‘Super-Regional’ Providers Will Shape Next Senior Living Era

The expansion of regional senior living providers has been an ongoing trend in 2021. Some of these companies are gaining so much scale, they are becoming “super regionals.”

I’ve heard the term “super regional” increasingly this year, including at the recent Argentum conference. This chatter makes sense, as transactions in the last few months have added 20-plus communities to several regional operators, including Phoenix Senior Living, Oaks Senior Living and Pathway to Living. Providers such as Oakmont Senior Living, Aegis Living and Cedarhurst Senior Living are also gaining significant regional scale through a mixture of acquisitions and development.

The senior living industry appears to be entering the age of super regionals, with the operators above joining the ranks of super-regional companies such as Benchmark, Arbor Company, ALG Senior and Gardant.

The super-regional model creates opportunities to combine efficiencies of scale with hands-on management. But achieving that combination is not easy, and I believe that to be successful, emerging super regionals will have to make some tricky decisions and rise to some operational challenges, including:

— Putting the right corporate structure in place

— Targeting an optimal scale and footprint

— Maintaining a disciplined approach to growth

Corporate structure

One of the knocks on national senior living providers is that there are too many layers of leadership between the communities and the top corporate decision makers, compromising the organization’s nimbleness.

Regional providers face some of these same challenges with balancing local autonomy and corporate leadership as they scale up to super-regional status. The threshold between regional and super regional is inexact, but Northbridge Companies President Wendy Nowokunski believes that the challenges with corporate structure take hold once a portfolio expands beyond 25 properties.

“I’ve been part of a couple of companies, we’ve done 30, 35 properties, 50 properties, and it seemed like 20, 25 [communities], that was the point where it was manageable without having to then go another level in the management company,” she told me at Argentum.

ALG Senior provides one example of the importance and difficulty of formulating the right corporate structure for a large regional provider. Hickory, North Carolina-based ALG ranked as the ninth-largest U.S. senior living operator on Argentum’s 2021 list, with 155 Southeastern communities, primarily in the Tarheel State.

“It’s extraordinarily difficult to keep that culture where you want it as you bring on new people and new practices, as rules and regulations change, as society changes, as our families’ expectations change and our residents’ needs change,” ALG CEO Charlie Trefzger told SHN in June 2020. “Sometimes your culture gets pushed and distracted and disturbed, and you have to bring it back. That’s what we’re doing.”

Specifically, ALG Senior parted ways with a handful of company leaders — including its COO — while giving community-level leaders more flexibility and responsibility. The goal is to create a more entrepreneurial culture while establishing a more sustainable role for the corporate support team.

“You end up taking things away from what the community would normally do on their own, because the people in the central office have those strengths and … can do them smarter, better, faster,” Trefzger said. “But then sometimes those people move on or retire, and you’re left wondering, why were we ever doing that?”

Atlanta-based The Arbor Company is another large regional provider, with 45 operational communities and five under development, all within a two-hour flight of the operator’s Atlanta headquarters. Arbor President Judd Harper is very cognizant of the importance of the organizational chart in driving the company’s success.

On the one hand, Arbor is adding new leaders to focus on the pressing challenge of recruiting and engaging hourly workers — creating roles that are not typical for a company of Arbor’s size. But, Harper is also determined to keep the organization flat enough that its investor partners know exactly who to call on the Arbor leadership team, without having to go through layers of asset management.

As regional operators scale up, they are adding to their C-suites and corporate leadership. Oakmont’s growth, for example, is being led and supported by a recently named COO and CFO/chief investment officer. And as Phoenix Senior Living takes on 23 communities — becoming another super regional in the Southeast, with 57 communities — CEO Jesse Marinko is intent on creating an “entrepreneurial support model.”

That model moves away from the “tripod” model of having teams built out under heads of sales, clinical and operations, and instead assigns regional directors to provide support across all facets of operations for five to seven communities. Marinko believes this approach will cut down on red tape, enable communities to be responsive to their local markets, and allow Phoenix to add even more scale.

