Industry Moving Too Slowly to Meet Middle-Market

The senior living industry is on track to be “crushed” by middle-market demand.

Those are the words of Innovation Senior Living CEO Pilar Carvajal, who spoke with me for the Senior Housing News Transform podcast in May.

“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,” she told me. “I’d like to be surprised and see what happens, but right now … we’re not making enough of an impact.”


As I look across the senior living industry today, I agree there are far too few middle-market communities and models to meet demand in the future. And I agree with Carvajal that it represents an opportunity of a lifetime for the senior living industry.

I often hear senior living leaders tout the industry’s needs-based nature and the rising demographic growth of the baby boomers as proof that it will be able to subsist on demand for years to come. I don’t necessarily disagree with that so much as I think it would be leaving a lot on the table.

In this week’s exclusive, members-only SHN+ Update, I analyze the current state of middle-market senior housing and offer key takeaways, including:

  • I believe middle-market demand will increase more quickly than expected in the years to come, necessitating new approaches in operations
  • Truly unique middle-market models are still relatively rare, and only a handful of operators are attempting to build them at scale
  • Several existing models could be modified to serve a larger market, if operators and their partners are willing to take risks

The middle-market opportunity is growing

I still remember the shock I felt upon reading the landmark 2019 study showing more than half of middle-income older adults — 14.4 million people — wouldn’t be able to afford senior living services by 2029.

At the time, it felt like an urgent call to action, as well as a beacon of hope for an industry that has long sought to increase penetration rates beyond the nationwide average of around 10%. To me, it seemed like the perfect opportunity to reach a new market and address a societal need all at once.

We all know what happened a little less than a year after that study was published.

The Covid-19 pandemic has disrupted just about every facet of the senior living industry, from occupancy and expenses to margins and NOI.

As great as the pressure was for senior living operators, it was even greater on average Americans; especially those with fixed incomes.

According to a Pew Research study released last year, almost half of all non-retired adults age 50 and older (46%) said they either have already delayed or think they might have to delay their retirement because of the pandemic’s financial impact. At the same time, life has gotten more expensive for Americans in the last two years as gas and food prices have risen.

Making matters harder is the fact that baby boomers are thought to have fewer pensions and savings than their predecessors, and fewer adult children to help care for them when they get older. Although housing prices are currently high, allowing the boomers to subsidize their move into senior living with home equity, there is no guarantee that will continue on in the future.

And not to mention the cost of health care, which is often prohibitively expensive in the U.S., even with insurance.

Given all of the pain that consumers have endured, it seems reasonable to expect that there will be more than 14.4 million people who can’t afford traditional senior living in just seven years. And there are sure to be even more people who could afford market-rate senior living but would prefer a more frugal option.

That point has been made by Tana Gall, president of Merrill Gardens, which has been on the leading edge of the push to create a scalable middle-market model with its Truewood brand.

“That customer base is bigger than even we think,” she said at the SHN BUILD event last November.

Meanwhile, most senior living services are not getting cheaper, and 2022 was a banner year for rate growth in the industry.

Given these trends, I’m surprised that Merrill Gardens is one of the few large-scale senior living providers making a major push into the middle market.

Simply put, I think there could come a time soon when the industry sees a tidal wave of demand in front of it, but without more aggressive experimentation now, senior living operators will be left playing catch-up to reach it, if they do at all.

Middle-market models too few in number

The NIC report on the “forgotten middle” did help to spur action to meet this part of the market. We’ve run numerous stories over the past three years about various efforts and ideas.

As we have reported before, the Truewood model is among the most aggressive attempts to reach middle-income residents in recent years, and is targeting monthly rates ranging from about $3,000 to $3,500.

The company achieved that rate by talking to residents and their families about what they want and could do without in senior living communities, and then creating an operational model that fit into those parameters. Key to the model is the resident experience partner — which the company refers to as REPs — who are similar to universal workers, moving from one job to another in the community.

Real estate development and management firm Lloyd Jones is taking a similar approach with its strategy of acquiring communities on a low basis and converting them into middle-market properties with monthly rates around $3,500.

“Because we have an interior designer, a development team and a construction manager, we can go in and not spend all this money we would with premium third-party vendors,” Lloyd Jones Senior Living Vice Chairman Tod Petty told me in April.

Another operator attempting to change the middle-market model is 2Life Communities, which is based in the Boston area. The faith-based nonprofit is building Opus, a model that aims to make senior living more affordable for middle-income older adults through a mix of resident volunteerism and partnerships with social services and other health and senior care providers.

Unlike Merrill Gardens or Lloyd Jones, 2Life is building Opus from the ground-up, opting for new development over acquisition.

Other examples of reaching the middle market include Arrow Senior Living’s model of effectively subsidizing middle-market units with independent living; Innovation Senior Living’s model of layering certain adult day services onto traditional senior living; Benchmark’s slowly growing Branches model. And they are not the only ones.

But as many operators as there are trying middle-market strategies, their communities still only amount to thousands of units at most — a far cry from the total needed if the industry hopes to make a dent in the looming demand.

Furthermore, much of the existing middle-market supply — including the large Holiday Retirement portfolio that is now part of Atria Senior Living — skews toward independent living, where costs are easier to control. Attempts to deliver care within a middle-market price point have been troubled. Eclipse Senior Living is no more, with its portfolio fragmented among several regional players; they might have more success in operating these communities, but the jury is still out. And while Enlivant managed to breathe new life into the troubled Assisted Living Concepts, the performance of this portfolio also has been a continual work-in-progress, with owner TPG wanting to divest but struggling to find the right moment and willing buyers.

Other middle-market ideas

In short, older models of middle-market senior living have proven challenging to sustain, and efforts to create new models have so far been limited in scope and scale.

I recall a session during the 2019 NIC Fall Conference where groups of people from across the industry broke into groups to brainstorm ways to reach the middle-market. Some interesting possibilities emerged.

Two years later, Santa Monica, California-based think tank the Milken Institute tried to reimagine the future of middle-market senior living communities, with ideas that included expanding the Program of All-Inclusive Care for the Elderly (PACE) or creating new ways for residents to pay for senior living services.

Already I see operators embracing or exploring some of those ideas in 2022. And some interesting concepts for the future have emerged, such as active adult models focused on preventive care or an affordable assisted living community in Chicago that gives residents access to a state-funded alternative to nursing home care. Expanding Medicaid waivers and finding creative ways to leverage Medicare Advantage are promising routes toward blending housing and care at more attainable rates.

When the middle-market study was first unveiled, NIC Chief Economist Beth Mace said that it was time to “throw spaghetti at the wall” in order to see what sticks, with regard to more affordable senior living.

There no doubt has been some spaghetti thrown, and that’s great. But I think to really see what works at scale, the industry needs more organizations like Merrill Gardens that take bigger swings. And I think a big component is getting more courageous capital involved. Gall was pretty blunt in saying that Merrill and its partners — including ReNew REIT and NHI — are “still working on” the financial returns of Truewood.

But they are all placing a long-term bet that whatever the financial bumps are in the short-term, a middle-market product will create strong and — perhaps even more importantly — steady returns over the long haul.

At the end of the day, I think now is the time for more senior living operators and capital providers to get on this train, and experiment with truly unique concepts and ideas, given the opportunity ahead.

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