If Arrow Senior Living CEO Stephanie Harris is right, millions or billions more dollars will be deployed in the senior living industry by late fall.
As she looks across the industry, she believes there is a growing number of communities that opened in the years before the pandemic that are effectively stuck in neutral with regard to occupancy growth. And now, operators or owners are “running out of fuel or running out of desire to carry the project through to stabilization.”
Although the past year has been akin to a “shark tank” — with investors circling a small group of high-value deals — Harris believes that, as communities run out of steam, there will be more opportunities to acquire them at more attractive prices than previously seen during the pandemic.
“Some of the biggest players in our space are doing record deals, but there are a lot that are sitting on the side waiting,” Harris said. “I think over the next three to six months, we’re going to see all of that pent-up capital begin to deploy.”
Harris added that she is “surprised we aren’t seeing as tremendous cap rate compression as I thought we would at this point in time,” but that it is also “just a matter of time” before that happens.
About a third of St. Louis-based Arrow Senior Living’s growth has happened during the Covid-19 pandemic. And looking ahead, the company is planning more growth in the form of new development, with 12 communities either under construction or soon to break ground.
We are pleased to share the recording and this transcript of the SHN+ TALKS conversation with SHN+ members. Read on to learn about:
- Why Arrow Senior Living favors new development at this point in 2022
- How the operator uses independent living to effectively subsidize middle-market units in the same community
- Arrow’s hiring practices and how it has built a light-hearted company culture
- What Harris thinks it will take to make the senior living industry “cool” in the eyes of consumers
Tim Regan: Stephanie, it’s been a few months since we last caught up. I think the last time we talked for publication was in December. How have the past few months gone for Arrow Senior Living? What has 2022 been like? How is demand?
Stephanie Harris: We’re continuing to swim. That’s it. I think the best way to describe it is can we all stay floating, and then ultimately moving the right direction? It’s been interesting to watch Omicron A kick in and have its impact, but for the most part, the plans we have put in place for ongoing recovery because we’ve opened new communities or because we had communities that were truly Covid-ed, we are seeing the progress with just the disruption here or there as waves occur with Covid, but I’m continuing to be far more hopeful and starting to see some improvement on the hiring side as well.
Tim: I actually hope to talk about staffing in a little bit. I want to follow up maybe on some of what you said there. As I understand that, for a lot of operators in a lot of markets, this is typically when you start to hit some of the straightaways for census growth. This is when people start to move their families in or so I’ve heard, Q2, Q3 are good months for occupancy game.
Is that how it’s been for Arrow? Are you seeing normal seasonality patterns now? I’ve talked with some operators who say yes, things are seasonal, and then I’ve talked with some who say no, things are still not how they used to be.
Stephanie: I think it depends on where you are, what level of care, that’s your focus. We definitely see seasonality when it comes to independent living. The last three months, we have grown leaps and bounds in assisted living and memory care. What we’re seeing is a shift. New inquiries are really becoming more dominant. Conversations are about independent living prospects, and any of the movements coming in, seem to be changing tides, changing that they’re predominantly independent living.
It was interesting though, I was mentioning about the wave of Omicron A. That really hit and caused us to drift a little bit further off course between dropping 2022 budgets between Christmas and, say, January. We were all feeling that hit, not on residents as we were on employees, but it had a chilling effect. Inquiries stayed up but moving slowed. Then it was really what we should have been moving in, in February, we moved in in March.
That would be pretty normal where we have a higher return in the first quarter, but then Covid had that extra delay. It is amazing how much year-over-year the number of inquiries are increasing at record levels. I think lots of operators are experiencing that.
Tim: That’s great. The middle market, a big topic, a lot of people are focused on it. For Arrow and for Turnaround, what do you see as middle-market specifically in terms of things like rates, and then also who is this product for in your eyes?’
Stephanie: Sure. I think we have a couple of communities that I would say are lower middle market, but the predominant new development pattern where we target is what I would call pure middle market. We can compete in upper middle market because of newer development or keeping our communities fresh and having enhanced operations, but for the most part, we believe that middle market needs to include all services.
You may have concierge services you can add on and customize to meet various needs, but just because somebody doesn’t have resources doesn’t mean we can then suddenly give away the fact that they need meals, the fact that they might need access to care. We look at it as a full-service option, not just stripped down active adult and age restrictive housing that’s affordable, but it is a similar structure with services so that the resident has all the needs that they have.
The goal in our mind for middle market is to keep them out of assisted living as long as we can because we can provide services at a lower– at a non-licensed level for a longer period of time.
Tim: Mid-market rates, $2,500 to $3,500?
