Dealing with Covid-19 hasn’t been easy for Generations, but the company’s executive chairman is optimistic about recovery and is forging ahead with innovative middle-market and intergenerational projects.
Since the outset of the pandemic, the Clackamas-Oregon, based senior living provider has watched its census decline by about 850 basis points, hitting revenue as expenses rose.
“It’s been hell this year in any way, shape or form you want to look at it,” said Chip Gabriel, executive chairman of Generations, during a recent appearance on the Senior Housing podcast, Transform, sponsored by Investors Bank.
But that doesn’t mean the company is on the down-and-out. In fact, Gabriel is still optimistic about the long-term prospects of Generations’ middle-market and intergenerational communities. While Covid-19 made intergenerational mingling difficult and dangerous, he emphasizes that future operating models cannot be solely based on Covid-19 — rather, they need to address the bigger-picture needs and desires of the rising group of baby boomer consumers.
Generations is also bullish on serving smaller or less-dense senior living markets, such as Walla Walla, Washington.
Although Gabriel believes the industry will likely spin its wheels for at least the first half of next year, he is hopeful that Generations, along with the rest of the senior living industry, will start growing again in the latter half of the year or early in 2022. He also believes there is pent-up demand waiting for those poised to capture it.
“Our communities now are starting to see a lot more traction from inquiries for assisted living and memory care,” Gabriel said. “And I think it’s people who put that off because they don’t want to move their mom or dad in when they can’t visit them.”
On the Covid-19 effort so far:
Obviously, Covid is the biggest challenge that everybody alive today has probably faced in each of our lifetimes.
I’m most proud of the passion and dedication of our employees, who show up for work every day. They were [risking] their own families’ health and their own health early on when we were struggling with the right amounts of personal protective equipment (PPE) and those types of things. And yet, the continued commitment, compassion and love that they show our residents — that continues on today. And by far, I am most proud of that.
We’re trying to run our business, protect our residents and protect our employees. Continuing the viable business entity has been, by far, our biggest challenge. The census impact to our portfolio — and we’ve got just under 2,400 units of IL, AL, memory care and skilled nursing across our portfolio — is off company-wide about 8.5% since the first of March. That’s just top-line revenue and there’s no place to make that up.
Expenses are still elevated, and it’s going into things like personal protective equipment (PPE) and testing. That’s going to continue on, I think, for years to come. We’re seeing increases for liability insurance of 40% for next year. I think there will also be some regulation and staffing requirements. And so, that’s going to continue to compress margins.
For us, it’s working with our partners, talking to our lenders, all those types of things to get to the light at the end of the tunnel. It’s also understanding what the new business model is going to be in, I think, the second half of ‘21. Hopefully, we can start growing the business when we get to ‘22 and ‘23 back to where we were before this pandemic.
On battling the mental fatigue of the Covid-19 pandemic:
We have been purposeful with our leadership in each community. We have a lot of bigger campuses where we have an executive director and a director for independent living and for memory care. We’re making sure that they’re cycling through and getting a three- or four-day week, with each of them covering each other’s work. We emphasize to them that they need to do that, knowing that this is not going to go away. We think we’re dealing with these issues through at least the first half of next year. So, it’s just got to be that constant reminder and support that you need to take time for yourself.
We’ve had some leadership who, during the pandemic, can’t do it any longer and have chosen to leave the industry. That breaks my heart because they’re good people.
One of our former employees, I think she was not that far away from retirement. For her, the stress of doing it was too much. So she chose to leave the industry and retire early. My guess is she’s probably not coming back. We’ll lose some people in this industry.
But we might gain some people, too, because we have been needed and we’ve stayed in business. And at the end of day, to me, it’s incredibly rewarding work. It never feels like work for me. We get paid to make people happy. It’s been a challenge the last 9 or 10 months to do that differently. But we will be able to create those experiences for our residents and our employees very soon. Again, once the vaccine comes in, we can have our restaurants and gyms open, we can have our activities going, have people in our communities, and bring back the socialization and vibrancy, which is what I think makes our industry incredibly special.
On growth in the Covid-19 era:
In our development pipeline, we have two large projects: one in the Sacramento area, a 365-unit campus that we’re still going through the entitlements on, and an IL-memory care community with an intergenerational component. We’re partnering with a K-12 school, and it’s being built on their campus. And then we have another 365-unit project that we’re going through similar entitlements on, which is realistically a 2022 or ‘23 project in the Bay Area. It’s also an intergenerational-type of community.
