Generations Exec Chairman: Future of Mid-Market Senior Living Depends on New Health Care Model

While battling through the immediate challenges of omicron and the larger labor crisis, Generations LLC Executive Chairman Chip Gabriel is also focused on creating a senior living model for the future.

That model aims to do away with the “moat” that too often surrounds senior living communities, in order to create more vibrant, intergenerational environments, Gabriel said during a recent SHN+ TALKS appearance.

And through harnessing data, Gabriel envisions a new health care paradigm in which residents receive more coordinated and proactive services, as senior living providers collaborate more closely with health systems and payers.


Generations is working toward that model with partners including Formation Capital and Scott Reid, a senior living veteran who co-founded Alignment Healthcare, a tech-enabled Medicare Advantage company that went public in 2021.

We are pleased to share the recording and this transcript of the SHN+ TALKS conversation with SHN+ members. Read on to learn about:

— Omicron’s effects on Generations


— Move-in trends early in 2022

— Progress that Gabriel and partners are making on their senior living model

— Gabriel’s expectations for occupancy and margin recovery

— How Generations has served a middle-market price point

— Generations’ intergenerational programming

The following has been edited for clarity.

[00:01:42] Tim: It would be helpful to hear from you a little bit more about the company, and in particular, I’m curious about what you’d identify as the competitive differentiators or the things that Generations does best.

[00:01:59] Chip: We’ve been in the senior housing business since 1943, and so there’s a long history of evolution in what we’re doing.

We’ve always had a motto that we don’t want to be the biggest, but want to be the best, and try to be forward-thinking in what we think our residents want and what we think we would want to have as we move forward.

I think we invest a lot in our people. I think our employees are the most important thing that we have. I could tell you, Tim, all the wonderful things that we do and all those types of things, but our reputation is really [built on] a wait staff, a housekeeper, a caregiver, a maintenance person, and how do we empower them with culture and support them so they can do the mission that we hope that they’re going to do.

[00:02:43] Tim: I want to talk about omicron, because I think this is really the pressing issue of the moment for a lot of providers. How is omicron affecting Generations in terms of staff and resident infections and what steps are you taking in response?

[00:03:09] Chip: Sure. Candidly, we have omicron in every one of our communities right now. Most communities have double digits staff with omicron.

Each state’s a little bit different, but if they’re asymptomatic, we’re able to put N95s on them and get them back to work. It has created issues again with staff — leadership and other people working shifts, double shifts, overtime, those types of things to get through.

We’ve cut back a little bit on some of our activities and services, one for staffing and one just to help protect our residents and co-staff members.

We’re back there a little bit again, but we don’t have the fear that we had before. I think we’ve been through it. Those staff who are getting sick, it’s a cold, it’s flu-like symptoms, and they’re bouncing back somewhat quicker, is the majority of what we’ve seen.

[00:04:04] Tim: In terms of the resident effects, I’ve been hearing from other providers that generally resident infections are typically mild, which they’re attributing that to vaccination rates being pretty high, is that what you’re seeing as well?

[00:04:18] Chip: Exactly. The exact same thing.

Well over 90% of our residents are vaccinated. The majority of those have had boosters as well, and so it has not had the effect of sending them to hospitals and those issues, other than some of the aging issues and chronic diseases that our residents deal with on a day to day basis anyway.

Same thing with staff. Obviously, our staff have been vaccinated. A lot of them are boosted, and so it’s not been as horrific as it’s been over the past couple years.

[00:04:53] Tim: Got it. When do you anticipate that some of these omicron pressures might ease?

[00:05:04] Chip: What I’ve read in the media the last couple of days is it appears like … [our trajectory will be similar to] the U.K., where they feel that they’ve spiked and it’s coming back down.

They think the U.S. might be there as well this week. Hopefully as quick as it’s gone up, it’ll go down.

That being said, there’s probably other variants that will come along the way, and we’re going to have to deal with that. I think this is the new normal, and we’ve got a business to run, we’ve got residents to care for, we’ve got employees that we’ve got to put front and center and to support them and their families. It’s the new normal. I think we’re learning how to live with it.

[00:05:37] Tim: How has it been responding to some of these evolving guidance and regulations related to omicron across federal, state and local authorities?

[00:06:10] Chip: It feels like it changes hourly some days. We got a notification from the state of California last week, where we do business, that if you’re asymptomatic, keep working, put an N95 on and business as usual.

Other states like Oregon, it’s a little more refined and conservative and it’s the balance of what the CDC guideline said and what are your residents and your employees comfortable with as well? I think it’s that balance and each community is different.

I think our leadership and HR team have been — every day they’re having those phone calls and changing protocols and those types of things. It’s just very fluid. I think that’s what we’re learning, and we’ve got to be communicating very actively through meetings, through Zooms, Teams, those types of things, to families, residents, and employees almost on a daily basis, it feels like right now.