Stephanie: Yes. On average, because we have to really scale, we’re probably still somewhere in the mid-$4,000s because we have assisted living and memory care blended in those rates, but that’s the entry-level that we believe with full services that is attractive. During even the heart of Covid, those are all the communities that not only would– yes, they had the impact of Covid, but they stayed full.
If we had a drop in occupancy, we still were getting the inquiries coming in because suddenly truly middle market can’t afford the alternative, then what we can offer in a congregate setting, the scale of which of services we can provide, they can’t provide in their home unless it is dependent on a family member or depending on a spouse.
It just doesn’t make financial sense, and I think that that is truly the fattest part of the bell curve that is underserved. If you notice, we’re seen as– pressure is on lots of operators to lease up vacancy that happened with Covid. Everyone’s dropping rate probably to where they needed to be in an upper middle market target to, in some cases, a middle market where I think we sit target.
I have one market where that still hasn’t hit. We haven’t seen the rate adjustment, but I think that is because of, certainly, the increase in supply, but what I believe it’s going to cause is we’re all going to have to get that much better at operation so that we can maintain the margins that we need to be a sound business.
Tim: We’ll talk about margins. It seems like the kind of middle market services that you’re trying to offer and that you are offering in your community, that’s a tougher nut to crack because I hear a lot of operators to your point earlier looking at things like active adult or looking at things like taking services off the top and decoupling things as that is our middle market product. How do you meet the middle market in your communities? Can you tell us more just about your model in terms of just the nuts and the bolts of this?
Stephanie: Sure. I think it’s very difficult to acquire a community and shift it to the middle market effectively. I do think it’s by design. We develop new communities with exactly the right number of apartments with exactly the right technology and that it’s going to maximize our staffing and give us any of the efficiencies we can to be fair in how we consider increases for rent and what we do as our base rent structure. I think that that is so much more difficult to do in an established community as it is from the ground up.
Tim: We have an audience question here, maybe to flush out your model a little bit more. The question is, we’ve mentioned the resident fees between $2,500, $3,500, the audience member asked, “What does that include since you have other services? Are food services additive or what is additive?”
Stephanie: Full service is in the base of all of our rents because I think that we’re doing an injustice to continue the narrative that we’re actually meeting the need of the middle market by stripping services out.
Basic living services need to be a part of the conversation, and how do we get there? Again, I think it’s going to take getting there through operational efficiency that this industry could stand to benefit from regardless.
The $2,500, $3,500-number includes weekly housekeeping and includes having access to three meals a day and a fully stocked bistro. It doesn’t mean that we don’t provide premiums for the best location, based on floor, based on proximity. The way that you gain the affordability is to potentially have a range on units, that’s going to drive affordability for units that might not be as desirable.
I call it “Robin Hood” — let’s just call it what it is. It’s a situation where we have to balance the desire of somebody who’s willing to pay the premium, versus the one who needs the services and it might be borderline.
If we don’t offer that premium structure or that range from base to premium, it ultimately helps us subsidize the cost of care overall, and be able to offer that full service, including transportation services.
Tim: Tell me about how you can maintain those margins.
Stephanie: It’s a 1% or 2% difference in expenses. It can really make or break how we achieve the balance. We’re fortunate that the design process, selecting the right site, and looking at all of the economics in an area down to what we’re purchasing the land for, what do the real estate taxes look like? That adds up.
The other thing that we do from a development model is often put solar technology in the community to help subsidize the cost of electricity. Looking at all the different expense structures, how can you mitigate or turn it into a profit center?
Probably the most important thing for us is we’re hyper-focused on the length of stay. If a resident can live with us at a more affordable rate and independent living a lot longer because we’re equipping them with three meals a day that’s going to nourish them to live in our communities longer, we believe that that’s what pays dividends in this model is to have that five to seven-year stay in our independent living, followed by a shorter stay in licensed care because we can meet their needs so much longer in a safer environment.
That creates the plateau effect that we look for in aging versus the sharp decline model that our industry accepts, as we’ll just be there when they need us. Well, we’re looking at it from a totally different perspective, to get them in just a bit sooner, and then figure out how to elongate that stay. That’s where we can be fair and keeping their costs down. Then, of course, then having the services to accommodate them in the future, but we’ve been good stewards of their assets along the way.
Tim: It seems to do some of the things that you mentioned, it’s almost like you’re describing a coordinated care model for senior living. I was talking with someone recently who mentioned that we need to move away from what he called a sick care model and to something that’s more of a wellness-focused model where it’s more preventative medicine, more getting people to the doctor sooner. Is that on your mind, or is that something you’re currently doing?
