After a year marked by the highest annual rate increases in recent memory, some senior living sales leaders are wondering if offering concessions hurts or helps the industry’s value proposition
On the one hand, some operators see concessions as a vital tool to secure move-ins and push often-choosy prospective customers over the finish line. On the other hand, some operators are taking a much more selective approach to deploying concessions and incentives as a way to preserve rate integrity at a time when margins are still largely compressed.
“What’s more important than concessions-based selling right now is pricing the community within your concept, because there are so many different types of communities and different levels of care,” 12 Oaks Senior Living President Greg Puklicz told Senior Housing News.
Executives with HRA and Bild & Co. also highlighted the way concessions are being used as just a small part of the wider sales process, while also outlining how concessions have evolved since the start of the Covid-19 pandemic as rates and occupancy rise.
Recent data collection around concessions by the National Investment Center for Seniors Housing and Care (NIC) shows that discounting in the AL and memory care sectors “are generally waning,” as cited in a rate growth study. The study also notes that since March 2021, the pace of move-ins has exceeded move-outs for IL, AL and memory care segments.
Concessions as a ‘another tool in the toolbox’
The lows of the pandemic forced some operators to get more aggressive in making price discounts to combat record low occupancies at the height of the pandemic. Fast-forward to the current day, and many operators are still wielding concessions in the same way despite enacting lofty annual rate increases.
Almost half (47%) of respondents to a recent Senior Housing News survey said their companies’ use of concessions had increased in the last two years as a result of the pandemic, while 42% reported a drop in concessions and 7% reported no change. The majority of surveyed operators (64.7%) told Senior Housing News that concessions did not hurt the value proposition of senior living.
The survey, conducted in late 2022 and early 2023, includes responses from more than two dozen operators, almost a quarter of which represented operators with 51 or more communities.
The most common type of concessions offered by respondents included waiver of community fees (50%) followed by one-time rate reductions at 22%. About 10% of respondents reported using entry-fee waivers and amenity-based concessions. The remaining respondents told Senior Housing News they were offering other types of concessions.
Dallas, Texas-based operator 12 Oaks Senior Living is highlighting lifestyle improvements and selling value rather than offering deep concessions as a primary way to secure move-ins, Puklicz said.
“Senior living isn’t selling a commodity, it’s selling a purpose and a lifestyle,” Puklicz said. “Concessions, in our view, are simply another tool in the toolbox, and selling isn’t always price-based.”
12 Oaks Senior Living operates 20 communities with two more in the pipeline, with a plan for growth in the new year to between 25 and 30 communities, Puklicz said.
The company’s sales staff emphasize forging personal connections with prospects over price-points or concessions, Puklicz said. He noted that being upfront about pricing helps give prospective residents a sense of what to expect, while concessions can be counterproductive in operators’ quest to sell value and instill the idea that the service is just another commodity.
“You can’t just jack up the initial market rate and then try to close with a concession,” Puklicz added. “What’s more important to us is going through the discovery process understanding what residents need to build trust to make that buying decision.”
12 Oaks Senior Living sales teams take a three-pronged approach to closing by focusing on the discovery process and building a connection with a prospective resident and their loved ones, Puklicz said. First they look to build an emotional connection, followed by getting them towards a stage of readiness, which signals they are ready to make a decision to sign a contract.
Once a resident is able to make the decision, concessions can be used as a “last enticement” to help close the sale, Puklicz said. Taking such an approach requires communities to understand their local market and what their competitors are offering in the way of resident rates.
HRA, meanwhile, has also taken a more selective approach to concessions in its sales process. The company’s sales teams have collectively stayed away from merely discounting monthly rates for residents, according to HRA Chief Operating Officer Karin Bateman.
Vero Beach, Florida-based HRA, has 36 communities across 14 states and two others set to open in the coming six months.
Concessions at HRA are typically dictated by occupancy rates at a community, with some with lower rates seeing the more frequent use of concessions in the short term. If a community has high occupancy, Bateman said, concessions could take the form of a one-time, $1,000 discount as part of a closing tool.