[00:07:08] Tim: Got it. We were talking about this a little bit before we started the call publicly, but can you talk a little bit about move-ins and inquiries, is omicron suppressing that at all?

[00:07:19] Chip: It really has not. I think families and residents realize, if there’s a need, people are moving in.

My in-laws moved into a community a couple of months ago in Portland and they like it better because they’re not isolated in their home. They’ve got their neighbors, they’re all vaccinated. There’s socialization, there’s things to do. My mother who lives in Portland, Oregon, moved in for a winter stay at our community in San Diego last weekend. She’s super excited about having people be around her and, again, not being at home.

Even though some of the activities have been limited, there’s peers in the same boat. She’s super excited about it, and I think that’s what we’re seeing from other people too. If they need to move for lifestyle or for health care, they’re doing it.

Before, I think [senior living and care] was the hotspot, especially early on with some of the nursing home issues and things, but that’s not the case [any more]. It’s probably one of the safer places you can be right now.

[00:08:24] Tim: Are you encountering any issues with residents who have emergent health care needs and need to be in the hospital or go to the ER, with hospitals overburdened?

[00:08:47] Chip: I have not heard of any of those issues yet. I think in all of our communities, we tend to do a little higher acuity. I know we always do have those 911 incidents. I haven’t heard any cases where people have had issues in hospitals. I do know some of the hospitals in markets that we are in, one of their challenges, it’s not just beds, but it’s staff to take care for people in those beds is one of the issues.

Shortness of testing seems to be an issue. A lot of people are going to urgent cares and ERs hoping to get tested, not really with the issues that we typically need.

[00:09:28] Tim: Do you have the Covid tests that you need within Generations?

[00:09:32] Chip: So far we’ve been blessed to have that. We’ve got a really good procurement team.

I think they were ahead on it earlier. We’re testing as often and regularly in all of our communities, and our home office as well. Almost half of our employees in our home office have been positive with omicron in the last week and a half. It’s hitting everywhere.

[00:09:52] Tim: Wow. All right. I want to talk about what I think is a really interesting partnership you have with Formation Capital and some other partners. Can you describe that partnership and what it’s seeking to accomplish?

[00:10:13] Chip: I’ve known Arnie Whitman for over 25 years, and we’ve been very good friends, and I love his passion for senior housing and creativity.

Over the last several years he has had a passion for technology, and Generator Ventures, some of the things he’s done [have been] in that space as well.

We’ve often talked about senior housing being a moat, so to speak, where seniors move in, they feel safe, protected, that type of thing. I’ve disagreed with that philosophy.

Tim, I shared with you one of the things [I hear] in my focus groups and visiting with the residents, one of their biggest complaints over the years is they like the amenities, like the service, they just don’t like all the old people that are here.

If they tell you that, we need to listen to that. We’ve really designed the campuses that we’ve built, the last several large campuses, they’re really outward focusing where we try to create spaces for the general public, families can come in and participate … My community in San Diego has got a large credit union with a seven-teller branch. All those members of the credit union are going in there. There’s a coffee shop and a restaurant in those spaces where people can come and gather …

Arnie and I talked about that and have decided to partner together. As we’ve got growth plans, we need to get a capital partner. Arnie’s done a great job as an asset manager, investing in various businesses, raising those funds. We decided to do that together and really try to [create those types of communities].

The other thing that we both feel strongly about is that we have not played in the health care space. We have partnered with and invested with a couple of other individuals who have played in the health care space. Scott Reid, who started MBK, and then Renaissance Senior Housing, retired from that and then started a Medicare Advantage company that went public last spring.

What we’re trying to do is, we’ve got a couple of new companies — one, SkyPoint Cloud, which is really a data company, to aggregate data to do things in the health care space … and then SkyPoint Care. We’re actually building clinical models in our communities and then access to data … really trying to integrate housing, lifestyle, amenities, and then health care, and then also make that very outward focus part of the community.

[00:12:48] Tim: Can you talk a little bit about the Medicare Advantage piece, too? I think that’s interesting. Do you foresee the ability to pay for some of these services through MA?

[00:13:00] Chip: That’s our business thesis, candidly. The first thing that we’re doing, it’s really the SkyPoint Cloud that we’ve invested in. Tisson Mathew is the gentleman who started that company. He was Chief Technology Officer for Cambia, which is still out of Blue Cross business in the Northwest, and he was the Chief Technology Officer for Alignment Healthcare, which Scott Reid started. We’re really aggregating data of existing communities, of existing residents … initially to build out our dashboards for management, but then also to be able to take that data and understand predictively a resident’s health, their wellbeing, the social determinants of health we’re tracking with that.