Stephanie: Absolutely. I think collaborative care is what I look at it as: We have to find partnerships in the community. The way that Medicare is driving dollars through other payer sources, we’ve got to figure out how do we capture that to the benefit of the product?
Thinking of Illinois and their supportive living model, what they did is they took the best of all services that were out there to support lower-income seniors and package it in a way that was attractive that caused operators to want to provide that service.
I’m over on the other side of the river where we’re located. In Missouri, we don’t have that same Medicaid structure or other services like the bundle, but we have access to Medicare services. We have access to various healthcare services that we can tap into to bring into the community. Frankly, one of our most important providers is our third-party– Medicare Part D therapy providers.
We are hand-in-glove with each other because as effective as we are in length of stay, it is absolutely contingent upon the success and the engagement of that particular provider. More so than any other provider in our community.
The other thing that I think I really would challenge other operators to look at is Medicare has really changed the way that they look at senior living, particularly because of the telehealth model, not that it’s specifically senior housing focused, but we can get remote patient monitoring reimbursement with the right provider and tapping those resources and services you may have once been paying for.
What a great way to think about an expense to reimbursement or possibly even a profit center option with maybe experiences as we think about recapturing costs that we’ve been putting into technology or to be able to bring technology into our communities. It all comes from how can we work together, how can we pull together.
Tim: That’s really interesting. It’s a growing trend in senior living I should say. This is also fascinating to me. I do want to ask you another question before I move on. What are your thoughts generally on the opportunity?
Stephanie: I think that’s more of the issue. We are our own limiting factor. I remember pre-Covid levels, the point was, if the market share would grow by 1%, every community would lease up and spend and form a waiting list. That’s powerful data. On the other hand, we’re capturing only about 10% of the agent income qualified market.
I think that there is some truth to if we are attractive enough, if we don’t screw up in the opportunity we have ahead and can build a positive reputation for this industry, we’re never going to be able to fully realize the benefit that’s out there. That’s where home care and other services have been able to take– we have grown, but they’ve been able to take some of the market shares we should have been able to gain in the last five, six years or more because they’ve been able to fill that in-between group that was a little suspect.
I’m still feeling guilt about looking at institutional-based or community-based care services and thought that they needed to do it at home because there was a solution or it met some other need.
I do think we’re going to have to get far more flexible and creative to attract that extra 1% or 2%. I think when we start to dig and learn as to what it’s going to take to capture that group, we’re going to learn a lot more about digging even deeper into a greater market share because, there is definitely a psychological wall that we have to break as an industry to, I think, truly claim the market share we’re capable of doing them.
Middle-market is a group that I think that they don’t deserve the services that we offer. I remember when I started working in senior living, my own grandmother would say, “I would always drive by this community. It’s so beautiful. I could never afford to live there.” I’m 20-21 years old at the time.
To me, thinking like, “Why would she feel that way? She’s got a pension. She’s got this or that.” She felt like it was out of reach. Frankly, some of the biggest reasons why our middle market prospects don’t choose to move to the communities today still is they don’t believe they need to invest in themselves.
We’ve served for too long, a selfless generation. I think as we see more self-minded individuals that are post-Korean war generation and into baby boomers, I think that if we’re delivering quality services, we will see more people begin to buy those services from us.
Tim: Before I move on, we got an audience question while we were talking, I think we already covered all this ground. Maybe really quickly for this audience member, they asked us to, again, flush out the definition of middle-market fees typically contributed by family. Again, I think I can help answer that, $2,500 to $3,500 was the range we described earlier. Stephanie, any thoughts you want to add on top of that?
Stephanie: The only other thing I would add to that, yes, you’re defining the rate is that we also find that the middle market consumers, number one, investment is their home and the loss of the home makes them feel like they can’t afford, or they’re going to be vulnerable going into retirement. We are still finding they’re the ones paying the bill actually by exception, the adult children might be contributing or covering the cost.
It’s predominantly seniors, but I want to be clear. The medical tax deduction is something they don’t think about as being an extra little bit of resource. Potentially in some cases, it could be up to another half month of rent-free or up to a month’s worth of rent-free just because of their adjusted gross income at a lower rate. That means something to middle market because they’re hovering right around so many of those brackets that it could actually be meaningful and they hadn’t considered that. It’s the tools of that.
It’s paying out of pocket at that lower full-service rate, and maybe perhaps without the premium that we’re seeing seniors making that choice for themselves, to cover it, and very rarely are we seeing the adult children supplementing or paying for that bill.
Tim: Interesting. I wanted to also ask you this follow-up earlier while you were talking about penetration rates. I’ve heard from some operators whose solution to that has been to start home care programs. Other operators I’ve talked to have said things like adult day services might help increase penetration rates for people that maybe aren’t ready to jump two feet into senior housing. Are either of those in your eyes ways to do this, or I guess, how do you think the industry can increase penetration rates?
