Merrill Gardens President: Middle-Market Demand Stronger Than Forecast, Universal Worker Key to Our Model

For operators venturing into the middle market, margins are compressed and capital partners need to be mission-driven as well as financially driven.

That’s according to Merrill Gardens President Tana Gall, who is blazing trails in the middle market with the company’s Truewood by Merrill platform.

And there is still an opportunity for great returns, said Gall at the Senior Housing News BUILD event in Chicago.

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“When we get our buildings back up to full occupancy … this is going to be a consistent flow of returns forever,” she said.

In fact, she is confident that the middle-market opportunity is even more massive than some realize.

Seattle-based Merrill Gardens launched Truewood by Merrill earlier this year following years of internal discussion. Now, the company is refining the operating model and achieving success with elements such as its universal worker position.

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The Truewood REP

The biggest help for Truewood in rolling out its moderately-priced products has been a pivot in how universal workers operate within the company, according to Gall.

In the past, Merrill Gardens, like many operators, used universal workers as a jack-of-all-trades, handling whatever tasks arose, but without specialized training.

Recently, the company pivoted what it means to be a universal worker in an effort to improve the loyalty and recruitment of labor.

“We said, ‘Let’s make this a position that actually has a career path in senior living,’” Gall told the BUILD audience.

The new universal worker starts at one position, but instead of being assigned a random assortment of tasks, the employee can develop skills to pivot or advance their career in senior housing.

This new position is called the Truewood REP, or the Truewood Resident Experience Partner.

For a Seattle-based dishwasher, the Truewood REP mission appears to have resulted in a happier, better-paid, and more loyal worker.

“He was a fine employee. He showed up to work every day and he washed the dishes,” said Gall. “But, I wouldn’t say that he was thrilled with his job.”

The community, in need of maintenance labor, offered the employee the opportunity to train and pivot his career, which he accepted.

“His performance skyrocketed,” she said. “And his view of the industry completely changed. He used to go to the kitchen and be in the back, now he’s out and interacting with other team members and getting to understand the residents and I feel like I’ve got a more loyal, long-term team member for life.”

The position also improves efficiency and achieves cost savings.

“With this position, we’ve cut back agency hours and overtime because [we’ve] got a more trained workforce that can work in multiple departments,” Gall said, adding that Merrill includes this new universal worker in some of its market-rate products in addition to Truewood.

“In a time of labor crisis, it’s just a great position to be in.”

Costs and capital

Gall and her colleagues at Merrill Gardens found that the optimum rate for the middle market is between $3,000 – $3,500 per month, based on consumer input from focus groups and other engagement efforts. 

The next step was to reverse engineer what a Truewood product would look like within those monthly ranges and figure out where costs can be managed.

“A lot of it is labor,” said Gall. “But it’s also looking at every single line item in your budget. It’s thinking differently about everything you do.”

Gall also conducted less-formal focus groups with her friends and her inner circle, simply asking them which amenities and services are absolutely essential to have at a senior housing facility.

While her friends and family said that transportation via bus was essential, Gall shared information that caused them to reconsider.

Buses cost approximately $80,000 on top of the cost of a CDL driver, and insurance and maintenance, are all of which are expensive.

Now, Truewood covers the cost of transportation platforms like Uber, GoGoGrandparent, and others to provide individualized transportation at savings.

Truewood works with three capital partners on Truewood — ReNew REIT, AEW Capital Management, and National Health Investors (NSYE: NHI).

There are 20 properties with ReNew and three with AEW, and six more with NHI that will join the Truewood portfolio on January 1

Merrill Gardens initially launched Truewood after acquiring the sizable Blue Harbor Senior Living portfolio, which provided buildings of the right vintage for a conversion to the middle-market model. Going forward, growth can come from acquisitions, but discerning where the opportunities lie does take effort, Gall said.

For example, NHI owns hundreds of buildings, so the recent transaction depended on identifying the six that were a good fit for Truewood.

“I think it just takes communication with your capital partners to see what’s out there and just keep your eye out for them,” Gall said.

As for whether financial returns are lower for middle-market products compared with market-rate or luxury buildings that have cushier margins, she acknowledged, “We’re still working on that.”

She believes that there are “great” and steady returns in the middle market, but capital partners must be aligned and “a bit more mission-driven.”

In particular, she emphasized the stability of the middle-market product and her expectations for a resilient portfolio once occupancy bounces back from pandemic challenges.

“As I looked back at occupancy and returns during the Great Recession, my communities that weren’t overpriced did just fine,” she said. “My [communities] that were more elaborate and fancy and expensive; their occupancy dropped and it took a long time to bring back.”

One reason why Gall is so bullish on Truewood in the longer term: She sees even greater demand for the product than recent studies have identified.

That’s because research — notably from the National Investment Center for Seniors Housing & Care (NIC), NORC at the University of Chicago and other institutions — has focused on the growing number of middle-income older adults.

However, Gall is seeing more affluent consumers are also attracted to the Truewood product. She considers herself one of these “practical” consumers who would rather save money and sacrifice some “bells and whistles,” as long as the core components of service such as food and customer relations are strong.

“That customer base is bigger than even we think,” she said.

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