Then the other thing, which is really important is if a resident is part of an at-risk plan as of July 1st, last year, those health plans are required to share that data, if residents say that. As my residents give us authorization, through SkyPoint Cloud, they’re able to go out to a Kaiser, a Providence Health Plan or MA plan, [and] get that resident’s health records live in real-time, aggregate that with the information that we have at our residence, and we’re going to hopefully over time do predictive analytics.

Do that, and then take that data to the various health plans and hopefully show that we’ve got eyes on their members, we’re helping coordinate … and how can we partner together, because we know that if we care for our residents, their health and well being to treat chronic diseases in doing that, our residents would be healthier …

Our goal is not to have our own MA plan ourselves, we just don’t have the scale to do that. According to Scott, you need about 3,500 members to make that financially viable. If you had a 70% penetration rate, you need 5,000 residents, and I don’t want 5,000 members/beds in any given market and take that real estate risk.

How do we partner with the health plans? The SkyPoint Cloud technology, that’s not just a Generations thing, that’s something that’s available to other operators and providers. They’re doing business with other people now, especially in the acute space. Then the thing on top of that, which I think is obvious, how do we put a clinical model — whether that’s a nurse practitioner or a physician at our communities, especially the larger communities, can we care for the residents, for their primary care, and then all the ancillary services there?

That’s the thesis that we’re building now, [perhaps] it’s a fee-for-service model originally and then take some type of risk with the various health plans … we’re super excited about doing that in the Generations communities first, and then [see] how can we do that in other communities going forward.

[00:15:54] Tim: Can you describe SkyPoint Cloud a little bit more? I’m not sure I totally understand. If I’m either a resident or a worker at Generations, how do I interact with SkyPoint Cloud?

[00:16:05] Chip: … We will know what our various residents’ care needs are. We’re able to track independent living people while they’re going to the dining room, activities, our health clubs, all those social determinants of health, we’ll have that.

Then we will also have their health records. We’ll know that if someone’s meds are changed and we didn’t get that, we will have that from the health plan [without] our resident having to come back and say, the physician’s told them their orders.

I think that the baseline caregiver, dining room staff, they may not see it in real time, but our leadership, we’ll have that information and build out eventually the cues that something’s changed in their health plans, so we can proactively treat them before there’s an incident.

My mother, who’s just moved into Paradise Hills in San Diego, I guarantee she’ll be going to the quilting club every week because she loves quilting. If she didn’t show up one week, our activity person would probably notice Sally Ann didn’t show up, probably touch base with my mom, and if my mom said, “I just haven’t felt good the last week or two,” that would be a cue for someone. Maybe we should do some lab work there, ask more questions, and maybe there’s some change of health condition that we will proactively be able to [address], hopefully find out why they’re not feeling good before they end up on the bathroom floor and we’re calling 911.

When you talk to the folks at any at-risk plan, if you could just eliminate 911s going to the hospital, it would have a huge impact. The typical cost of someone getting an ambulance, going to hospital, and all the triage that goes with that, that’s about a $30,000 hit to a health plan. It doesn’t take many of those that you have a material impact on those costs and those at-risk plans. That data becomes really critical to have those dialogues with health plans.

SkyPoint Cloud, that’s really the data analytics. We use PointClickCare as our EMR. Also, our accounting. They take all of that data and extrapolate that thousands of different ways, however we want our analytics to do that … We will get all that real time data through PointClickCare to build into our models.

[00:18:53] Tim: Are there plans to use other kinds of technology like sensor technology to create that visibility into changing conditions?

[00:19:04] Chip: I think the biggest thing to make that happen, it’s resident engagement. How do you get residents comfortable?

I can use my mother as an example, but there’s no way she wants someone to know what her weight is and if it’s changing daily. You can have sensors on beds, they have lots of technology to do that, but there’s that privacy. The key is getting the resident engagement. Having maybe Apple Watches. They can track your heartbeat, they can track oxygen levels, blood pressure. It’s that resident engagement type of thing.

We actually have, at one of our communities, participated in a five-year study through UCSD, the Stein Institute of [Research on] Aging. What it’s tracking is over a five-year span, those residents who live in a planned community, what their cognitive and physical health changes are over five years versus a similar peer group who’s living in their own home.

I’ve had 109 residents at my community in San Diego who are participating in that. They are wearing wearables. They’re getting paid to participate in these studies. IBM/Watson essentially [has] a $5 million grant to run this study. [Residents] are using wearables and they’re incentivized to do that.

I think over the next three to five years there’s going to be huge opportunities, and it’s how do we get the resident engagement? I think those are the relationships — so they don’t feel like big brother’s watching them but it’s something that’s going to enhance their health and wellness and quality of life.

[00:20:48] Tim: As you’re trying to create these communities you’re describing through this partnership, do you envision this happening through ground up development or acquiring existing buildings or a mix?

[00:21:03] Chip: Both. We’re building this out in the existing Generations communities. We own a number of our large campuses that we do that. We also do third party management. We run six communities for the Longview Blackstone portfolio and then one for CNL.

