Grace Management President: Cost Will Drive More Prospects to Active Adult

In the coming years, the cost of traditional senior living services could push prospects to choose active adult communities — and with a project underway in Conroe, Texas, Grace Management is ramping up its operations in the product type.

Though the company’s plans in the space are still evolving, the Maple Grove, Minnesota-based property management company sees strong potential for future growth in the active adult sector, according to President Guy Geller, who also serves as President of Grace Management’s parent company CPF Living Communities.

The company’s newest project in Conroe, Texas, known as The Lakes at Woodhaven Village, is an expansion of the greater senior living campus Woodhaven Village. As planned, the expansion will add 115 cottage-style active adult units on 130,000 square-feet situated on a five-acre plot. 

“We feel like the complement of cottages, active adult cottages, independent living, assisted living and memory care gives a very full continuum,” Geller said during the latest episode of the SHN Transform podcast. “This point gives us an entry point for any senior in the marketplace to come into active adult or to come into the cottages or to come into independent living or assisted living or memory care, or frankly, move through the continuum.”

Geller’s enthusiasm for active adult stems from a belief that, if given the choice,, many senior living prospects would pick active adult over more traditional independent living, with cost as a big reason why. And he expects this to be a sizable and growing number of older adults in the coming years as tight economic conditions persist.

“We want to be poised to capture that market as it develops and grows over the next several years,” Geller said.

Now at 90% occupancy across the Grace Management portfolio, Geller said the organization is currently looking to drive revenue per occupied room (RevPOR) higher in 2024. The company plans to achieve that through a variety of means,from capturing more ancillary and care revenue to more accurately tracking resident services while fine-tuning rental and care.

Highlights from Geller’s podcast appearance are included below edited for length and clarity. You can listen to Transform on Soundcloud and Apple Podcasts.

On Grace Management’s push into the active adult sector:

CPF Living, which owns Grace Management, has been actively exploring acquiring active adult for several years now, through normal means of auction as well as through other opportunities. But we couldn’t find anything that sort of resonated with us from an opportunity basis, and sort of made sense from a geographic perspective as well.

What spurred us to go forward with this project was one, we had done quite a bit of research into the space and had a very good idea of what we liked and what we didn’t like. But most importantly, we had an opportunity on campus to expand, utilizing the same team and back office functionality that we have on the existing campus into the active adult with a developer that, frankly, we trusted and that worked with in the past. So it was a unique opportunity for us in Conroe, Texas to take our first step forward into adult.

We hope it is not just one and done. We want to use this as an opportunity to refine the product as we know it, refine our operating platform as we can do it and to be successful with it to the point where we feel comfortable moving forward with several more either via acquisition or further developments.

We’ve been working on trying to get into this space for several years now, and are excited that this project will be opening up and will be the first we hope to [have] many more in the space.

Why active adult is an attractive area of investment:

This project [in Conroe] is unique in that it got initiated several years ago. We were able to lock up the construction financing with the developer, before the credit markets really started to get in trouble. Therefore, we’ve kind of felt like this development got pushed in just under the wire at the right time. I would tell you in today’s world, we probably would find it very difficult to start a new project in active adult, largely just because of the capital markets that support the development process.

But nonetheless, we feel going into this economic environment where you have a much lower exposure to labor costs and other other expenses, frankly, that you see on the independent living and in the traditional senior housing products, as well as having a large amenity package and very good unit sizes.

We do feel that as the economy starts to tighten, those folks that could have potentially gone independent living … will begin to choose the active adult path more so than the IL path. And so we want to be poised to capture that market as it develops and grows over the next several years.

On expanding active adult to other markets:

I do see [the Lakes at Woodhaven VIllage] being applicable in other markets, but I can’t specifically say where we would want to do this within our existing portfolio. To be clear, the cottages that we’ve got on campus really fit into that independent living category. However, they really are in between active adult and IL.

We’ve expanded additional cottages at other locations in the past, but we do feel where their land is applicable — where we’ve got the opportunity to grow — adding active adult makes a lot of sense … [for prospects] to understand senior housing, and to really make that first move from downsizing outside of the family home into a more horizontal living. We do believe this is going to be an ongoing trend in the business and would love to find more opportunities to expand and the way that we’re doing here. That being said, we’re probably not going to relegate ourselves to only doing active adult on existing campuses, we will look at it and at standalone opportunities as well.

