Many providers are starting to see move-ins return and occupancy tick up as Covid-19 cases continue to dwindle — and Brandywine Living President and CEO Brenda Bacon thinks pent-up demand is only part of the reason why.
The Mount Laurel, New Jersey-based provider’s phones were “jumping off the hook” in January, a byproduct of pent-up demand returning to the industry, Bacon said during a recent appearance on SHN+ TALKS. But with the recovery underway and many communities returning to more normal operations, a “new kind of demand” has come to the industry — along with more lifestyle-driven residents, which Bacon said was a surprise to her.
We are pleased to share the recording and this transcript of the SHN+ TALKS conversation with SHN+ members. Read on to learn about:
— Why Bacon is concerned about industry-wide concessions and rate erosion in the ongoing pandemic recovery
— What Brandywine is seeing today in terms of new resident acuity
— The ongoing labor shortage and why Bacon is concerned about the availability and cost of workers in the future
— How Brandywine plans to grow in 2021 and beyond, and what lies ahead in the industry’s Covid-19 recovery
Bacon co-founded Brandywine in 1996, and the company’s portfolio now includes 32 communities across seven East Coast states.[vimeo 553387789 w=640 h=360]
The following has been edited for clarity:
[00:01:35] Tim Mullaney: Do you believe that senior living has hit bottom in terms of Covid-related occupancy loss? And how quickly do you anticipate that the industry will be able to return to pre-pandemic occupancy levels?
[00:02:06] Brenda Bacon: Well, nobody really knows. The vaccines have certainly been a game-changer.
We all started to see in January a material pickup in census. What surprised us was that a lot of it was lifestyle-driven. We certainly had people who needed the care and had waited a long time. We had a lot of people who had been home alone for a year and they wanted to be with people again. Recovery will be a long process.
I think it’s a certainty we will recover. We are a much-needed service. We have to have the discipline in our industry to be disciplined about price, to be disciplined about quality, and avoid any panic. I think we can somehow be our worst enemy because if we start panicking and discounting and cutting services and all of that, we seal our own fate, whereas if we take a very steady approach to it, I think we’ll have a certain recovery.
[00:03:19] Tim: I’m interested about this return of the lifestyle-driven resident. That’s something that Welltower CEO, Shankh Mitra brought up yesterday on a presentation I listened in on. He also said he was surprised by that. I know you work with Welltower, so probably he was referring to some of the trends that you’re just referring to now, as well. Can you elaborate on what you’re seeing in terms of these lifestyle-driven move-ins, and anything else you’re hearing from them in terms of their motivations and their concerns?
[00:04:11] Brenda: I think that’s all true, that people had that fear of the headlines. The situation was pretty desperate in our country and also in senior living and skilled nursing. I think the vaccines certainly were the game-changer. You could see that almost immediately because that took a lot of that fear away.
What we hear from our leads is, every time they were able to see their mother, they noticed the deterioration from the isolation. We’ve heard this, and you’re starting to see so much more data on this now. Everybody has had a reaction to that. We were pleasantly surprised, and continue to be, of how many families call and say, ‘I didn’t want my mom to be alone anymore.’ She needs something to do.’
We have always said at Brandywine, people need a reason to get up in the morning. When you take that away for a year, why should I even bother to get out of bed? There’s nothing to do. Every day is Groundhog Day. I think that takes its toll on the human spirit and that starts to show up in their physical as well as their emotional health.
[00:06:04] Tim: These are lifestyle-driven move-ins we’re talking about. I assume their acuity isn’t super high, but there has been maybe some deterioration over the last year. Maybe they haven’t been as mobile or they’ve gotten a little depressed.
There is some question about whether there is a higher-acuity resident who is moving into senior living communities now. Do they have more needs? Will the stay be shorter than typical? How are you thinking about the profile of these new residents?
[00:06:34] Brenda: We measure that very carefully. Every month, for example … we can see of the cohort who moved out the previous month versus the cohort that moved in. What did their acuity look like? What do their medical needs look like?