I hope over time that we have those discussions, we can implement [this model in those communities].

Then we have two large. ground-up developments we’re working on with Formation Capital being our partner with that.

We [are to] break ground this summer on a 375-unit intergenerational community in the Sacramento, California marketplace, actually also partnering with the K through 12 school. Super excited about some intergenerational programming and physical plant design stuff we’ve done to do that.

Then we have another large development in Burlingame, California … which is about, just under a 500-unit development including the affordable housing piece that we’re doing there.

We are looking at some acquisitions. We’ve made a run at a couple things and come up short, but we think by doing this technology and then doing the care piece, we hopefully will increase length of stay, engagement, and get health plans to want to drive their members to live with us if we can help do that.

We think there’s a real estate play with existing communities if we can overlay this technology and clinical models along with some of the social determinants of health programming that we’ll be doing.

[00:22:32] Tim: In terms of what you were talking about in terms of bridging the moat, I guess, with the community beyond the senior living, are there opportunities to do that in this model too? I’m envisioning if you’re working with a Medicare Advantage plan and they have a huge number of members in the community at large, are there ways that you can host in the senior living community programs or classes that MA members could attend and maybe pay for that through their MA plan? SilverSneakers might be a bad example, but things like that.

[00:23:09] Chip: It’s actually a great example, Tim.

Our large campuses, we typically build a large commons building. We call it the village square, the plaza, depending on the market that we’re in. There’s restaurants, there’s bistros, we also have large health clubs, performing arts theaters, educational venues, programming. We hope that as we partner with these health plans that their outside members will be able to have access to participate in education, the health club, the activities, all those things that really have an impact on a person’s health and wellness.

Another really exciting initiative that we’re kicking off this year is partnering with Blue Zones. Dan Buettner started that. Basically, it’s research where he went throughout the world to find communities that have a large percentage of centenarians, and what were the commonalities of those [places]. There’s nine themes, those commonalities, in those communities that he’s found.

Blue Zones is its own business … they typically partner with counties, cities to incorporate things that enhance things such as mobility, a plant-based diet, sense of purpose, education and reducing stress. Some of those types of things are intergenerational opportunities. We do a lot of those things in our existing communities by purposely educating our residents, our employees who are also part of this, family members and the general public, of what these principles are. They all affect the social determinants of health … it’s not just for seniors, it’s for our residents, their families, and the people who are neighbors and surround us.

That will play into the health plans, we think, over time. We’re all learning this, we’re not the only company with these initiatives. There’s a lot of people. I think there’s going to be lots of ways to be successful, and we’re excited about the team that we put together to drive it.

[00:25:20] Tim: Interesting. Maybe one last question on this partnership with Formation and Scott — are raising a dedicated fund or are you going project by project in terms of raising the capital?

[00:25:36] Chip: Right now it’s project by project. We’ve talked to some large institutional people who would like to do all of it. There’s some pros and some cons to doing that, so right now we’re looking at doing our projects.

We’ve had some acquisition opportunities that we’ve stepped up and tried to make some offers and we came up short. We’re going to have a large development opportunity which we’ll kick off this summer. We’re going back and forth, those discussions are continuing and we’ll let you know, Tim, when we get there.

[00:26:08] Tim: I’m curious about the intergenerational aspect, I think that’s something that Generations is known for. You mentioned the K-12 initiative, for instance, we can just start there. Can you describe a little bit about that project in particular and what the partnership with that school looks like?

[00:26:30] Chip: It’s called Carmichael Commons, and it’s in Carmichael, California, and there is a private faith-based K through 12 school that’s been there since the 50s. Some of their board members are familiar with our project in San Diego. There’s also a sister school that happened to be adjacent to [the San Diego community], and so at Paradise Village in San Diego, we built the 220-seat performing arts theater, and the school uses it for their music program, some of their theater stuff. Whether it’s arts, volunteering our residents going back and forth, and it’s really worked that well.

The Carmichael Commons plan is really a ground-up plan to do it that way. We’re going to build a 400-seat performing arts theater as part of our development … the school, students will have easy access, from walking through a gate they effectively can be there, as well as we hope their families, the faculty and staff. We can really try to make it so the flow back and forth both from a physical standpoint and from a socialization activities and education [standpoint]. It’s part of our activity program to create those spaces where we can have those intergenerational [activities].

The performing arts is obviously a big part of that as well, but [also] sports, where our residents can help sell tickets for the basketball game or those types of things … I think it’ll be interesting to see long-term … I think there’ll be a lot of philanthropic opportunities for the school as residents get engaged.

One of the more successful things that we’ve had over time is we actually, in our community in San Diego, we have a 25-child daycare in our assisted living building, from six-month-olds to five-year-olds. Pre-pandemic, it was one of the more exciting things I saw.