One of the challenges that we still see are construction costs. I’ve got a 331-unit project in Southern California with building permits, and we’ve hit the pause button because of the construction costs to do the project. There’s just not enough economic return worth the risk of doing it.
We still are looking for opportunities. I think there will be some as people struggle with their balance sheet. Obviously everyone’s census is hit, we’re all down. When we do get back to normal, everyone is going to be struggling to fill up. And there are economic pressures to do that, whether it’s your debt, or whether it’s your capital stack. Everyone’s got expectations and business models.
We were recently approached about some really intriguing opportunities to come in and help communities that are struggling. For us, we’ll probably go a little slower than what I might have [pre-pandemic], just because we want to make sure that we’re giving our full attention to the communities that we operate and the ones that we own. We want to make sure that we’re able to effectively keep and grow our culture, maintain the culture of our support office, and that we have the resources to do that.
In the last year, we’ve taken on new assets as a third-party manager. And we’ve been able to change some of the culture and those types of things, but we haven’t been able to move the needle like we want to because of Covid. We can’t physically visit, you can’t have amenities, services, outside people coming in, programming. So, we’re focused on what we currently have. But I know that we will grow, in the next one to three years, although probably at a slower pace. And we plan not just because we need to take care of our business first.
On Covid-19’s effect on future intergenerational and middle-market projects:
I’m a firm believer that our residents want to feel like they’re part of the community. Too often, we’ve built these communities and it’s like we’ve got a moat around them. I still believe that’s not what the consumer wants. I think our residents want to be a part of the community. They want to be around younger people, not just old people. That intergenerational socialization component is huge. I’m incredibly bullish on it. Whether it’s been polio or other diseases, we got through those, and we don’t have a business model based on how to treat polio. So, I think a year or two from now, I’m not going to have a business model based on treating Covid.
I think we will never forget this in my lifetime. But I think we will be chasing the same initiatives that we did in the past. And to me, looking at my mom who’s 81 years old, what she wants for living is very different from her parents. And we need to develop our business models to do that.
The middle market is the space that we’ve always operated in, and we’re very comfortable with.
But the middle market is what we’ve got to figure out, too. We think it’s very difficult today to build new construction hitting the middle market. So, we’re looking at older assets. We’re actually trying to buy one right now that is an older asset with lots of deferred maintenance CapEx. We’re looking at the IL side of it, and on the assisted living side of that asset, to figure out how we can compete and offer rates $300 to $500 per month less than the newer construction projects of the last five years.
Serving that middle market, that’s going to be needed. If I have a 300-unit campus, and if I can offer health insurance or a Medicare Advantage plan as part of their rent — if you combine housing and health care together —- we can bend the cost. And that becomes very advantageous for health plans. They would say they wish someone had eyes on their members every day. But we have eyes on their members every day. So, how do we partner together?
On the prospect of pent-up demand:
Our communities now are starting to see a lot more traction from inquiries for assisted living and memory care. And I think it’s people who put that off because they don’t want to move their mom or dad in when they can’t visit them. But at some point, it’s hard work caring for someone who has lots of needs with activities of daily living, or cognitive issues, and they need to move in. So, we’re seeing that traction.
I think there is pent-up demand, but we’re down so much that it’s going to take a while for us to get back to where we were before.
I think human nature doesn’t change too much. People still like socialization, they like a sense of community, they like friends and having fun, exercising and different things. They still want that. I think they are still craving that. So in some ways we’re able to provide that better than staying in your own home. We’ll be able to show how good we are and how much more they can do in a planned community that’s hopefully intergenerational. What people really want is to have fun and enjoy their lives. And, well, they’ve got time here, and we can do that better than anyone else.
On preparing for 2021:
We’re planning a flat census for the first two quarters of next year, and we don’t see much growth. We think we’re still dealing with people moving out, and not having enough velocity to offset that in any meaningful way. We do think in the second quarter that we will start making more traction, start growing the census into ‘22 and then get back to healthy. So, it’s managing expectations, and just keeping that culture of fun and enjoyment for all the workers and our residents. And, to stay positive.
It’s been hell this year in any way, shape or form you want to look at it. We cherish each and every day, and appreciate all the more that we’re blessed to get out of bed every day and do the things we want to do. So, I’m excited about the future and 2021. The business side, it will take care of itself in time. We will try to not just focus on that, but on the holistic [picture], and on what we’re all about. And I think it’s going to be fun next year.