What we find is that acuity is going down. Those coming in should have traditionally been less acute than those moving out because of need for skilled nursing or they’ve expired. We didn’t expect to see that, but we’re seeing that. In one of our buildings … one resident is getting ready to turn 102 — I think she said in two weeks — and she’s holding court in the pub. She looks great and she’s there with other residents. There was another table of people playing cards. There’s just a vitality that you see when people are able to be with others. It is just so debilitating when you’re alone for so long.
We definitely know that our acuity is not growing, that it is lessening. Now that doesn’t mean that the people that come don’t need some help, or they wouldn’t be here. They need support services, but it’s not the highest-acute support service.
[00:08:32] Tim: That’s interesting. I’m surprised that the acuity is actually going down.
On the recent Ventas earnings call, there was a lot of conversation about, is there pent-up demand? The move-ins that are coming in now, is that really pent-up demand? Were they deferring a move that they would have otherwise made last year?
Ventas said they don’t really think so, that maybe they wouldn’t have moved in last year and maybe wouldn’t even have moved in this year, except that they went through the experience of Covid. Is that accurate?
[00:09:08] Brenda: I think for some new residents it is. I think that, certainly, every resident is different. I think that maybe they would have stayed home longer if it were not for Covid because they wouldn’t see the event that occurs — usually a fall — that makes people say, ‘Mom needs more help,’ or ‘She’s not taking her medicine,’ or ‘When I go by, she seems confused.’ You’re certainly going to have those kinds of things.
I think in this case, Covid brought the social lifestyle to a higher degree of concern for adult children. I think people are right in observing that, and we’re certainly seeing that. I think others are seeing it too.
At the beginning of January, when vaccines were really being rolled out in all the clinics, our phones were jumping off the hook because people were interested, and there was pent up demand where people said, “When it’s safe, I’m going to make arrangements for my mom to be in a different, more supportive environment.” You saw that at the beginning, but right now, at this point in time, I think that it’s not pent-up demand, it’s a new kind of demand that has been brought to light because of Covid.
[00:10:49] Tim: Hospitals in the beginning of the pandemic cut back on doing elective surgeries, and that usually provides some level of assisted living move-ins. I’m curious about what you’re seeing in your markets. Are health care referrals starting to come back already, or not so much?
[00:11:19] Brenda: I think that’s slow. I think the referrals from hospitals, I think they were referrals from rehab centers because they get their flow from the hospital, and just skilled nursing, in general, is going through its own occupancy challenges. They prefer to keep that paying customer longer if they can than discharge them to assisted living. I think the referral process is a slower process than we’ve seen in the past.
I think that will change over time, but right now, I think that the skilled nursing industry is very concerned about keeping customers if they can.
[00:12:06] Tim: What’s your take on how NOI and margin recovery? Is it happening at the same pace as occupancy? Is it slower because you still have higher expenses?
[00:12:39] Brenda: It depends on the company and the product, of course, but if you’ve got to get 70% of your occupancy to pay your expenses, your first 70 people or so are going to pay all the utilities, all the labor, and you’ve got a 30% margin at some point as you get over that. The more people you have, the greater the margins are going to be because those certain number of people are going to cover all the basic expenses.
If I move 10 more people into this building in the next week, it’s a matter of maybe adding a care manager or one-and-a-half care managers, but I don’t have to hire another wellness director and environmental services guy, or housekeeping. All of the infrastructure is paid for. More of that money is going to fall to the bottom line. The higher we get in occupancy, the higher we’re going to see the margins grow. Occupancy has got to come back before margin does, and so it’ll be a lagging return to margin.
This is where rate is so important, because if the industry panics — and there’s some going on out there — it will drop rates so low that it’s going to take more people to cover the expenses, and your margins are going to get hit. You may be able to say, my occupancy is back, but your margin may not come back. In order for margin to come back and come back strong, you’ve got to be able to hold the price if you can.
[00:14:41] Tim: In addition to holding the price, how much do you think expenses have gone up on a permanent or semi-permanent basis because of Covid, whether that’s higher wage rates, whether it’s more need for PPE, or even just basic supplies?
[00:15:04] Brenda: Well, I think we know that the supply chain is a little broken right now. We know that the labor market is very stressed. There are so many people out of the market because of the American Rescue Plan — and we understand why, from a public policy standpoint, that there needed to be enhanced unemployment benefits. I am concerned about labor costs, and the availability of labor, and every industry is feeling that pressure.