Phoenix’s model will be proven out or falter over time, but I think it’s a good sign that the company is not just relying on the typical industry playbook for how to operate at scale. I think other providers that are reaching “super regional” status should also be thinking creatively, and strive for the same goals as Phoenix and ALG Senior — allowing communities to be both entrepreneurial and efficient.

Targeting the optimal scale, footprint

The line between regional and super regional is blurry; to my mind, once providers are larger than the 25-property mark cited by Nowokunski, they are in super regional territory, and they have definitely reached that status upon hitting 50 communities or more.

By this definition, there are smaller and larger super regionals, and different companies will have various strategies and philosophies regarding what scale is optimal.

For example, Harper is committed to not growing Arbor much past the 50-community mark, in the interest of hewing to the operational model that has proven successful.

Phoenix’s Marinko, on the other hand, believes that the company’s infrastructure can support further growth and is looking to create a meaningful concentration of communities in each state where Phoenix has a presence. He will hit the brakes if and when Phoenix’s communities do not feel they are getting the support they need.

In addition to determining how much scale they can and should take on, aspiring super regionals need to determine how they are defining what a “region” is.

From a geographic perspective, Arbor operates in multiple regions, with communities throughout the Southeast and Northeast, and even some in Chicago and Texas. However, the company has stuck with its rule of only managing communities within a two-hour flight of Atlanta.

Then there are companies like ALG Senior and Gardant. Because their operating models are tied so closely to Medicaid waiver programs, their footprints are largely concentrated in single states — North Carolina for ALG and Illinois for Gardant. Despite this, both companies are among the largest providers in the nation and have properties beyond their stronghold states.

Adding another wrinkle, some of the new super regionals also are creating multi-brand portfolios to target different price points and/or consumer profiles.

For example, Chicago-based Pathway to Living is taking on 22 communities, which generally are smaller in size and operate on Medicaid waivers. But, the company’s portfolio also includes affordable Victory Centre properties, as well as middle-market and market-rate brands. Similarly, Phoenix Senior Living is building out multiple brands.

A potential benefit to a multi-brand play is the ability to keep expanding within a given region by serving different types of customers in various markets; of course, multi-brand portfolios also bring additional complexities, as the financial models and operational demands can vary greatly among properties.

Northbridge — which operates 19 communities across Connecticut, Maine, Massachusetts and New Hampshire — offers one example of a strategy to contend with this complexity. While the company’s leaders do not want to exceed 25 communities in the core Northbridge portfolio, they formed a 50/50 joint venture with developer HallKeen to create middle-market communities under the HallBridge name.

All of this is to say that while the rise of super regionals is an industry-wide trend, these growing companies are a diverse group of businesses that are crafting and pursuing particular strategies. To the extent that they are evolving and adapting as they gain scale, their future success depends on their leaders asking themselves the right questions about where to expand, how quickly, and in what manner.

The companies that come up with smart answers to these questions, formulate a plan accordingly, and stick to that plan tenaciously might be the ones most likely to succeed as super regionals.

Leaders with Arbor and Northbridge made crucial decisions early on and have held firm to their visions through turbulent times.

“At our last retreat, I pulled out a business plan from 2005, and it said exactly what we have done,” Nowokunski said. “And it was amazing to me … it pinpointed the markets we wanted to be in, where we would be at this point in time.”

Arbor also has stayed true to its intentions about scale, and has exercised discipline in sticking with its third-party management model — routinely turning down opportunities from investors who want the operator to have some equity in the real estate.

Of course, there are important distinctions between the existing class of super regionals and the companies just joining the ranks. Arbor, for instance, grew steadily over many years, whereas in 2021 some regional providers have gone “super regional” by taking on large portfolios in the midst of pandemic-related operator reshuffles.

The prospect of taking on 20 or more properties at once gives Harper “a big stomach ache,” and goes against the company’s “guardrail” of not taking on more than two communities at once. But, he believes in the merits of a regionally-based approach and is hopeful that growing regional operators will be successful.

“There are lots of ways to skin the cat,” he said.