I remember the last time there was a big activity. It was Valentine’s Day, two years ago. They were making valentines on the second floor of our assisted living facility with our residents. Just the energy, the laughter, the joy that the kids were having, just seeing the life that it gave to our residents.

I’m excited about trying to figure out more of those spaces and opportunities; everyone wins in that. Not everything works out perfect, but keep trying new things and different resident populations … there’s no cookie-cutter way to do it. It’s finding what works and keep trying and innovating. Sometimes it sticks, and it’s magical when it does.

[00:29:42] Tim: That’s really cool. It strikes me that you’ve got this intergenerational component with school-aged children, but also with just all ages through having things like restaurants, credit unions on the campus. With a restaurant, have you leased the space to a third party or do you run that and operate it as Generations?

[00:30:06] Chip: We run it. We’ve run all of our dining. We never make money. I can tell you that. It’s a loss leader. It’s subsidized by residents, and we need that for them …

I think one of the opportunities going forward is us not being all things but us being part of more master-planned communities, as you start to see more shopping malls getting redeveloped. I think there could be market-rate condos, market-rate housing, affordable housing, age-restricted affordable housing, senior housing, and then the health clubs, the restaurants …

I don’t need to own and operate those things … I think we’ll see more of that, where it’s planned mixed-use development, where there’s purposeful spaces, where those generations connect. Whether it’s dining, exercise, healthcare, education, arts, entertainment, shopping, I see more of that coming, especially in urban settings, where the shopping malls … what would those spaces be redeveloped as? I think there’s going to be unique opportunities to do that because infrastructure is already in place and there’s usually large demographics of people who are aging.

[00:31:45] Tim: I want to talk about the middle market, too. How would you describe the general price point of Generations communities today and are you looking at serving the middle market consumer more in the future?

[00:32:20] Chip: Historically, we’ve always been a middle-market operator. Sometimes we’ll have Medicaid contracts to serve that lower-income [demographic], but historically, that’s been our niche in the marketplace. I think that’s where we want to be. That’s where the largest bulk of the population is. The challenge today is construction costs are so high, and so to hit that middle market, which is what we’re trying to do with our Carmichael Commons project, it has to be a very, very efficient design.

Our philosophy is not to have lots of different types of units, especially on the independent living. You’ve got a one-bedroom, a two-bedroom, one-bedroom den, and maybe some penthouse units, but everything’s going to stack to be very efficient. Same thing with assisted living and memory care … you’ve got to be a very efficient developer to manage the rising cost of construction.

I think that a big part of middle-market going forward is to serve that large population in two ways. One, I think as assets age, there’ll be redevelopment, so you can buy something cheaper than new construction cost and hit a different price point. But I think the bigger thing, or the way we’re going to serve the middle-market, is we have to integrate health care.

Almost 90% of our GDP is spent on health care. Seniors are by far the biggest user of that. If we can help deliver health care and participate in that revenue stream and, hopefully, the savings, that will create that middle market [product].

I have a dream that … if you moved into an independent living, what if your health insurance was included in your rent? Now, there’s lots of zero-pay MA plans out there and they need scale and efficiencies.

Well, I have a 3750-unit development and with couples, I’ll have 450 residents living there. If they all had the same health plan, how efficient can we deliver that? Partner with an MA plan, especially if we’re able to do clinical services, primary care, lab, X-ray, therapy, management of chronic diseases right there in that hub.

I think how we’re serving the middle-market is the integration of housing, lifestyle, and health care and participating in that revenue stream in the delivery of those services. We’ve been doing that the 32 years I’ve been in this business and candidly the 79 years our family’s been doing that. We’ve been part of the health care stream, but it’s been siloed. It’s not been coordinated together and I think that’s the greatest opportunity … How can we do this in an efficient manner that there’s a win, win, win for everyone, but first for the residents, us as an owner-operator, and thirdly, for the health plans?

[00:35:29] Tim: I think there’s concern I’ve heard in the industry that the health plans are not going to actually share those savings as much as the senior living provider deserves. I think that’s driving and motivating some providers to start their own plans, but you’ve already said you’re not really interested in doing that. It sounds like you’re confident that you can get that shared savings, am I understanding correctly?

[00:36:06] Chip: I think what we’re looking at is going at risk. We’re not our own health plan … I think for us, it’s looking at initially some fee-for-service models but then additional risk. It comes down to data, though.

If I’m tracking our residents’ data, and I’m getting live data from the health plan, coordinating the care … I have a community in Portland, [where] I’ve got 58 residents who are Kaiser members.

Kaiser does not know that they have 58 members living in that community. If I could talk to Kaiser, and I will talk to Kaiser at some point, and say, “These residents, these are their health needs, this is what we’re doing. We have a clinical model here, they never need to go your hospital or sit in your medical office building in a waiting room doing that, can we do this better together?” It’s going to be the data to do that. A lot of skilled nursing providers have been very successful in negotiating contract rates when they’ve gone to health plans with data.