If you’re a worker and you’re getting the enhanced unemployment benefits, and your kids are home from school because there’s no school or there is virtual school, and they’re going to be home this summer, you might say, “Gee, I can go to work every day. It takes me an hour to get to work an hour to get back home, and work hard for eight hours, and have less money than I do if I stay home with my kids and less worry and less stress in my life.’
People are making irrational economic decisions for themselves and their families. If you’ve got less people in the workforce, then people are going to be bidding up wages in order to get those people who are in the workforce. I think that’s something that we’re going to be dealing with, and not just our industry. Everybody’s going to be dealing with that, I think all summer. It’s a very, very competitive labor market.
With regard to other supplies, while we’ve seen some pressure on supplies just because of the supply chain issue, the COVID-related supplies as COVID starts to disappear from our communities in our industry, I think that’s a transient expense. I don’t think that’s going to be something that’s going to change economics for a long time. I think the economic pressure is going to come from discounting rates and paying higher wages.
[00:17:24] Tim: I was talking to Donald Thompson at the Maxwell Group and Senior Living Communities earlier today, and he also was talking to me about the labor challenge and he thinks it’s a real crisis. He pointed to Connecticut, where there was just almost a nursing home strike. They came to an agreement over higher wages, which he says has raised the wage floor for everyone across the whole state. I think you’re in Connecticut as well?
[00:18:08] Brenda: I have one building in Connecticut. Most of that agreement was with the union and the skilled nursing industry, and it’s going to be paid for, of course, by an increase in Medicaid reimbursement to those skilled nursing facilities. We don’t have that ability to get the increased reimbursement to pay for higher wages in our industry.
Yes, the wage levels are going up. We are competing where people used to make a decision that they want to be in assisted living in senior living, and not in a nursing home environment a lot of times. Right now, the economics of that are, unfortunately, having people make a choice in their own economic interest. I am as concerned, as Donald is, about the pressure of supply and wages.
[00:19:15] Tim: He was also saying that the ability to raise rates is very constrained because of various things, including the fixed income of residents, but related to Covid. It’s a tough time to raise rates substantially to keep up with the wage inflation. He’s at a little bit of a loss — everyone I talk to is at a little bit of a loss as to what to do — but I guess I’ll ask you, what are their solutions? Are there things that you’re thinking about at Brandywine, can you raise rates more? Can you do other things on the labor front to attract talent to otherwise address some of these pressures?
[00:19:57] Brenda: Well, yes, some companies raise wages on the anniversary of the resident moving in. We do it once a year on January 1st. This labor crisis probably has caught all of our attention in the last three weeks as it has the whole country, that something major is going on.
I don’t see the ability to raise prices. I’m not going to take anything off the table, but that’s not one of the things that we are looking at. We’re certainly looking at every other avenue in terms of retention and active, aggressive recruitment. It’s not our normal process where you have to fill out a long application and wait for us to call you and bring you in for an interview because we have a long tenure, so we haven’t traditionally had as much of a labor challenge.
I think we’re looking and making changes in a lot of our recruitment processes and also, of course, our retention, and thank goodness we do have good retention. I don’t expect people to say ‘I’ve worked for Brandywine for 10 years, therefore, despite the guy down the street who is offering me three more dollars an hour, I’m going to stay here because I love Brandywine.’ Let’s not be delusional. That person’s going to go get the $3 more an hour, at least while they can, so I understand that. I think it’s going to be a big challenge for us.
[00:21:35] Tim: Do you think that the lack of labor could actually prevent occupancy growth? I’m imagining you might not be able to move in as many people as you otherwise could?
[00:21:52] Brenda: I’d love to have that challenge of having too many to move in. I can always help out in the building and other people can. But I’ve heard that, certainly from skilled nursing operators, closing wings because they didn’t have staff. I hope it doesn’t come to that. I think the situation will be most crucial this summer.
Once the enhanced unemployment benefits [end] and the kids hopefully go back to school, I think there will be a lot more people in the workforce and we’ll have some relief, but we’ve got to get through a difficult next three months, I think. The whole country does.
