“There’s a limited number of operators that get it. And getting it means really understanding the needs of people moving into the building and creating resources to meet those needs.”
That’s according to one veteran owner/operator, who spoke with Senior Housing News for this installment of “Confessions.” The goal of this series is to share candid perspectives that might be hard – but helpful – for readers to hear. To encourage this level of honesty, the owner/operator has been kept anonymous.
While high-quality senior living operators are scarce, real estate investment trusts (REITs) are contributing to the problem by swapping out providers based on financial goals, the owner/operator believes. Also: Providers “jumped to conclusions” and went too far, too quickly in isolating residents during Covid-19, and should be bolder about raising rates to maintain margin in the midst of the pandemic.
How well do you think assisted living providers innovated in their response to Covid-19?
I think there’s very little you can do. You already have private rooms, you already have the ability to isolate people. What you really need is the ability to test anybody walking in the door. So, I think from an assisted living/senior living perspective, the tricks in your bag to really manage and control Covid are limited.
I think some providers innovated really quickly and set up housing for their employees — almost like an NBA bubble before the NBA bubble existed. Some people created housing in mobile homes and staff did not leave. That turned out to be fine for the short-term, but it’s not sustainable. So, I think there’s been plenty of innovation, but short of testing, there’s really not much we can do as operators in senior living.
Where do you think the Covid-19 response fell short in senior living?
I think one of the mistakes we’ve made is jumping to conclusions that the people who live in our buildings really want to live these isolated lives. We haven’t given them the opportunity to live lives that aren’t so isolated.
Maybe some of these people who are in their 80s and 90s and already living sort of less than desirable lives might say, I’m going to die from something soon anyway, who are you to tell me I can’t go out for dinner? I can’t leave the building? I don’t think we took into consideration or listened to the seniors, we just jumped to conclusions about what they wanted.
Can providers allow that kind of freedom? What about endangering residents in the building who made different choices?
I think you could do better than is being done.
It drives me crazy to listen to politicians, who just shut down restaurants again. Why not start with what has to happen, what a restaurant has to look like in order to safely be open and have indoor seating? They have to have this height ceiling or this kind of air cleansing.
There’s a large shopping mall in my area. Restaurants there are saying, why can’t we just put our tables in the mall? Spread out seating as far as you want to spread it out. How can that be different than being outside?
I’ve heard someone say: You’re entitled to your own opinion but not your own facts. How can we go to Walmart and grocery stores and sit on airplanes and be safe, but we can’t eat in restaurants?
Is there anything you’re hearing from senior living CEOs that drives you crazy?
I’m a one-trick pony. What has always driven me crazy in senior living is that there’s too many people that don’t understand the basic fact that nobody moves into senior living for hospitality services. They move into our buildings for health care services, or coordinating or managing them. There’s a major gap. The industry is predominantly developers and other people who don’t focus on health care services, they focus on hospitality services.
We hear from investors that there are too few quality operators. Agree?
I think that’s completely accurate.
There’s a limited number of operators that get it. And getting it means really understanding the needs of people moving into the building and creating resources to meet those needs.
All too often, great operators get kicked out of their buildings by REITs [real estate investment trusts]. I have seen situations where a REIT changed operators and got worse outcomes for the people living in those communities. Maybe they got better financial results, but my guess is in the long term they had a drop in occupancy that offset any gain in short term cash flow.
Are the REITs treating providers as commodities?
I think that’s a fair statement.
I had a conversation today with someone who offered to help me find an investor that would let me monetize the real estate side of my communities in a sale-leaseback situation. I could do that. I could cash out, but I have no desire to be in this business if I can’t control my own destiny.
If I over-leverage the debt by removing the equity slug in my deals, what flexibility do I have to manage through a challenge? I either do not pay rent, in which case I eventually lose the ability to manage that facility, or I cut expenses, which can lead to reduced patient outcomes.
When almost 70% of your costs are labor, it is near impossible to reduce costs without risk to patient care, especially in a highly competitive labor market where there is so much pressure on raising wages to a minimum of $15 per hour. Then add to that the hero pay push. Then add to that the fear of raising rates.
Most high-margin senior living communities are located in areas with high-income earners, which means the people who can work for lower wages don’t live close by. So, that adds additional challenges, when staff can’t access public transportation during a pandemic. And if they can, that creates additional risk points for bringing the virus into the community, when you can’t test every shift every day.
I’ve seen REITs bring in an operator that would provide average staffing levels but didn’t understand that people were willing to pay more to get more. When you took away the “pay more to get more” mentality in operations, people left in droves to find more care, and occupancy dropped quickly.
What has been the biggest challenge for your company during Covid-19?
A lack of consistent guidance and the lack of testing. We had no ability to test our staff or anybody walking into our building. Until we can test every employee every day, or anybody walking into the building, we’re never going to stop this. We might slow it down, but we will never be successful in stopping it.
Do you think operating margins will be permanently lower as a result of Covid-19?
That’s a great question. In senior living, I don’t understand why they’re lower. Why aren’t operators just being more aggressive about raising rates, to have families pay for the increase in care costs?
In the private-pay business, maybe they’re short on census, and afraid. But, you know, in a restaurant, when meat prices go up, they raise the prices on menus.
Is there fear over the optics or bad press? “It’s the middle of a pandemic, I lost my job, now mom’s assisted living community is demanding more money?”
When you really start breaking that down, what’s the alternative? I want to be sensitive to people in those situations, they’ve lost their jobs … if you can bring mom home and take care of her yourself, then, yeah, you should do that. But, what’s going to happen when you do have a job?
I go through the math with a lot of families. My theory is that people who live in senior living need about 15 minutes of care four to five times a day. The time you need that care is not predictable. So, the only way to get that care at home is to have someone there 24 hours a day, seven days a week. What does that cost? And you’re still paying for the utilities, food, everything else. At home, you’re going to pay a lot more. And then you’ve got to manage the caregiver.
What’s the biggest positive change and negative change you’ve seen over the course of your career?
The biggest concern we all have is labor and staffing, which we thought would go away because of Covid, because there would be so many more people to be hired, but it hasn’t. That’s one of my greatest concerns, how are we going to get people to come in and work?
We’ve done a better job of listening to consumers a little more. There have been more operators that have actually brought together health care services with custodial care services. That’s a really positive change, an increase in health care services being provided inside of buildings.
Will the senior living industry come out of Covid-19 stronger?
We’ll come out of it stronger because we’ll learn from it. The demographics are still growing, and I think a lot of these alternatives — telemedicine and home care and home health — still don’t solve the underlying problem of providing needed care and socialization at anywhere near the same cost. We’re still going to have people that are impacted by not having a bottomless pit of money. But you come out of crises like this stronger because you learn more.