Stephanie: Slow down, it’s being a little bit more patient. I think that we’re not personally interested in looking at getting into home care services, but we often are referring home care services to our independent living prospects. At the beginning of the talk, I mentioned to you that what’s great about the middle market is that prospects can’t afford home-based services the same way that higher-income individuals can.
They’re more resource-limited. As we clear the cobwebs, is what I say, clear the denial and have them actually pursue what it would mean to bring in-home services or what it would mean to be a participant in a day program, an adult day program, it actually gets them taking steps forward and making a more permanent decision. I think many operators could benefit from being comfortable encouraging those solutions because they may be a good bridge into your community.
You may be able to do that through partnerships where there’s some reciprocity or across referrals. I do believe a lot of individuals, they’re sort of denying in their heart what they need logically, but in their heart, what they’re not afraid of, they’re not ready to do. This is getting them committed to doing something to make their situation better. I think there’s a place for it, and some operators might choose to get into that space. I think that may make sense for others, but I still think in the middle market, that’s a very short-lived solution or possibly, not financially practical.
Tim: I want to talk with you a little bit about development. What has your development process been like right now? Where have the biggest challenges been? How are you making development work right now, given some of those challenges?
Stephanie: Sure. It’s interesting. A third of our company– we had a third of our growth happen during Covid, so we’re still barreling down the road with new development. We’ve got 12 more buildings on top of that, that are either construction started or in the process of starting.
We are super active, and what we’ve had to find is construction costs are going up, our labor costs, and we are feeling the pressure, but a couple of key tricks that we’re noticing is starting to look at common areas that are underutilized in our development model. Can we upgrade a few more apartments so that we can gain more rentable, square footage, or premium units, or add another unit or two? Little moves like that are helping us to cover the cost of higher labor, the cost of higher construction.
Tim: Interesting. I’ve actually heard some folks tell me that as they’ve gone through development, they almost like it to be a challenging process, given how many people want to get into this business, and just generally the fact that it creates higher barriers for entry in markets where you maybe already operate in and you might know better than others. Do you feel like maybe some of those challenges are also an opportunity or a tailwind or something?
Stephanie: Oh, I think so. One area that we focus on quite a bit is in Missouri where there’s a certificate of need, and that is certainly a barrier to entry. It’s caused a lot of independent living where people have added that service with home care to get around the licensing structure, but we feel really good about the path to build communities in those markets. I think that’s attractive.
One of our most successful projects during Covid was in a city that required a referendum in order to build. Here you are running a million-dollar political campaign just to get your project to pass in a market that not everybody can handle. That project opened in 2020 at record level leasing. That’s crazy, but that shows you the power of finding the markets where there are those barriers of entry.
Tim: Obviously, we’ve heard over the past two months about how there’s still a lot of capital waiting to be deployed into the industry. Without going too deep into the thinking of your capital partners and all of that, do you sense that there’s still a lot of capital on the sidelines waiting to be deployed? Do you sense there are still a lot of people out there holding onto their dollars and saying, “All right, I’m going to look for the exact right opportunity?”
Stephanie: I think we’re at a period right now where about every day it’s changing. Three, six months ago, I would say we were still watching a shark-tank approach, or we were watching the cost of per unit run up by a lot of money chasing very few stabilized deals, but I think we’re going to start to see more developments that opened in 2018, 2019, 2020 that should have stabilized by the time Covid hit, that have been stuck in neutral or stuck at 50% [occupancy], 75%, whatever that may be; and are running out of fuel or running out of desire to carry the project through to stabilization.
I think that’s when we’re going to see a real shift in a lot of capital reentering the market that is sitting on the sidelines. Some of the biggest players in our space are doing record deals, but there’s a lot that are sitting on the side waiting, and that, yes, they’re looking at the same projects, but they’re not going to underwrite to the values that others can or will at this point.
I think over the next three to six months, we’re going to see all of that pent-up capital begin to deploy. We may start to see some of a more normalized run on what’s going to happen on cap rates and where we are watching models shift in how we’re going to value assets that aren’t stabilized or were stabilized pre-Covid, and now we’re on a lease up trajectory. I think we’ve gained there, but I’m surprised we aren’t seeing as tremendous cap rate compression as I thought we would at this point in time. I think it’s just a matter of time.
Tim: This is a good segue into what you were just talking about, acquisitions, another growth strategy for a lot of operators right there right now. In fact, I think I’ve talked with more who see acquisitions as, at least for the short term, the faster way to grow. What do you see on the acquisition side right now for Arrow? I guess, how big of a focus will that be for you guys as you grow?