[00:22:50] Tim: We did an interview maybe a year or so ago, and I was looking over it before this chat and this quote stood out to me. I just want to read this back to you. You said, “We have 76 million new customers coming our way, all those baby boomers need a place to live and we should position ourselves to be that place that they choose but I think it’s going to be a different experience, not only in the physical plant part of it, but also in the lifestyle and how they use our senior living communities and what their demands will be.”
I wanted to check in with you again on this topic, now that we’ve gone through a year of a pandemic, and get your thoughts on how you think senior living communities need to change for the future to meet this coming demand.
[00:23:38] Brenda: I think lifestyle is really important. We’ve talked about choice and fostering energy and vitality within the communities. I think that the healthcare, which has been brought to the forefront certainly in this past year, is important. It’s important to have that support in the community, but our residents want to have fun. They want to have exciting things to do. They want to be able to have their own choices when to eat, what to eat.
We’ve gone through a year of doing room service because the residents were in their rooms. You learn how to do room service efficiently. In our buildings, it’s restaurant-style dining, it’s all day-dining. You can eat when you want to eat, one day you want to eat at ten o’clock, you want to have breakfast the next day, you may want to have breakfast at seven or the next day you want to skip breakfast.
I think it’s as much as we can give people the choice to make their own decisions about how they spend their days, and also give them choices of exciting things to do, not the normal things that might be easy for us to do but the trips, the engagement and the intellectual engagement, the physical and the fun engagement that people want to live their best lives, not just sit around, waiting for somebody to help them.
We’ve been accused at times of having so much going on in a building that the residents were exhausted by dinner but that’s music to my ears, I want them to have a lot of things to do. The more energy we put into that, the more we’re going to attract baby boomers and people who make the choice to live this kind of lifestyle, rather than wait for their sons or daughters to say, “You have no choice but to live this lifestyle.”
[00:25:54] Tim:. Are there ways to push it further even than you have given you already have been accused of like, being over the top?
[00:26:23] Brenda: We know a lot about our current residents and when we have a new resident coming in, we like to learn as much as we can about them so that we can find out that perhaps they and two existing residents went to the same high school or graduated a year apart. That was 60 years ago but how fun it is to see them get together and talk about that high school and talk about the football games.
The thing I think that we must also need to realize is people don’t just want to sit around and talk about yesteryear, they may connect over those memories in those neighborhoods and their favorite sports team and whatever but our residents are very, very involved in what’s going on now. Whether it’s in the world of politics, the world of sports, the world of anything, they need to be engaged and encouraged in what’s happening next, not just what happened before. We can always do even a better job on that. That’s what we’re very focused on.
[00:27:38] Tim:. The healthcare/hospitality debates over senior living as a health care setting — I know it’s not an either-or proposition, but what do you see as the role of healthcare for Brandywine or for senior living moving forward?
[00:28:22] Brenda: Seniors need to have choices in what they want to do. I’m much more a healthcare person, that’s my background. Healthcare is essential. We’ve always had a nurse on-site, not on call, 24 hours a day. An emergency always happens at two in the morning — that’s been my experience — never two in the afternoon.
If you can make sure you’ve got that fundamental quality healthcare in place, you don’t have to be shoving it in everybody’s face every day, because I don’t need to be reminded of it every day. I want to have something fun to do and live my life. I think healthcare is essential. It’s important, it’s not an afterthought, but we’ve got to do more than that, we’ve got to do more than that to win the customer.
[00:29:30] Tim: I know in the past, you’ve already created partnerships with healthcare providers, and you’ve had communities located close to healthcare locations and had partnerships there. Do you see that as a bigger driver going forward if you’re thinking about future projects, is that going to be higher on your priority list than it might have been in the past?
[00:29:53] Brenda: It’s been on our priority list for a while. One of the things we found out certainly this past year, if not before, is that senior living can be an invisible part of the so-called healthcare system, the fabric of, support. I think home care has certainly a place, I think senior living does, and of course, skilled nursing and hospitals. The more that we could work together, to provide that choice so that people are in the right environment for them at different times, I think the better off we’re all going to be.
It doesn’t have to be home care is bad because of this. The thing about home care, which is a very necessary and certainly a growing industry, is that when you look at the socialization part, it’s isolating. You’re basically sitting at home with one caregiver — and I don’t mean this in a pejorative way, — but her main job is to make sure you don’t fall and that you eat and that you take your meds.
