People Not Properties: Real Estate vs. Operations Paradigm Starts to Shift in Senior Living

The senior housing industry historically has placed a lot of emphasis on real estate to drive value. And today, that is still occurring — but the paradigm might be changing.

A “tectonic shift” has occurred that has made management companies and the people who work for them a new “gold standard” for industry quality, Aegis Founder and CEO Dwayne Clark told me this week. In other words, there is a growing recognition that management companies cannot be commodified, are key to driving long-term value, and a key differentiator lies in the quality of talent they can attract and retain.

“We have to make investments in people, we have to make investments in training, and if we don’t, we’re going to be in for some problems,” Clark told me.


In this members-only SHN+ Update, I reflect on my conversation with Clark and offer the following takeaways:

  • Why the industry’s race to scale may do more to hurt, not enhance, operator quality
  • How people are increasingly the differentiating factor in senior living operations

Scale no guarantee of success

It doesn’t take a deep level of analysis to know that senior living operators are vitally important in 2023 — one only needs to tune in to the earnings calls of publicly traded senior living companies.

For example, Welltower CEO Shankh Mitra has bemoaned the lack of quality operators in the industry and has zeroed in on a stable of operating partners that the REIT does believe can drive results. The REIT has identified Oakmont Senior Living as a “key operator” in its senior housing operating (SHO) portfolio.


With an average occupancy rate of 86%, according to the REIT’s latest earnings call, Welltower’s leaders believe the operator can drive significant earnings upside.

For example, Welltower management has said the REIT could — at least in theory — fund CapEx improvements across its entire Holiday by Atria portfolio through gains made at a single property managed by Oakmont.

Whether the REIT could fund the CapEx with one Oakmont-managed property is an open question, and Welltower management has said it would require the community returning to 95% occupancy with an estimated net operating income margin of 45.2%.

But I think the point of that disclosure was not that Oakmont would drive value to cover the portfolio’s CapEx, but that Welltower has big goals for what high-quality operators can achieve, and is going deeper and providing more disclosures about the way that strong operators are enhancing value.

Ventas also has a similar strategy of “partnering with the right operators to drive exceptional performance.” The company’s management in its latest earnings call identified three operators — Discovery Senior Living, Sodalis and Priority Life Care — as contributing in a big way to NOI growth.

The REITs are not alone in recognizing, throughout the intense challenges of Covid-19 and the challenges in its wake, just how much operators are differentiators for communities. One result has been the rapid growth of operators deemed strong, as more ownership groups have tapped them. But this in itself could pose a threat to quality; bigger does not necessarily mean better. At the same time, senior living operators rightly recognize that they need to gain sophistication, and are sometimes pursuing that by merging with or acquiring another company. But this push for scale might not be the best way to achieve their admirable objectives.

If you read SHN+ Updates, then you know Clark is no fan of ill-advised mergers and acquisitions, especially ones where two operating companies are joining forces to fill gaps in each others’ toolboxes. And as he surveys the rest of the industry, he still sees that as a dire risk to the overall quality of the industry’s services.

“What’s happening here is that people are trying to buy programs, people, talent and ideas,” Clark said. “Two bad companies merging is not going to do anything but create confusion and take the company through a tremendous amount of turmoil.”

There are some senior living companies that seem to have recognized the risk in scaling. For example, Discovery Senior Living CEO Richard Hutchinson has told me that senior living mergers are often “addition by subtraction” in a process that usually has a “winner-and-loser mentality.”

That is why the company is forging ahead with an “umbrella” model wherein Discovery Senior Living oversees different independent operating companies with regional footprints, and then leverages their strengths across the company.

While one could interpret that as buying into other companies to gain sophistication, Hutchinson believes it is different in one key way: There is no “addition by subtraction.”

“[There] will be a fair amount of skepticism given the track record of scaled operators in this industry, hence the need to do it in a different way than those of the past — one that emulates many of the best practices of other related industries, including investor/owner relations,” Hutchinson told me in March.

It is a model also followed by Aimbridge Hospitality, which Discovery backer Lee Equity invested in in 2013 and grew into the nation’s largest independent hotel management firm.

The bottom line for the rest of the industry is that longtime industry leaders such as Clark and Hutchinson see the need to scale differently, and are moving forward accordingly.

People, not properties

As he looks ahead, Clark believes that the quality of workers will mean the difference between operators that can effectively attract the boomers and those that struggle in the coming years.

Instead of seeking sophistication through scale, he believes that the industry would be much better served by seeking it through training and hiring workers from outside senior living. Both are easier said than done and require sizable investments.

On the hiring side, Clark believes that the hospitality sector represents a still-untapped hiring opportunity for the industry. In fact, he believes that many of the leaders already circulating in the senior living industry’s job market today are not well-suited for the job.

He mentioned a recent conversation he had with a leader at another large senior living company, where he learned general managers there earned an annual salary of about $110,000 to $120,000 — a rate that he sees as far too low to attract outside talented leaders who can drive results. Furthermore, the operator did not train them to the degree it should have, Clark said.

He also shared a story of a leader Aegis hired from another company, who said his previous employer offered almost no training and essentially “threw him the keys and said call me if you have a problem,” Clark said.

“I think that’s more common than not,” Clark added.

Clark is also wary that operators will rush into hiring whoever they can, given an ongoing hiring shortage; and then pay them according to their experience, “not their excellence.”

Many companies pay top-dollar for sites and communities that they believe will resonate with potential customers down the road, but they won’t invest the same amount of time and money into new employees. And that amounts to “broken thinking,” Clark said.

In particular, he worries about ownership companies with poor incentives for management companies, which does not capitalize or incentivize operators to make the investments in people that are really needed to drive value.

“What is the value proposition for people who have great management companies? It’s not a 6% management fee, it’s not 1% of the upside,” Clark said.

By contrast, Clark said Aegis will pay a salary of between $170,000 and $220,000 for a person leading an 80-unit community, with hefty bonuses of $100,000 or more for top managers. The company also trains leaders for 100 days on topics ranging from P&L sheets to how to improve margins.

“I can have a guy go into a building that’s 40 years old, doesn’t look great, is in a so-so neighborhood — and he can beat the socks off a person in a brand-new community,” Clark said. “Why is that? Because they are a great general manager.”

At the end of the day, senior living is a people-oriented business, and I agree with Clark’s point that operators with quality workers and leaders will drive the most value in the industry’s upcoming next chapter.