Stephanie: Sure. Tim, probably, I think I’ve established– our company was Turnaround Solutions and we only worked on troubled assets and acquisitions really before we became- a more dominant part of our business is new development. I think that acquisitions are tough.
I think we’re going to see a lot more of them in the next few months. As I mentioned, those communities that were newer and that are struggling to lease up, and folks wanting to exit the industry, the new entrants finally deciding this isn’t their space. I think it’s going to be a lot of movement.
We’re already seeing to some degree a lot of that movement even if it’s just manager changes. We’re seeing a lot of acquisitions teeing up or being executed. I think, for Arrow, we really see that the key to senior housing is culture and how we attract people to work in our communities and to move into our communities, they have to find the right place that has the right people. Culture is absolutely one of the hardest struggles in an acquisition because many communities that are acquired have been acquired or have gone through a run of operators.
We did a round of acquisitions in 2019, going into 2020, haven’t done any since then. We expect, sitting on the sidelines, we’re going to start looking at projects again over the next 12 to 24 months. It was interesting to me in that last batch community we brought on, here’s one community that I remember a department head had the audacity to say, “I’m just going to wait you out.”
It’s tough to build culture, especially in the shift we’re experiencing with the workforce and I think some distrust over short– as we’re watching this trend of a growing desire for wage transparency to being shorted in co-workers to do the services and feeling stretched then, we’re at a period of time where our industry is in a culture shock of sorts. Acquisition projects typically have those culture struggles that are driving some of their occupancy challenges or operational challenges.
Tim: I don’t want to put you on the spot with this question, and if you don’t want to get too much into it, that’s fine. What did you say back to that guy when he said that? What was the response? I guess also, maybe to dig deeper, how do you win over skeptical people like that?
Stephanie: Oh, you can’t. That’s not the right person. I always joke with people when we interview executive director candidates or whatever position. You’re either going to love us or hate us. That’s it. Clearly, in this case, the individual is expressing the hate, so let’s just make this easy. We are who we are, but the other thing though, Tim, we’ve really embraced over the last few years a professional development coach that works with the team to help when you have a challenge like that.
It’s not a “throw the baby out with the bathwater” situation. Maybe it is, we don’t understand each other. We do look at those. We use this intervention. It’s Michael Buckley that works with us — from the old YouTube “What The Buck” days for those who are familiar with him — but he teaches our professional team members. About 150 of our employees work under his services monthly or two times a month.
He works with them on how they can manage their emotions and work through better robust communication. In some ways, I want to know if somebody seeks that because that’s an opportunity. If we can’t work through that to clarify a misunderstanding, we need to make you available to the workforce and not our company.
Tim: This is a good segue into staffing something else I wanted to talk about. This is actually a follow-up to something you said at the top of our discussion today. You’d said that on the staffing front hiring has picked up. I think you said that, anyway, correct me if I’m wrong. It sounds like things are clearing up just a little bit on the staffing side. Tell me about what you’re seeing in terms of hiring and retention and all that stuff these days, and still, what is the big challenge on the staffing side? Because I know it’s still obviously very hard.
Stephanie: We’re really focused on staying on top of shifts in wages and pay equity. I think that’s probably our biggest focus. We use a quarterly wage bonus structure, so employees could earn the 4% by managing outcomes that are in their control and demonstrates their commitment to our company. We’re starting to see a little bit of a shift in participation in that when it drops, we know they’re not committed to us.
Have a quick quarterly test on employee engagement, but I think the other part that we’re seeing is new employees coming in may have jumped multiple employers and have run up their wages are the most stabilized employee groups, maybe making a dollar or more on average, less than our newer employee groups. It’s not fair.
We are trying to stay on top of how do we balance that out alongside a demonstration process for the objective review and how we adjust wages each quarter or over the course of a year, but also make sure that we’re giving it a level playing field that we’re not causing our best individuals to then choose to take the same pattern and jump.
I do find that we’ve had employees leave and say we’re short-staffed. We’re running up occupancy alongside trying to keep up with staffing, and then we’re all feeling the pressures there, but it’s amazing to me how much it’s a boomerang and we will get some of those employees back because they recognize this isn’t just at a single location. This is happening across health care.
Employees who return are some of your, by far the best employees because they’re choosing to return and know that that grass isn’t greener on the other side, but I think I’m most concerned are we paying our best employees the best rate and if they’re sticking with us are we ensuring that they’re being paid in an equitable way?