I’m not sure you and that caregiver are going to have a lot in common to talk about every day, and there’s no engagement and going out and being with other people who you have a lot in common with. I think we all have a place in the healthcare system at different points for different people, and I think they should have that choice. That customer is all of our customers, they are just at a different time and place, in their life and their circumstances.
I will absolutely continue to work with hospitals. We’ve never set up a financial relationship with a hospital and I don’t see that. I see working for the benefit of the residents. In the building I’m sitting in … is a mile away from the Virtua Health system. [We share] with Virtua in terms of sharing medical records with our staff. Their doctors serve a lot of our residents, their physical therapists are here providing therapy.
That makes for continuity, a system around that resident. That has more continuity than where you don’t talk or coordinate or do programs together. I think that will continue to grow. We’re not participating in any big programs with Medicare Advantage or anything like that, which I know some companies are doing. I don’t see that as our core skill or important to us. It may be important generally to the industry and the payment system and all of that. I think more of the coordination around resident care and resident safety is probably where we can provide the most value.
[00:33:14] Tim: Have you ever thought of starting a home care division of Brandywine?
[00:33:19] Brenda: No.
When we founded Brandywine, we had a home care division. We had a private-duty staffing agency, we had a home care division, we had skilled nursing homes that I bought into the business and then we bought others into the business. We had all of that.
Some companies can probably do that very well. I happen to love senior living, just assisted living, particularly. Home care is a whole different model and you talk about labor challenges and equality and all that stuff, I think it’s a very different business. We’ll stick to our knitting and keep trying to grow, and be better at what we do.
[00:34:17] Tim: That’s interesting. As I’m talking to other executives in the senior living space, they’re saying they’re seeing all that money that’s coming into the home care space right now, and that the demand for home care went up during Covid-19. They’re saying, ‘We’re thinking of restarting our home care business, or we’re going to start a home care business or home health business.’ I’m not sure why they would succeed now if they didn’t in the past. I guess we’ll find out.
[00:34:45] Brenda: If we didn’t have the vaccines leading to the major drop in the incidence of Covid in our communities, you could make an argument that, for years, people are not going to put their parents in danger or at risk.
None of us have a crystal ball, but I think that, again, the vaccines have provided us a way that people can live well, be healthy, and have the engagement that makes it worth living — a reason to get out of bed in the morning. I think home care with someone sitting there with you to make sure you don’t fall is probably not the best. It has a place, but probably not the best situation that many seniors would choose.
[00:35:37] Tim: Let’s talk a little bit about public policy. As I mentioned at the top of this, you’ve got a political background. I’m curious to get your thoughts on what’s happening in Washington and around the country. What are you anticipating on that front? Are there specific bills or regulations that are on your radar, or just generally, are you anticipating more scrutiny from the government, which we’ve heard given that the industry did get some Covid relief money?
[00:36:11] Brenda: I don’t have any problem with transparency in terms of reporting numbers or regulatory oversight. The issue with regulations is that, usually having been on the other side of that table, regulators regulate for the worst possible situation. Those who don’t operate and have those situations have to jump through a lot of hoops that may not be necessary because the law has been made for the worst situation.
I think that we as an industry have to figure out how to have visibility both to our state capitals and to the federal government when we don’t need anything. All of a sudden, during Covid, we had to try to raise our profile very quickly in the middle of a lot of people trying to raise their profile.
It’s no secret that I don’t think it’s helpful to have four different associations trying to carry what is basically the same message for the industry. You don’t have that in the hospital industry. You don’t have that in the hotel or restaurant industry. If we’re going to grow up and play on Capitol Hill, we’ve got to get our act together so that we’ve got one voice in a sense of carrying our message forward.
I also think that one of the primary messages that we’ve never fully taken advantage of because we spent so many years as an industry trying to stay off the federal radar so that it wouldn’t be federally regulated. Because we’re not Medicaid-reimbursed, most federal and state healthcare regulation is around the flow of funds, the Medicaid and the Medicare recipients.