… I think we can save [health plans] money. We have to show them how partnering together, [we can] do that. I think once we do that, I think they’re going to want to drive their members to live in our communities because we will save them money.

There are various scores for what they’re going to get for their reimbursement … We’re going to be the ones helping drive those rates that they’re going to get from CMS, and then manage the expense on the other side. It comes back to real, live data.

One of the keys with SkyPoint Cloud ism it’s not just getting the data, but … getting clean data. John Smith might be in my EMR, and it might be Jonathan Smith in the health plan’s record. It might be John Q. Smith in some other health system.

It’s being able to get that data cleanly, securely, and use it. I think that’s the challenge that we’re all going through right now … SkyPoint Cloud has got the technologies, is being able to do that.

[00:39:14] Tim: I’m wondering what part of the middle market you serve? Is it more upper-middle market, mid-lower? Is it a range? I usually ask people what their average monthly rent is but I’ve realized that from market to market that it’s so various that maybe that’s not the best way to gauge it.

[00:39:47] Chip: … One of the things that we’ve done is create a larger campus, different niches. [All residents] get to participate in the social programs, the dining rooms, those types of things, although it’s typically more of an a la carte program in independent living. In San Diego, I’ve got nice penthouses independent living, we’re getting $10,000 a month. I also have a lot more two bedrooms, one-bedroom/dens, and one-bedrooms that are probably between $3,550 and $5,500 a month in rent. Then I’ve got some studios where we’re less than $3,000 a month.

We’re really trying to hit a range of middle-market, whatever that might be, but still provide the quality lifestyle, the ability to age in place, and all those social interactions, and create that culture for those people.

We don’t have a large upfront fee or buy-in per se. That’s been something we’ve tried to do. I know I’ve seen a lot of newer properties on the West Coast that try to be middle market, and once they get to their construction costs, they’re starting to do $50,000 or $100,000-plus membership fees upfront to offset those costs.

I’m not sure how middle market that is when you’re charging $100,000 [or] $250,000 as upfront fee, and then the same monthly rents the guy down the street is … I get a little cynical because most of those are being done by the not-for-profits with tax-exempt bonds and no property taxes.

There [are] a lot of great affordable housing projects, whether that’s the Medicaid stuff on the care model or the affordable housing, age-restricted affordable housing projects, which we see a lot of.

Then there’s the Section 8s, a lot of other things. I think the high-end and the lower-end, as I said, are taken care of pretty good. It’s how we create that space for someone on a pension, Social Security … how can they live in a secure manner without feeling like they’re going to outlive their funds, which is a big fear that a lot of seniors have, and we see people doing that.

[00:42:06] Tim: Am I understanding correctly that by having that sort of mix of unit type and price point, some of the more expensive offerings subsidized the less expensive ones?

[00:42:23] Chip: Absolutely. They do that, although it’s interesting … we didn’t have any secret sauce when we first started doing this. We figured out our construction costs, we decided we wanted to hit a different niche in the marketplace. We basically, on the penthouses, we’re building less kitchens, less bathrooms. We upgraded appliances. They had their own hot water heaters and we just took the cost per square foot. They were bigger units, so we were able to finish them on a higher-end because we didn’t have as many appliances, bathrooms, tile, those types of things.

We could do nicer things to do that versus the smaller studios which is just, that’s how we got to the pricing. They kind of, the price point ends up being pretty similar on a square foot basis, they just have a lot more square feet. I would say over time we are able to push rents higher on that higher-end stuff than we are the lower-end stuff.

[00:43:24] Tim: I think there’s been some discussion about what a middle-market margin should look like, and obviously, it’s different for IL versus AL. If the industry average is say, 35%, are you in that range or higher or lower?

[00:43:45] Chip: Pre COVID?

[00:43:48] Tim: Yes. Let’s say in a regular, stable market if we ever get back there.

[00:43:50] Chip: Right. Exactly. Which is another discussion I think we’ll have in a little bit. Our margins are pretty similar, higher end and lower end, just because of services and amenities … That 35% margin is pretty typical when you blend, typically, our campuses are about 2/3 IL with the balance being AL and memory care, for our bigger communities. We’ve historically been in that, dependent on the marketplace that we’re in and the age of the community, that 35% range plus or minus a few points on either side.

[00:44:39] Tim: You just brought up another topic I wanted to talk about, which is margin. They’ve been really under pressure, and I’m wondering what you think going forward is the potential to get back to a pre-COVID margin, given that I think I could foresee that labor costs, for instance, are just permanently higher going forward.

[00:45:06] Chip: I agree with that wholeheartedly.

We’re seeing the last several months, our census growing about 1% a month. We’re definitely coming back, which feels good, and we are seeing in most markets, very competitive rates.