Tim: I just came back from the Argentum Senior Living Executive Conference in Minneapolis, I heard a lot of interesting ideas. Along those lines, I heard someone say that they’re trying to find ways to reward their best or most productive employees, and there was some discussion: do we find a way to pay them more? Is this a monetary bonus? Is this another way that we reward them? I think you mentioned some of this in there, but what is your philosophy on that? When you have a really star employee, how do you make sure that their work is recognized and rewarded?
Stephanie: Sure. We think it’s that demonstration process of the quarterly wage review. I do think that the industry has got to recognize that incentives are only going to get us so far, pay bonuses, hero pay, name your additives. We got to adjust base wage, and figure out a way to stay on top of that. We started at the peak of our dependency on the bonuses.
We started tracking the pullback of those bonuses over a period of time. We weren’t surprised. We saw less desire to pick up the wages without the bonuses, but we had to draw a new line coupled with the pay equity efforts we were doing to remove that dependency and focus on pure wage. I think that that is something that we need to do.
In a world in which we’re shifting toward wage transparency, it will matter that you are paying the correct hourly rate versus supplementing with this incentive or that incentive. I’m telling you, this wage transparency movement is happening so fast. The fact that, indeed, now if you don’t post how much you pay in wages, they will guess it for you. We were finding when they were guessing for us, they were guessing the wrong wage.
We were willing to pay more. It caused us to say, “Can we be transparent?” but we had to make sure we were equitable to every other employee who had been sticking it out, that they were being paid at a fair rate relative to somebody we were bringing in brand new. I think that’s where everyone needs to be shifting their thinking is wage transparency is coming for us is the next major wage and the next major wave.
Tim: Absolutely. I’ve heard this a few times over the past few months, it will be interesting to watch. I want to get to a couple of audience questions they’ve been rolling in as we’ve been talking, related to staffing, one question is how do you qualify your staffing? Do you use third-party assessments?
Stephanie: That’s a great question. We have an internal recruiting team, we do a screening process that sorts through the hiring for the heart, but we do utilize TTI’s DISC assessment for our professional positions. When I say professional positions, it’s anyone at a supervisory level up, not just department heads or executive directors, but any other supervisory position would be a communication tool, like a DISC Assessment and how we can utilize that tool and work with them.
We don’t quite use it as a sorting-out process as we do how to engage that individual process, but having consistency in how we screen. Think about this, every caregiver that works in our company is screened by the same handful of individuals at some point or another. That has helped us with some uniformity and to ensure that we didn’t desperately hire.
That’s probably been more powerful to us in having more consistency in that process than if we had some third-party tool. With the increased volume of applications, we are looking at ways to incorporate these models into our screening process. We have returned to doing group interviewing that we find is also really great. If we’re in a team environment, team observation has been very, very important. We were glad to see that we were able to return as a part of our process. We do see the increase in the applicant pool will require us to look at some of these alternative tools.
Tim: Great. Another audience question and I’m actually not sure if they’re speaking to staff culture or like just generally the culture of a building, but I’ll ask this anyway, You spoke of culture, what are some of these amenities and programs that you feel are very important to building culture?
I could almost see this two ways, as I could see this as building a strong resident culture. I could also see this as, what is your back house? What do you provide for your employees in terms of amenities and programs that build culture? I don’t know, take that as you will, but what are your thoughts about that?
Stephanie: Yes, we look at culture as we want to maintain the personal touch as our organization grows. Also, the gain you get from personal touch is communication and having accessibility. I can’t be everywhere like I was when we had 10 communities or 15 communities. We had to think about how we continue to drive down decision-making and empower folks to be vocal critics and vocal advocates for better outcomes.
It’s been very important to us to have a professional coach to teach people to build that confidence to give us that kind of necessary feedback. We’re not asking them to just model in only our way and never improve it. We’re asking every person that jumps into the organization to be committed to changing the way senior housing is delivered.
That means that a fresh set of eyes needs to challenge ideas that they think can be improved that are already a part of Arrow’s standard operating procedure, that nothing is so stable that we can’t elevate, or that we can’t innovate over time.
We want to welcome that kind of dialogue and which means just as much, we’ve got to keep our ears open and accept that kind of dialogue. For us, the most important part of culture is that kind of transparency and kind of vocal relationship. My cell phone is by no means a secret. I’m heavily involved in having that kind of direct communication with our employees. Not everybody takes you up on that. It does, I think, send a message that anyone can jump the “chain of command.” We could care less about the chain of command. We’re a pretty flat organization.
We empower people to feel confident that if it’s the right thing and they can advocate and it’s fair, firm, and consistent that we ask them to be a vocal advocate. I think that along the way we also are trying to bring fun back to the fundamentals of senior housing services. I think we have a very light-hearted culture. I think we benefit from having very few people with necessarily senior housing-specific experience. I shared with Tim earlier most of our I would say our first 20 hires were straight out of, majority of them are straight out of journalism.