When it came time for us to have to make the case that we were having to do and spend as much money as other healthcare facilities, there wasn’t an ear for that. We literally had people ask, ‘What is this senior living? What’s assisted living? What are you talking about?’ We saved the taxpayers a lot of money. Assisted living started as a way to keep people out of institutional care, to keep them out of having to go to a nursing home in order to access Medicare or Medicaid benefits, because they didn’t have the ability to do anything else. You almost had to bankrupt yourself in order to be able to afford to be in a situation like this.
I think if people looked at, if there wasn’t senior living, what would happen? People would be trying to access Medicare, Medicaid in an institutional setting because they’ve got to go where the reimbursement does. I think a major message that we have to make probably over time and probably not quick enough for us to get the support that the industry needs is that we are a vital part of the whole fabric of health care and planning for senior care and health.
It’s a private-pay model. We’re not putting a burden on the state budget or the federal budget. People should be celebrating, I think, the growth of the private-pay model. At least people talk for years about wanting to have a private pay model to take the pressure because Medicaid budgets are usually the fastest growing part of the state budget. Always has been, and it’s probably always going to be. I think we need to do a better message of talking about why we need to exist and how we help the American taxpayers by existing.
[00:40:20] Tim: One thing we’ve been keeping an eye on in our reporting is what the Biden administration is doing on the Medicaid front, because they’ve proposed to grow that program. They increased the federal match 10 percentage points, I think. There is some talk about the potential for some of that to flow to assisted living, or maybe for assisted living to have more flexibility to get reimbursed through Medicaid.
I know it’s not Brandywine’s model, but I’m just curious if you have any thoughts on the increasing role of Medicaid in the assisted living space, and if that’s one way to raise the profile, even of private-pay providers.
[00:41:06] Brenda: New Jersey is the only state to my knowledge in the union that requires a Medicaid commitment by senior living. When the law was written in New Jersey, I remember when all of this came about and we were very concerned about taking pressure off the Medicaid budget. The requirement in New Jersey is that 10% of your beds, your units, your suites, be set aside for people who spend down to Medicaid, so they outlive their money, or for direct Medicaid admissions. I very much was a part of a lot of groups that thought about this and there were a lot of people that didn’t like it having to do that.
When you think about this, if somebody comes to live with you and they’ve spent everything they have, and they’ve been with you for three years, and then you say, ‘Oh, you’re out of money. Now, go to the skilled nursing facility to access Medicaid.’ It’s not, I think, the right thing to do, and it’s not in the interest of the taxpayers. We do have people who spend down who stay with us on Medicaid in New Jersey in the Medicaid waiver. It’s under a waiver program.
They never rewritten the federal law for it. It’s under a waiver and we have more than 10% because we don’t ask people to leave. Even if we’ve met the so-called 10%, we don’t have people leave. Part of us holding price and maybe being a higher-priced product than some of our competitors helps us to be able to [say] ‘If you’re home with us, you’re home with us and we’re going to be here for you all through that.’
[00:43:12] Tim: That’s interesting. I didn’t realize that about New Jersey. Does that mean if you open a new assisted living building in New Jersey that you have to reserve 10% of those units for Medicaid?
[00:43:22] Brenda: Yes. You don’t have to leave a room empty if there’s not a Medicaid person that wants it. You can’t turn away a Medicaid person, unless you’re above that 10%. If you’re above that 10%, you can say, ‘I have no Medicaid availability in my building.’ That’s what most companies, most communities do, but if someone turns away someone and has an open bed and doesn’t have at least 10% of their residents on the Medicaid waiver program, then they can be faulted or fined for that.
It’s an access issue. While we don’t build a product for the middle-market — and boy, whoever is able to figure out the magic of building a good middle-market product and having a margin, making it be able to work, there’s so much opportunity in that area — I like what we do in New Jersey. I’ve had many people tell me over the years, ‘Brenda, stop talking about that. Nobody else needs to know about that. Just keep it a New Jersey secret,’ but I think it’s good public policy and good private policy.
[00:44:47] Tim: How are you thinking about growth coming out of Covid and in the years ahead? Do you see growth through acquisition, through development? What’s the pace?
