Innovation Senior Living CEO: Industry Must Embrace Adult Day to Reach Middle Market

Innovation Senior Living CEO and Founder Pilar Carvajal has spent her career in senior living catering to low- and middle-income older adults. As she looks across the industry, Carvajal is left scratching her head: if so many senior living operators want to make their services more affordable, why don’t they consider expanding into adult day services?

“A lot of middle-income seniors just don’t see their place in senior living,” Carvajal said during a recent appearance on the Senior Housing News podcast Transform. “And adult daycare, I think, is just going to be a natural option.”

Senior living operators already offer most or all of the services they would in an adult day program. And, adult day services also give residents and their families the ability to pick and choose how often they visit a community and which services they want, effectively making it a more affordable option than more traditional senior living.

At the same time, senior living operators are also competing with residents’ preferences to stay at home for as long as possible. With a robust adult day program, more senior living operators could reach those residents well before they even consider moving into a community.

The bottom line, Carvajal said, is that the senior living industry “is going to have to get comfortable with adult daycare” if it is serious about reaching the middle market.

“I don’t understand why they’re not already,” she added.

Based in Winter Park, Florida, Innovation Senior Living currently owns and operates five senior living communities, with another two acquisitions in progress. The company is going big into adult day, and will include those services as a component of every one of its communities going forward.

Highlights of Carvajal’s podcast interview are below, edited for length and clarity. Subscribe to Transform via Apple Podcasts and SoundCloud.

On Innovation Senior Living’s recovery from Covid-19 so far:

I started my career on the affordable side, so I have a lot of expertise on serving low-income seniors. We have moved into serving more middle-income seniors now as part of our strategy.

In terms of Covid and our recovery, it was a very, very difficult two years. Today, we are battle-tested as an industry. And we are definitely on a recovery. Because we serve low-income, middle-income seniors, our recovery has been accelerated because our population is very large, and it’s very much in need. And so we, I think, have seen recovery much quicker than others in our industry. We’re actually acquiring two properties very soon, so we’re excited about that.

On Innovation Senior Living’s adult day model:

Adult daycare was always part of our programming. What happened with Covid is that we had to shut down our adult daycare programs. We weren’t able to bring residents in and out because of the threat of bringing Covid in and out. Now, we’re actually starting up our adult daycare programs.

What we essentially do is we incorporate [adult day services] as part of the programming of any property that we own or operate. We’re starting small, and we see it really as a feeder system to our assisted living communities. We see them as wonderful ways to offer an affordable option to middle-market seniors, and we see it as a great way to build some trust before someone commits to living with us permanently.

Because we are serving that lower-income senior, adult daycare was always covered by Medicaid. So, it was just a natural opportunity for us to really take advantage of what we were already offering in terms of our affordable assisted living, and then tacking on that adult daycare that, in essence, is free for the individual. That makes it very easy for someone to commit, if you have Medicaid funding.

The transition for us is going to be not only including adult daycare for low-income seniors, but also for the middle-market that’s going to actually have to pay for it. So, we want to look for a price point that makes sense. A lot of middle-income seniors just don’t see their place in senior living. That’s something that we need to work on by offering more middle-income opportunities. And adult daycare, I think, is just going to be a natural option just like assisted living can be, just like respite can be. Eventually, it will become more part of what we do.

As we see a demand for [an adult day] program, we license it and we formalize it. Part of the formalization is finding a place for it within our properties. We just go with the flow until we figure out what the right type of combination is for adult daycare and assisted living.

On the opportunities of adult day services:

I am originally from Miami, and Miami has a lot of adult daycare. If you go and research the adult daycare market in Miami, you will see it is everywhere. And I think that it’s been partially because culturally, it is acceptable.

So there are groups out there that are never going to accept that mom goes into an assisted living no matter how affordable it is. Miami has figured that out because of the very diverse market that is there. Affordability comes because, one, Medicaid will pay for it. And two, you can pick the days that you come. So based on your budget, if you can only come Monday, Wednesday, Friday, you’re only coming Monday, Wednesday, Friday.

I do believe that adult daycare is going to be a huge part of that affordable option and that middle-market option that our industry is going to have to get really comfortable with. [The industry will have to] incorporate either single-purpose adult daycares or standalone adult daycares. We, right now, incorporate them within our assisted living as a way to take advantage of what we already offer. Adult daycare offers a meal, it offers socialization, it offers supervision.

So, it’s very similar to what we’re already doing on the assisted living side.

Our industry is going to have to get comfortable with adult daycare, and I don’t understand why they’re not already.

Do I believe that it needs to be rebranded? Yes. And we will be looking to rebrand it and call it something else. But for right now, because it’s not so popular, we have to call it what it is so people can actually find it, and find it within our properties.

On whether the industry is on track to meet middle-market demand:

Unfortunately, not — and unfortunately, I think we’re going to be crushed by it in terms of what we have today, and what is going to grow into.

It’s actually an opportunity of a lifetime that I don’t know if our industry is going to be able to fully take advantage of. We haven’t gotten that motor humming quickly enough. I’d like to be surprised and see what happens, but right now, I think that no, we’re not making enough of an impact.

I think that a lot of them are going to ultimately want to age at home, and I think that that is a function of not having options in our industry. As an industry, many times we say ‘Well, why don’t we have more penetration?’ and I always say, it’s because we don’t serve the largest demographic. A lot of them are at home struggling because they don’t see a place in our industry. So, I think that once we start offering things that this market will find attractive, they will move in.

On whether Innovation Senior Living might ever get into home care:

It is something that’s definitely on our radar screen, especially as we look to incorporate independent living into our portfolio. We have done a lot of independent living in our past. We started as independent living and then converted parts of those buildings into assisted living. The beauty of the independent living option is that you’re really operating a building that probably needs maintenance, and you can use home health to bring in services.

