was the signal to me that it was okay to call up folks and talk about what they’re seeing, too. Around mid-March, seniors housing made what I thought was its national debut. It turned out to be a dubious debut. What I mean by that is, if you flipped open any newspaper, the biggest ones in the nation, you would see another negative article about quote-unquote seniors housing above the fold. And either lazily or misinformed, it’s looping everything together from active living to skilled nursing, which as we know are very different models.
There was a quick and appropriate movement to acknowledge caregivers at hospitals as heroes, which there is no question about. But what was being left on the cutting room floor, in my opinion, was the same kind of recognition for our caregivers who weren’t wearing scrubs in an institutional hospital type setting. They’re the last line of defense before residents become patients. And they just were not getting the recognition that I thought they should.
And I thought, what are we going to do when this is all over, to be defined? You have a lot of folks out there who are adult children, and they’re getting the perception that seniors housing is a tinderbox [for Covid-19].
So, I had this Jerry Maguire moment, if you will, and wrote all these things down into a memo and sent it out to about 60 or so folks in the industry. And the reception to it was immediate and overwhelming and humbling. Everybody agreed with it. They were saying, “Yeah, this is horrible. Let’s get involved. Let’s do something about this.” And so, that led to a direct-media program on Facebook, because that hits our demographic for caregivers and for adult children.
So, we were putting out paid ads to those folks all over the country. Facebook’s an amazing thing, in that it can really pinpoint who wants to hit as its audience, and you can calibrate that to a level of specificity. We got like a million and a half hits in the first month … and it’s now morphed over to Twitter. We’ve got videos that are going up. There are about 45 different groups contributing to the cause. And we’ve set this up that we’ve got a budget for a year-long campaign to say nice things about the industry and combat those things that I had mentioned earlier.
I’d like to think it’s moved the needle, and has helped to put us in a position where we are today. When you look at the media — the New York Times, Washington Post, USA Today, Wall Street Journal — there are very few negative articles, and they’ve diligenced themselves to isolate skilled nursing facilities away from seniors housing communities.
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