We look for people with different experiences and how they can borrow into our industry that’s growing and be an agitator. Yes, we have people with experience that work within the organization, but that’s not our first choice. It’s actually often our last choice. We really like that growth and growth within the organization.
I started as a senior living counselor and was able to make this happen and I share my origin story with the employees because it’s no different in many cases than where they came from and what they could be doing within our organization. I think that sense of ownership and feeling as a part of a bigger mission is most important.
Tim: One more audience question then I want to ask. What have you found to be your optimal unit count for your IL portion in terms of your staffing model? I think what they’re asking is, what portion of your units are IL and how does that fit into what you’re trying to do with your staffing model?
Stephanie: Sure. Well, I think to us, the independent living count has to be a minimally high enough number to supplement or create the length of stay and supplement the services we offer in our other levels of care. Typically, we’re targeting somewhere between 85 and 90 units for independent living relative to mid-40s and between 16 to 20 units in memory care. We don’t like to sell memory care apartments.
We like to have aging in place services for our residents that had lived with us in independent living and over time as a spouse or themselves requiring memory care that the nature of the community, it will fill and maintain the higher levels of services over a period of time through a true aging and place model, but probably the most important number in that mix is actually the assisted living count because that’s really where all the cost comes with the model.
You have to be able to provide the services, but with states that tell you exactly how many staff persons you can have, and you’re already going to have certain administrative requirements. You leverage those resources for the other levels of care that I think is truly key in a middle-market model.
Tim: I know that you and I have talked about turning as many leads as you can into move-ins. When we talked for the podcast, I remember I wrote a story, which I referenced to you. The Green Banana Brigade, I think, is what you called it, which is bringing those people in who are maybe longer leads. You’ve been doing that now this year for a few months since we talked.
What is working these days to turn leads into move-ins? Do you find that anything has changed since we talked last December or are still a lot of the old tricks or no, I shouldn’t say tricks, but strategy is still working?
Stephanie: Sure. Well, the only thing I say, Tim, I mentioned that new inquiries are increasing. I think this is a post Covid effect where folks stayed at home and weren’t as active for the last two years and are coming into our communities requiring more care. We’re seeing higher demand, but those are for services for assisted living and memory care. We’re just starting to see the independent leads, living leads kicking up.
One of the challenges we continue to face is that, because our lead volume is up, we can continue to lease, but we’re leasing in a cycle. That we’re leasing an area level. If we’re moving residents into our assisted living and memory care, we never can balance out the length of stay that I think is super important to stabilization, and I think, improved quality in the services that we offer because we’re only replacing what we’re losing and we’re consistently leasing the same product, replacing it.
We’re perpetuating the cycle of moving individuals who have to make a decision. We’re constantly reinforcing our sales teams. We need to figure out how the operations teams handle the move-in. For the leads that are going, there’s really no choice. They have to make a decision and maybe it’s us and somewhere else, but that’s not a sale at that point.
Really what I would say is a true sale and getting at that Green Banana is looking at all of the other folks who said no to us at one point or another, and are recognizing that they don’t know enough yet to say yes, and that we need to take the time and we need to take it as an industry because that is what’s key to growing consumer interest.
I just came back from one of our communities this week and talked to a newer salesperson, who we were sparring with in a good, healthy way. She was, “I know you like those marathoners,” but what she wasn’t recognizing is that she was just perpetuating an operational pressure and putting too much time on the leads, who were already going to choose the community and not enough time on those who might need the three to six months plus of cultivation to make that proactive move.
When I go back to communities that start really getting that process into their sales effort it’s amazing to me what happens to the feel of the community and the acuity in the community. It is a discipline to get our sales teams to think that way. I think we are in a period of time or Covid me to think of whatever we could do to recover our revenue stream but we’ve done it at the cost, I think of reputation in some cases, for the industry. It is just perpetuating high turnover, that we have to make sure that we are also adding in this proactive aspects to our sales process and stop just the speed delete efforts that I think are giving us a bad reputation.
Tim: I want to use the last 10 minutes or so of our discussion to talk a little bit about the future. I guess to start with, let’s talk about you guys. What is your strategy for growth this year?
Stephanie: We are hyper-focused on technology. If there was one other thing, besides our theories on sales and approaching the psychology of sales, it is that technology is such a key ingredient to creating affordable models and growing length of stay. We have continued to develop our analytics team. We’ve done it. I think we are in an interesting transition point where we’ve built years of data and are beginning to shift toward a machine learning model to help us better forecast and identify interventions.