On Grace Management’s 2023 performance so far:

I think this year, we’ve seen the stabilization of the operating platform across the board in all categories and those geographies as well.

While we took an occupancy hit during the pandemic years, like most I’d say, we took our lessons ahead, I think we went down by 5% to 7%. Overall, it started as kind of 91% [before the pandemic], and we’re in the mid-80s at the worst. Our occupancy grew back pretty fast in 2022.

But we’ve seen 2023 as being an opportunity to stabilize the inflationary factors, stabilize staffing, and to really try to get back to driving margin again, which was something that wasn’t the biggest concern of ours in 2020 and 2021, and 2022. So we see positive tailwinds behind us.

We know from a macro perspective, that development is much slower now. So we’re not seeing new competitors entering into our market spaces as often as we normally would in prior years, which is certainly helping with the absorption factor. And we are seeing a settling of the labor market which was probably the main contributor to the volatility of 2022. As a result, we’re seeing margins improve and we are back to our pre-pandemic margin levels. Pricing has spurred innovation to some extent. So we have to get very creative about how we operate, how we operate efficiently and how we know our business. And as a result, I think we’re better positioned in 2024 to maximize our potential than we were even in 2019. We’re excited about the future.

On the sustainability of senior living demand:

I think we actually needed a pause on development to absorb what’s been developed over the seven years or so.

The demographics are still very much heading in our right direction. There’s not going to nothing is going to stop those demographics from requiring a solution. Whether or not that solution is independent of living, active adult, staying at home with home health or something –there do need to be solutions for the aging population in the United States as well as the world.

We are at over 90% occupancy for our entire portfolio. As a result, we don’t have that much occupancy to grow in order to recapture margin. Our ability to recap for margin is going to come through maximizing ancillary revenues and being able to capture our rates on the rental side and care side. So, it’s all about our RevPOR at Grace. That being said, having strong occupancy in those cases allows us to have a greater RevPOR growth than our competitors that are still fighting and clawing to get up to stabilized occupancy rates. It’s a little bit of a catch 22 for us but we feel like we’re in a very good position to maximize our RevPOR going forward and really get those margins stable and even exceeding 2019 levels.

On opportunities and challenges ahead in 2024:

I think there are some other folks out there that do have capital market issues, debt maturities and things that are forcing them to make operational decisions that they may not want to do otherwise — we are not in that position. We are really focused keenly on our own business and operating to the best that we can.

We feel pretty good place with respect to wage rate inflation, we certainly feel stable on the care side with respect to wages and we don’t typically run any agency labor, less than 1%. We’re seeing some impact on wage rates at the end of the recruitment cycle for dining and housekeeping. That being said, it’s not anything that we didn’t expect coming in and we were able to budget for it and achieve our goals regardless of it. So we’re actually feeling pretty good about some inflationary factors on the labor and supply side. We’re still seeing some volatility that is impacting us on the operating side and that’s utilities and property insurance.

I think a lot of our opportunity comes with really getting smart about our business, and using technology to make our practices far more efficient. What I mean by that is what I mean by that is continuing to refine our labor pool, making sure that we’re running effective shifts, that we’re maximizing the time that we spend on the floor, that we understand where the time has been lost, where it’s being spent.

Therefore we’ve been investing into a lot of technological platforms that are helping us with data, and helping us with on site community operations. So, it’s care tracking and tracking of the caregivers time and where they’re spent and what they’re doing, allowing us to then update care plans and go back and seek additional care revenue from our clients for the services that we can prove are being provided and are needed. We believe by the end of 2024, we will be in a different position technologically and information-wise. Managing our business will become easier for us and more efficient for the community and the profitability of each community that we operate.

It’s all about talent, frankly, all of our challenges are all about being appealing to the next generation of talent, being able to offer them opportunity for development and growth, and being and really allowing that next generation to innovate the product. We believe it is critical that we continue to invest in talent, continue to build it up, and really create a future growth for the space with the people inside of it. Additional challenges are related to the economy, so we are concerned and thinking about it.

At the end of the day, those are things that are slightly out of our control and we’re focusing on areas that are in our control. Other than that, we still feel very confident that the future of senior housing is very bright. It’s got a lot of tailwinds today and we don’t see those headwinds going away anytime in the near future.

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