[00:45:03] Brenda: We’re doing both. In November we acquired two buildings, one in Princeton, New Jersey; and the other in Summit, New Jersey. Both of those buildings are undergoing extensive renovation. We’re putting $10 million of renovation into each building because, as we know, there’s a lot of product in our industry that has aged out and needs to be brought up to modern standards in terms of what people want and also some CapEx involvement. We’re making major changes in those buildings. We’re really excited about that.
We just opened a new building in Potomac, Maryland, which is a developed product. That opened about a month ago. That’s an exciting project. We’re working on another project in Maryland where we’re going through the zoning process … and we’re looking at some other sites in that area. We look at a lot.
We’re very careful and very focused about what we do, though, because the Brandywine product has to be in a certain market in order for it to work. You can’t just build it anywhere and say, ‘Gee, people will like [this]’. There’s a right product for every market, and there should be several choices, but we’re very careful about our markets. Every building that we build is a different building. We don’t have a prototype that we put up everywhere.
We design for the site and for the market. I love development. I think it’s fun to design and build a new building and open a new building, but we’re going to be careful as everyone should during this period.
[00:47:14] Tim: How much distress do you think there is in the market right now? We haven’t seen very many bankruptcies or major distress sales.
[00:48:02] Brenda: I think the industry is under significant financial distress right now. I think there’s been a lot of expense that’s been absorbed. I think that occupancy has certainly taken a huge hit in a very short period of time. The back door never closed in terms of people are always going to move out of senior living, but if you have your front door closed for all of those months, you talk about margin, it’s just like going down to nothing and negative.
The labor market will continue to put pressure on it, but I think the industry is going to flourish. I really do think that those who make it through this will absolutely have learned a lot of course along the process, but also, I think that the demand for a product, if we do it right, is growing, the demographics are growing.
There was a time when there were so much building going along. I remember saying to my team, ‘You just need to assume that there’s going to be an assistant living on every corner in New Jersey. Just assume that.’ For years, nobody was particularly interested in New Jersey because the land costs are high, and the wage rates are high, and all of that kind of stuff and zoning is difficult. But now, I say, ‘Assume that there’s going to be an assisted living on every corner, you just have to win. You have to win. You have to be the best in the market.’
Again, there’s a right product for everyone that’s out there and we just need to meet that need. There are going to be plenty of people for us to provide products that they want to go to, and I think that is the most important thing. We have to be an industry where people are looking forward to having that kind of lifestyle rather than dreading it.
[00:50:13] Tim: If you could be in a room with a hundred of your peers, a hundred other CEOs of senior living provider companies and ask them one question, what would you want to ask them?
[00:50:48] Brenda: How do you do the math between extreme discounting and labor costs rising? I understand that people feel they need to regain census very quickly. They’re freezing rates and lowering rates, and doing everything they can to get through this period. I think that, again, if we don’t panic and we’ve got a good product that we are better off not locking in — if you lock in a discount for several years, how do you ever recover margin? You’ve built in the inability to cover margin.
I think that treating an applicant for a job with your company should be treated the same way you treat a lead for a resident. We need to be more aggressive about recruiting and retaining people. The question I would ask is what are we doing? A lot of times people like to sit around admiring the problem, and complaining about what’s going on. I’m a firm believer in, here’s the issue, here’s the challenge, let’s dissect it. Let’s think about it.
There may be no good answers right now. If the local convenience store is offering you $50 just to come in and do an interview, how crazy is that world? What is it that we can do? What steps can we make to best position ourselves in a situation that’s very challenging? How do we still win that situation by working hard, thinking through it, we work as a team and put our heads together.
Our executive directors in our buildings are very, very involved in that collaborative process. We don’t have a lot of levels so that the message gets lost, and the people in the corporate office can’t really understand what’s going on in the building. I’d like to think that we stay very close to very fluid changing situations in our industry. What worked five years ago, isn’t going to work today or five years from now. This industry has always been very good about sharing ideas, strategies, thoughts. I want us to collaborate as an industry to think about ways that we can meet the challenges of today and of the future.
[00:53:41] Tim: On the labor front, I think we’ve mostly been talking about frontline workers as the ones that are being drawn away by the laws of the world and the rising wage rates. I’ve heard from some other executives that they’re losing for different reasons — people at the division level, or the middle management level — mainly, they think, because of burnout coming out of Covid. Is that something that you’re seeing or that you’re hearing from your colleagues as maybe a growing issue on the labor front, as well?