The industry, if it’s at 80% occupancy, everyone’s trying to fill beds, plus new product coming online … We did push this year most of our communities raising rents 6%. We’ve just been very candid with our residents. Inflation [numbers] came out, was it this morning, inflation last year was 7%. We’ve raised our rents less than that.

The biggest factor, our biggest expense, is labor and that’s going to stay high for a long time. My opinion going forward, we’re three-ish years away till we’re getting close to what margins used to be, call it ‘19 margins. I think even if pushing rents, it’s going to take a while for census to come back.

Then it’s not just labor, we’ve food costs … up here in the Northwest, [our vendors] plan on 10% increases in food costs this year, is what they told us to budget for. Then insurance has gone through the roof as well.

Certain markets, California, we’re looking at 40% increase in insurance rates and those things, and then utilities are going up and everyone’s dinging you.

We’ve looked at trying to purchase a few communities. I can’t. Everyone’s got a different cost of funds, and so people can pay if their cost of capital is 3%, they can afford to pay a lot more — i.e a Welltower, what their stock is trading at. If you’re private equity and you’ve got a hurdle rate, and those types of things, you can’t compete at those numbers.

For us, we have a long-term perspective, not driven by IRR, but long-term cash flow, value creation, those types of things. But yes, that all drives by cashflow.

I think we’re three-ish years away until we get back to margins we were in the past. I think also can we over time validate that we can drive higher census and higher rates by delivering health care and working with health plans, and proving to them that we are part of the health care delivery system. Creating that value and alignment together. That’s going to take some time and really good data.

[00:47:57] Tim: Does Generations have subsidiary ancillary services businesses at all?

[00:48:04] Chip: We don’t, I know a lot of companies that have, we just haven’t chosen to do that in the past. We’ve been focused on operations. We’ve got some wonderful friends in the industry that we work with. Phil Fogg and Marquis are good friends, we use a lot of their services and other vendors and that type of thing, and participate in GPOs and all those other things which I think most middle-sized operators do. We just haven’t done that in the past.

For us, investing in a tech company, us investing in a clinical company is a little bit new to us, and it really came for us … The lights all came on, how different talents and skillsets [came together] … let’s put the pieces together and figure out how we screw up for a while before we figure it out [laughs].

[00:49:05] Tim: Are there particular technologies, for instance, that you think will help drive the efficiencies to achieve margin recovery?

[00:49:49] Chip: I think technology is a big piece of this. I hear about robotics and different things, and we’re seeing that in other industries, so I think at some point that could occur for us.

I still think we’re people caring for people. I think where technology is going to be very beneficial is especially getting the care model, whether it’s monitoring blood levels, oxygen levels, heart rate, all those types of things … [even] how do we deliver meds?

I think when we get some efficiencies there, I think the bigger issue is how to create other revenue streams to offset our expenses as we deliver that health care. Any MA plan says, we want to have eyes on our members every day. We have that. We just haven’t quantified the value of doing that. How do we find the information that we can share with them … That takes some scale. It’s not just doing that in Generations community, but doing that in a Generations community and [with] our friends in the industry who are around us, sharing technology and clinical services that benefit them as well. We’re collectively better together in doing that.

At the end of the day, we can’t afford to keep delivering health care the way we’ve done in the past, giving the changing demographics, both the aging population and fewer workers on the other side, the math doesn’t work. Our government is working very hard to get people in an MA at-risk plan so they can know what’s going to cost them. We’re going to step up and partner and do that. It might be, I guess, our competitors are going to be the health system. Some days, they start developing their own [senior living] campuses, possibly doing that.

[00:51:53] Tim: Yes.

[00:51:54] Chip: We’ll see.

[00:51:56] Tim: I think we need to talk about staffing a little bit because it’s such a huge issue. What do you make of the labor situation now? Are there — solutions is maybe a grandiose word, but things that you’re trying to do to address some of these challenges?

[00:52:33] Chip: It’s brutal. For Generations, it’s our biggest challenge.

If you look at this year, for us, for our company, it’s labor, labor, labor is my biggest concern. It’s not just wages, because you have to match wages and that comes right out of margins, and owners’ draws and those types of things. You have to do that. It’s the burnout factor. We’ve had a lot of really long-term valuable employees quit in the last six months. They’re not quitting to go to a competitor because they’re going to get paid $20,000 a year more; they’re quitting because they’re just burned out. I think that’s my biggest fear.

We’re getting a lot of people applying for jobs … but then it’s taking the time to create culture, to value them. It’s not just pay that people want. [I’m] very proud of our culture. In COVID, it’s been hard to keep that culture, with turnover, with people leaving, with not being able to have face-to-face meetings, to do all those types of things.

How can we do that in the new normal? I think creating career paths for our employees, to engage them, so that they can come in as a housekeeper or caregiver, and they can become a CNA. You can help them become an LPN or a certified med aide, where they have career paths to make more money.