We had some pretty progress when it comes to foul technology but we’re on the brink of a few other areas and excited to see what can happen with our lab testing a couple more products, just like a lot of operators have also brought robots into their communities. We’re doing the same thing but looking at it from a different perspective in surveillance and supplementing basic work services that allow employees to have more resident engagement and other surveillance-like tasks could be handled by a robot.
We’re fortunate to be working directly with the university on that deployment. We believe that we’re ready to break out to see how technology can begin to disrupt our reliance on individuals. We can begin to look at pilot-style management of services in ways to extend the current workforce to meet the entire needs of residents with technology supplementing.
Tim: It’s interesting. When you say robotics in surveillance, are these just like AI and cameras? Are we talking about robots that are actually really roaming around?
Stephanie: We’re talking about Rosie from the Jetsons.
Tim: Wow. I’m very curious, is there any more you can say about this, or is this still kind of like coming together because I want to know more about this?
Stephanie: It is coming together but we’ll make sure, Tim.
Our belief is if we can have an area where Wi-Fi and internet is not so common and residents are adapting it and adapting well, to the technology, and it work, it can work in other areas. It’s just been fun to watch how much they have embraced being a part of these experiments and explorations.
Tim: Yes, that’s a great point. All right, about five minutes left. I want to get your take on the future and some of what you’re excited and worried about. I guess top level as you look ahead, maybe in the next 6 to 12 months, what’s on your worry list and then where do you think the biggest opportunities lie?
Stephanie: Sure, I still think that 2022 will be wrapping up, releasing vacant units from Covid. I still think that’s by far, the challenge ahead and how fast we can do that. I also think that we’ve got to shift to retention based strategies, not just recruiting strategies, but we’ve had to be wrapped up in attracting people to work in our communities that I think we’ve lost sight of current employees, and have to be expanding the reach of services and looking at employees beyond a time money exchange to how we can add value in their life.
I think we have to be more holistic, and that it’s not just the wage, but it’s the other supplemental services that we can do to extend the quality of life and increasing the engagement of our employees, and providing our most precious services to our business and to our residents. I think that embracing the employees in a different way, or current employees in a way that can bind them together and commitment to the community is a top priority.
Tim: Everyone’s favorite topic, our recession. We just wrote a story about this. I have heard more times in the past few weeks talking about recession but I think I can remember in the past few years. It seems like this is on everyone’s mind, and if you look at the stock market today, I think it’s on those people’s minds as well. What do you make of a recession, and how do you think that would affect your ability to, cater to the middle market crowd, and just in general, operators, a senior living operator?
Stephanie: I think we’re seeing some of the impacts of the current now, the fact that employee applicants are up, and not only just applying to apply, but they’re taking the positions, and we’re watching agency dependents or elimination of communities.
I think you’re right, Tim, the real estate markets probably aren’t going to collapse and are probably going to normalize in the way that they should, but we see that there’s a narrow window of a closing door, or there’s a narrow gap left that we have to lease up any vacant independent living in our new communities, because this is probably our last and best year, and that independent living will likely be more hard hit.
Because it’s still a decision of choice than pure need. There probably needs pushing that choice but will watch more people sit on the sidelines or wait it out until they absolutely need senior living when we’re in an economic downturn. We’re feeling it, it’s just most important to get those waiting lists up, get the Independent Living least so that we can get a little bit of fat on the bones going into what we think is going to be a pretty rough road ahead.
Tim: It seems like if you’re an IL operator, you might be squeezed a little bit between those two forces is that yes, I mean is that your thinking as well?
Stephanie: Will watch, like naturally occur because our independent living communities offer services. I think it’s really going to be tough for the no-service or low-service communities to be successful, when the market does have, when we start to watch the recession kick in we’re full force.
Tim: Yes. You have talked about the need to make Senior Living cool. How do we make this industry cooler?
Stephanie: Diversity. I really do think that is it diversifying who we bring in from an intellectual perspective from different industries. It is more diverse that we can be in demographics economics can our communities be employed by people who really reflect the communities that we’re in. At the same time can we have fun? Can we do a little things do some counterculture things challenge some of the norms?
I think that the cool comes from the vibe and the personality of the communities and that will win all day long to the biggest fanciest community when you have people engaged and feeling respected and excited to be a part of the community as a resident or as an employee. The more we’ve embraced those concepts the more we have felt the positive impacts and I would encourage others. That’s how we can make this cool. That’s how we can grow our overall market share.
Tim: Great. Well, those are fantastic words to send us out on. Stephanie Harris, thank you for doing this TALKS. I thought this was really interesting.
Stephanie: Bye.
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