Senior Living Industry Has ‘Huge’ Opportunity for Middle-Market Growth, Exploration

The middle-market senior living opportunity is “huge” thanks to demographic shifts, new payment sources becoming available and a wave of distressed properties.

That was the consensus of panelists from a National Investment Center for Seniors Housing and Care (NIC) webinar hosted Feb. 1.

For one, the pool of middle-income older adults is growing. By 2033, 15.9 million seniors will be considered middle market consumers. Of those, nearly three-quarters will not be able to afford assisted living services as they are priced today – $65,000 annually, out of pocket, on average – while also not qualifying for Medicaid.

The incoming generation, the baby boomers, have fewer savings and are less likely to be married than older adults currently living in senior living communities. They also have fewer children than the generation that came before them, and their children live farther away.

While that is dire news for the boomers, it is a big opportunity for senior living operators to create a more equitable kind of senior housing, according to Ryan Brooks, senior principal of healthcare strategy at NIC.

“As that price point goes up, we know the market size shrinks, and as the price point goes down, the potential market size expand,” Brooks said.

A current struggle comes to defining what the middle market itself is, which Nexus Insights Founder and former NIC CEO Bob Kramer said is an incredibly diverse cohort, often ranging from 60% to 150% of area median income for the lower-middle and upper-middle market, respectively.

“I would say this is not a one-size-fits-all. We have to look at the specific income level, overall risk resources, financial resources, and the healthcare and long term care needs of which part of this middle market we are seeking to serve,” Kramer said. “But the opportunity as well as the need here is huge.”

A recent report from the Milken Institute, sponsored by NIC and CVS Health, detailed several strategies for hitting the middle-market, including repurposing distressed properties, using revolving loan funds for renovations or affordable projects, pay-for-performance models that attract investors and regional pilots to test out partnerships with operators and payers in value-based care arrangements.

Presbyterian Homes and Services Senior Vice President Jon Fletcher said during the webinar that the organization’s new projects are targeting the middle- and upper-middle income cohorts, but in order to do so, a higher level of cash flow and a “significant amount of equity” is required.

Once a community is developed, the organization focuses on tight staffing ratios and efficiencies for the first five to 10 years it is in operation to bring the asking rent down over time.

“If you can keep your rents and expenses tied to [the consumer price index], then you actually can gain on market rate housing over a period of five to 15 years,” Fletcher said. “That’s how naturally occurring middle-market housing can occur over time.”

Fletcher added Presbyterian Homes works with other nonprofits across the country to implement these kinds of developments, but “it’s not easy.”

Another struggle with the middle market is that it is still emerging, according to Innovation Living Founder and CEO Pilar Carvajal, though she sees that changing. At the moment, Innovation is using bridge-to-HUD financing for developing and financing.

The coming years are ripe for potential for acquiring and repositioning assets through loan maturities and financially “underperforming or underwater” properties in high-income primary metro markets, according to Kramer.

Winter Park, Florida-based Innovation’s operational model involves repositioning potentially struggling properties into communities that are suitable for Medicaid waiver reimbursement and middle-market price points.

“We’re taking vintage properties, renovating them with … new paint, new signage, new roof, new flooring; offering semi-private and private options; and allowing for spend-downs into Medicaid if they need it,” Carvajal told Senior Housing News earlier this month.

In addition, scaling can be difficult for middle market focused operators as well and a public-private partnership will become essential for a larger replication of this model of housing, according to Bellwether Enterprise Vice President Lundat Kassar.

“New construction middle market buildings are very hard to pencil and work, charging those rents,” Kassar said. “There are some initiatives [such as] middle income housing tax credits, other subsidies, maybe tax abatement that could come into play. But I do think there needs to be on a larger scale some sort of public private partnership to solve this issue.”

Still, at the end of the day, all of these factors amount to a “lifetime opportunity” for middle-market senior living,” according to Kramer.

“We have a historic opportunity with hundreds of seniors housing properties that will never be as competitive as the traditional private pay market, but could be repositioned at a lower cost basis to serve this cohort,” he said.