“Any concessions that we are offering are short-term burn-off concessions and we have a very specific toolbox that we use,” Bateman said. “We’ve really been focused less on concessions and more on standing firm because we’re not willing to give away the farm just to get a move-in.”
That steadfastness stems from a litany of reasons, top of mind being rising expenses and inflation eroding margins. But that selective approach doesn’t mean HRA sales teams are left out in the cold when it comes to sweetening a deal to close a move-in, Bateman noted.
Communities are granted “some autonomy” in offering basic, one-time concessions for a dollar equivalent for one-month of rent or towards community fees. It can even take the form of HRA purchasing appliances like a TV, within reason, to close a move-in.
“It’s about meeting the prospect where they are and giving them the flexibility to use that money towards something that really is beneficial for them to move into the community,” Bateman said.
Rate integrity in 2023
Even as occupancy rises and margins decompress for some operators, the industry still faces a challenge of highlighting the value of senior living after disruptive years of families staying home longer.
Even so, revenue per occupied unit at HRA communities have maintained an average above what was budgeted for the company last year in 2022, Bateman said, a sign that rate integrity is returning as the industry stabilizes almost three years from the beginning of the pandemic.
“Our average revenue per unit was well above what we had budgeted so that was a good litmus test for us to see that what we are doing is working, and that we are not having to give huge concessions to get move-ins,” Bateman said.
That thinking could be shared by many operators in the industry, Bateman believes, as occupancy brings with it healthier bottom lines.
On the other hand, Puklicz said he feels rate integrity is not improving. He bases that thinking on the fact that too many operators and ownership groups are “hanging on to unrealistic rate structures,” leading to the fundamental flaw of the overapplication of large scale concessions, he said.
“The short-term expectations for some of these ownership groups and communities was based on the assumption that everyone would come flocking back to senior living,” Puklicz said. “We’ve had to work even harder through relational selling to convince people to come to senior housing.”
To Puklicz, maintaining rate integrity means “setting the market rates correctly” while using concessions as a closing tool “when necessary.”
A little more than one-third (35%) of the respondents in the recent SHN survey said rate integrity is getting stronger, while the same amount said rate integrity remained stable. Another 29% said they felt rate integrity was getting weaker.
Focused on occupancy and rent growth, Bild & Co. advises owners and operators in senior living towards better financial performance. More than half of the operators Bild & Co. secret-shopped in 2022 were not giving incentives, according to CEO Jennifer Saxman.
After two years of substantial rate growth, operators appear emboldened and able to net higher rates in the future. That was reflected in NIC data, with the center reporting that operators increased rates 4.9% on a year-over-year basis in the fourth quarter, the largest increase since NIC Map Vision data was reported starting in 2006.
The most common rate concession or incentive offered by operators, Saxman said, was waiving community fees, a staple concession made for years. Next in line are a one-to-three month rental rate freeze followed by incentives towards community amenities.
“It does seem like there is an uptick from our perspective in rate integrity and a reduction in incentives,” Saxman said. “The steep amount of concessions that we were really accustomed to seeing in the two-and-a-half-three years have gone down and subsided.”
One way of achieving further rate integrity would be through what Saxman called a “trickle down” of operators holding steadfast in their rates and not making sweeping concessions, which would lead to a stabilizing of rates and occupancy.
“I think we’re on a really good trajectory to really be successful when it comes to market market rates and new consumers that are coming into the industry,” Saxman said.
A sticking point in 2023 will be the uneven ways in which operators are able to make conversions, with Saxman noting there is “still inequality” in closing conversion rations of Bild & Co. clients. If operators can focus on getting inquiry to tour conversions up to around the 60% mark, Saxman said the industry would see “phenomenal growth” in the year ahead.
“I would venture to guess that we are going to see attrition rise with short length of stays and more move-outs,” Saxmon continued.
With occupancy stabilizing and revenues higher than anticipated, Bateman said she was optimistic for the year ahead for HRA.
“We feel very confident that we’re headed in the right direction and the strategies we haven’t placed. You know, we’ll definitely keep us very financially healthy moving forward,” Bateman said.
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