[00:54:11] Brenda: I do hear it from our colleagues. There are a couple of things going on. Of course, people are burnt out. Our leaders, as well as our frontline workers have absolutely been heroes through this whole thing. That’s not just something you say because it sounds good. They truly have. They’ve put themselves at risk. Been there day and night for months. There’s a little bit of, ‘Now that the emergency or the war seems to be over, I’m done. I just can’t do this anymore. Can’t give anymore.’
I think we all need to be concerned about that as an industry. Most of our EDs have been with us for many years and our wellness directors. We’ve got to find ways to support them, give them the relief that they need and listen to them — and really, really listen to what they’re saying — because they’ve learned a lot that we need to incorporate into what we do going forward. This won’t probably be our last pandemic. This one came out of nowhere, so let’s be more ready the next time.
[00:55:35] Tim: What’s keeping you up at night from a business perspective? Is it staffing or something else?
[00:55:38] Brenda: I talked about labor.
[00:55:40] Tim: [laughs] I thought maybe that would be the answer to the question, but I thought I’d throw it out there anyway.
[00:55:48] Brenda: What keeps me up at night? When I finish this interview, I’m having a business dinner tonight. But in between that, I’m going to walk through this building with a mask, and hug every one of these team members because they’re valuable and important to our success.
[00:56:12] Tim: I know you switched over to RIDEA from your triple-net lease relationship with Welltower. You explained in previous interviews your thinking there.
Now we’re seeing rent concessions happening for people who still are in triple-net leases, and for obvious reasons, they can’t pay the rent in the current environment. I know it’s hard for you to speak for other providers but do you have any thoughts as you look across the landscape and the capital structures that are common in the industry? Do you anticipate any changes? Do you think RIDEA is going to be accelerated going forward? Do you think there are other capital structures that are going to become more or less appealing?
[00:57:10] Brenda: Well, if there’s anything that Covid has taught us — and it has taught us so many things — it’s that triple-net leases don’t work. They weren’t working before Covid, but they certainly aren’t working during and after Covid. That’s because there’s clearly a lack of alignment in that kind of situation. I think what works is partnerships, and every RIDEA partnership isn’t created equal. It depends on the partners that are involved because you very much have this, ‘We are facing this. We are facing a drop in occupancy. We are facing labor costs,’ rather than, ‘You are facing this, and I’m facing that. I’ve got my shareholders to deal with, and I’ve got quarterly earnings and all of that. The rest of that stuff is your problem.’
I think that it really has to be a relationship where — and I think this is going to happen — the quality of the operator and the involvement of good operators is going to be more sought-after and recognized … than it has been in the past.
This has been, in many cases, a real estate-based business: ‘Let’s just buy that perfect, under-managed building, and all of a sudden, it’s going to make us loads of money and if it doesn’t, it’s got to be your fault.’ instead of it being our challenge together.
I think there are going to be more partnerships where people are aligned and see the importance of being aligned. It was extremely helpful to us to have Welltower there supporting all of the PPE we bought and all of the stuff that we had to do and saying, ‘What else can we do? How can we help?’ Then saying, ‘Wait a minute, you’re late on a lease payment?’
I think it was very important to them that we were able to be very transparent with them about what’s going on. I’m not going to tell you that census is going to go up next week because it’s not. Talking about the challenges and the Covid cases in a situation of, again, ’We’ve got this challenge, and, let’s talk about how we’re going to overcome it together’ is a good relationship. I think it’s a relationship that works for our industry, understanding the important work that we do, and how hard it is sometimes, and having the access to capital without having to go look for the capital.
They are the experts of capital. We’re the experts at operations, and if we join forces, we can create some really special situations.
[01:00:17] Tim: Is there any last message you have for attendees or anything we haven’t talked about that you want to share?
[01:00:27] Brenda: Does anybody ever get to interview you?
[01:00:30] Tim: [laughs] For SHN+, we’re thinking about that, having some kind of ask-the-editor call. If you’re interested in interviewing me, I’ll pass that along to the team.
[01:00:42] Brenda: I think that would be fun. [Laughter]. I think three or four of us CEOs need to go and do a panel and ask you a lot of questions.