I like to speak about our model of independent living as a service-enriched housing option. It is housing first, and then your services come through potentially a home health company or bringing in physicians that are regularly there. But that is certainly something that we’re going to be looking to develop more robustly in the very near future.

On Innovation’s growth plans

We’re looking to grow fairly quickly.

Acquisition, first of all, is the quickest way to build a portfolio, and what we’re essentially looking for are older properties and things that we can reposition. My experience having converted a lot of different types of buildings from public housing — I did a trailer park conversion once, I’ve converted hotels and multifamily into assisted living — and I don’t really see barriers in terms of service delivery. You can deliver services anywhere you really want to.

We’re going to be targeting acquisitions so we can really get some traction with our portfolio. We have developed a prototype already that we think could work. The problem is with the high cost of construction and the supply chain … making construction so expensive. [Development] isn’t necessarily something that we will entertain today as it relates to assisted living. We will potentially be looking at it maybe as independent living development, with this service enrichment component coming from the outside through home health, and partnering with doctors and so forth.

So in terms of our growth, what we see is an opportunity, unfortunately, due to Covid and some of the distress. It has provided operators with a way to take over these older properties, refresh them, and then offer them to a new demographic of population that hasn’t been served in those particular markets. So, it’s not a difficult equation. But we see it as a great opportunity to at least take advantage of what we’ve learned in terms of the affordable model, which always attracted the middle-income senior. Typically, we would find our buildings where half low-income, half middle-income — one subsidized one paying privately — but with both populations really liking what we brought to the market.

It’s a simple model like a Courtyard Marriott. We are not a Ritz Carlton. We’re serving meat and potatoes — arroz con frijoles if we’re serving a Latino population — giving them what they want in terms of the food, nothing fancy. The real focus is on service — and partnerships, most importantly, because those partnerships are what help us keep the affordability what it is and make a program that is very robust for that population.

We’re seeing properties that are obviously affected by lack of census, which in our minds, we see as an opportunity to just serve any market. If they were unable to fill it with this population of people, we’re going to look to serve this population of people. And we can go up and down from a low-income senior that is subsidized to a middle-income senior that can pay privately.

Right now we’re looking at these 20- to 30-year old buildings, anywhere between 40 units to, upward of 100 beds. We want to be able to do semi-private accommodations and private accommodations, based on the demographic that we’re serving, so we can kind of flip around in any one of those types of opportunities. At the end of the day, what’s important is that the senior needs care, and if we can provide them with something that is attractive to them, they will come and we’ll be able to serve them.

On the power of partnerships for meeting the middle market:

I would love to partner with affordable housing developers, multifamily, individuals within my industry that are interested in doing more middle-market. I have the expertise from the affordable side to be able to bring that to bear. It is a different operating model. I have always said I can’t operate a luxurious property, it’s just very different to what I am typically offering in terms of this very basic standard product.

In terms of partnerships, on acquisitions we’re always looking for equity partners. Debt, obviously, is available to us. But I think in terms of additional partnerships, we are going to be looking at Medicare Advantage plans more closely and how to partner with them. Just as I have seen Medicaid help low-income seniors use that as a subsidy for assisted living, Medicare is a perfect option for that middle-income senior. Now, it’s not necessarily paying for a middle-income senior like Medicaid does right now. But I’m hopeful that one day it will start to look a little bit more like the Medicaid program, and we can use it for services in assisted living. Right now it’s more of an insurance product that we would partner with. And we’re definitely going to be looking to do that more more robustly in the future.

On how Covid-19 changed the nature of third-party management contracts:

What we found with Covid is, when the owner becomes unstable, then our management contracts become unstable. The buying and the selling [of communities] obviously disrupts our operating business quite a bit.

I’ve always been a third-property management company, and I’m always interested in partnering with others as a management company. What’s important for me, obviously, is longevity. So, if there’s an ability to build in that longevity and allow us to operate without interference and those sorts of things, we’re happy to do that. And we’re certainly looking for partners, with us as a third-party management company.

But what I’ve seen in terms of models that work in our industry is really the owner and the operator being one in the same. When you go for financing, the banks want to see that as well. It’s just something that we’re trying to replicate, and it feels great to own and operate these properties. I like to try different things, and as an owner operator, I can test different things out without having to report to somebody.

As those companies come up that need third-party management, we will absolutely look at that as an opportunity, especially if there’s some creative thinking around maybe a new model that we want to partner with. So we’re definitely going to keep that door open.

On using technology as the company grows:

Because we’re taking over older properties that have nothing in terms of technology, some of what we’re incorporating are electronic health records or things of that nature. We’re not looking to incorporate some of these wild technologies, because we’re at a ground level with a lot of them.

I’m still open. I want to incorporate telemedicine. I want to incorporate technologies that allow us to have more efficiencies in our workflow. Have I seen anything that has really wowed me? Not quite yet. But I have my finger on the pulse. I’m always reading about it and attending conferences.

On what Carvajal wishes she could change about the industry:

I would love the middle market to be commonplace.

I remember back to my very first NIC conference, I think it was in 2016. And I talked about what I was doing, and people in the industry really didn’t understand why I was serving this population. And I was kind of taken aback and said, ‘Well, why are you serving your population?’ I mean, we’re a country that is built on the back of the middle-income, individual. And so the fact that we as an industry have largely neglected this population is something we really need to work on. So I think my wish would be that tomorrow, we are serving in greater numbers working class and middle-class individuals, because I think that’s the right thing to do.

I would also love it if we could resolve our immigration issues to resolve our staffing problems right now. But that would, right now, really take a long time to fix.

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