I think also recognize them as families … For a while, they were having to stay with us and live with us and they’ve got spouses, children, other family members that they might live them. How do we take care of their families as well?

There’s no easy answer, and I don’t know what the exact solution is, but I know trying to give time off for people so they don’t get burned out and get refreshed [is important] … then, create career paths for people and lifestyles so that they can hopefully work for a Generations community for 30, 40 years and be able to live the rest of life, whatever that may be. I don’t know if that’s providing housing and health care on the back end. Lots of things we’re talking about and trying to model out, but labor, labor, labor, that’s not going to go away. Before COVID, it was our biggest challenge, and it’s just brought to the forefront.

These are essential workers. You don’t have to buy a hamburger. You don’t have to get something delivered on your doorstep. A new pair of clothes or shoes or whatever. Health care in America is a necessity, as the richest nation in the world, and we need health care workers do that. They are burned out. It’s not just hospitals, long-term care, urgent cares — across the spectrum. I know in Oregon, we’re talking about, can health care workers be exempt from state income taxes? We can’t keep paying more … What are the creative solutions to get more health care workers, for the need that we have as a nation?

[00:56:22] Tim: This is something that comes from a conversation I had on TALKS with Jim Pusateri from True Connection Communities. He said that the senior living industry has been relatively unchanged for the last 30 years, but it’s about to go through a period of significant transformation.

It strikes me that I think you joined Generations in ’89. This is the time period that you’ve been in senior living. Curious if you share that perspective that Jim shared. Do you agree, disagree? How do you see things changing going forward?

[00:57:21] Chip: Well, I will totally disagree, and that’s not any knock on Jim, but I totally disagree. I think, in the [roughly] 33 years I’ve worked in this industry, I look at the evolution of assisted living and how that’s become a wonderful thing. I look at the memory care model. I look at skilled nursing becoming an acute rehab business and what that’s done. I look at how Medicaid for community-based care is coming to existence. That’s an amazing change for a lot of people. You look at MA plans. We didn’t have those. And also look at the affordable housing models that we’ve created over those last few years. It’s incredible what we’re able to do. Look at the capital markets, how the REITs have changed. They’ve got RIDEA structures … senior housing is now an institutional asset class, which has driven down the cost of capital dramatically over these last 30 years. I think it’s been a huge change. I think it’s going to exponentially change past that in the future, as we look at new models with the demographics that are here.

I think it’s exciting what’s happened over the last 30 some years. I think the next 5, 10, 20 years is going to be that much better. We’re still people caring for people, but we do it so much different, so much better. Capital markets have changed equally as much in that time too.

[00:59:00] Tim: One audience question goes back to labor. This is a question about how you’re budgeting for 2022/ 2023. I guess the question is how much more this year are you allocating than usual?

[00:59:26] Chip: We saw at the care level last year, about a 30% increase from what we budget [and where] we actually ended up at. We’re factoring about another 8% increase this year.

[00:59:37] Tim: Are you witnessing a rise in sort of gig MD-type worker? We’re seeing new options for an Uber-ized version of temporary staff. Do you think that’s a trend that is on the rise and that you’re interested in taking advantage of?

[01:00:18] Chip: I think we’ve seen this for a long time, where a lot of our frontline people have two jobs, and I don’t think it’s a long term [proposition] … There’s certain people who will bounce around and I get the gig [economy], especially on the professional side of things, RNs and staff nurses in Portland can make triple working in Seattle, and nurses in Seattle can make triple in Portland, so they’ve switched, I think at some point we found a way to flush that out. I think for most employees, there’s some who want to bounce around. I think creativity with showing shifts online that people can sign up for, and those types of things … I hope that we can create a culture for our employees that they want to spend at least 40 hours a week working with me, not me with other people, and create those other experiences. Not just wages but through other things that we can do to make them feel valued and special and needed. I need them to know my residents and coworkers to do that … I think ways of them picking shifts and those types of things through technology definitely is going to happen.

[01:01:38] Tim: Then maybe lastly and related to that, do you see opportunities on the primary care delivery side to bring more of that on-site through some of the new primary care models, including kind of these on-demand house call doctor type services?

[01:01:53] Chip: I do. I definitely see opportunities now, and I think one of the things that we’re hoping, though, is if we have — whether it’s a physician or nurse practitioner, who’s there consistently, who knows the resident … most residents, they don’t like change, because they’ve had someone for 5, 10, 15 years, who knows them … I think creating that relationship is critical for our residents. And some other models, hospital at home, there’s lots going on.

I think we’ll see how it shakes out …

[01:02:49] Tim: This was a great conversation, it’s always fascinating to talk to you Chip, thanks so much for coming on. Thanks to all the attendees for joining and thanks for your questions.

[01:03:05] Chip: Thanks, Tim.

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