Market and regulatory forces alike are having a profound impact on the business model for continuing care retirement communities.
By Jane Adler
Macro trends have a huge impact on the seniors housing and care industry. The economy, demographic shifts and the housing market are some of the factors that play a big role in the health of the sector.
What’s interesting is that big trends don’t necessarily affect for-profit and nonprofit providers in exactly the same way because of their underlying, and different, business models.
With that in mind, here are five trends driving the future of nonprofit providers.
1. Occupancies are strong
The recovery of the single-family housing market has had a positive impact on occupancies at nonprofit continuing care retirement communities (CCRCs), or what are also called life plan communities (LPCs).
Older homeowners are more likely to move nowadays than a few years ago coming out of the Great Recession because they’re able to sell their homes at decent prices. After falling 33 percent during the Great Recession, home prices in most markets have returned to peak levels, growing 51 percent nationally since bottoming out in March 2011, according to
CoreLogic, a property analytics firm based in Irvine, California.
Homeowners typically use the proceeds of the sale of a primary residence to pay the large entrance fee commonly charged at CCRCs/LPCs. About 80 percent of CCRCs/LPCs are sponsored by nonprofit organizations, according to Chicago-based Ziegler Investment Banking, which tracks the nonprofit sector.
Occupancies have been rising at CCRCs/LPCs, and especially at nonprofit communities. In fact, nonprofit CCRCs/LPCs have led for-profit communities in occupancy by a gap of about 5 percentage points for 10 quarters, according to the National Investment Center for Seniors Housing & Care (NIC) based in Annapolis, Maryland.
More specifically, the average occupancy rate at nonprofit CCRCs/LPCs in the top 99 markets in the first quarter of 2018 was 92.2 percent compared with 87.7 percent at for-profit communities.
In contrast, occupancies have been falling at assisted and independent living properties, primarily due to a wave of new construction by for-profit owners. The occupancy rate in the first quarter of 2018 for assisted and independent living properties in the 31 primary markets averaged 88.3 percent in the first quarter of 2018, down 50 basis points from the prior quarter and down 90 basis points from year-earlier levels, according to NIC. Assisted living occupancies in the first quarter of 2018 stood at 85.7 percent, down 1.3 percentage points from a year earlier.
Coupled with the housing rebound, scant new construction is helping to bolster occupancies at CCRCs/LPCs. Also, the new construction is concentrated in several markets, most notably Philadelphia, Kansas City, Los Angeles, Dallas and New York, says NIC.
Most of the new nonprofit construction consists of add-ons to existing campuses, repositionings, or a change in the unit mix, says Steve Maag, director of residential communities at LeadingAge, the industry association that represents nonprofit communities and service providers. “Our members are sprucing up their existing campuses,” says Maag, whose office is in Washington, D.C.
2. Existing providers are building lion’s share of new projects
Very few new nonprofit organizations are entering the CCRC/LPC market. Existing providers seeking to expand their portfolios are the ones sponsoring most of the new communities that are getting built.
“New construction is an expensive and time-consuming process,” says Maag at LeadingAge. He adds that managing a senior living organization has become highly competitive and complex, which discourages new entrants.
Since 2000, 92 percent of new CCRCs/LPCs have come from existing providers, according to Ziegler. One exception is the $265 million Sinai Residences in Boca Raton, Florida. Sponsored by the Jewish Federation of South Palm Beach County, the property opened in 2016 with 234 independent living apartments, 48 assisted living units, 60 skilled nursing suites and 24 private memory care units. (Separately, the Federation also owns affordable apartments for seniors.)
More typically, existing providers are the ones undergoing expansion.
Mather LifeWays is building a new, high-profile project in the upscale area of Tysons Corner in Northern Virginia. Evanston, Illinois-based Mather LifeWays owns and operates communities in Evanston and Wilmette, Illinois, and in Tucson, Arizona.
“Mather LifeWays is a little unique among nonprofits in that we pursue life plan communities beyond our primary market,” says Mary Leary, CEO and president at Mather LifeWays.
The organization has wanted to pursue a project in the Washington, D.C., area for quite some time because of the depth of the market, says Leary. The Tysons Corner area has a large number of age- and income-qualified households, and residents have a good understanding of the life care product, explains Leary.
She adds that no new communities have opened in the area in the last 10 years, and that other life plan communities in the area have waiting lists.
Solid financial returns from its existing communities — combined with the new project in Virginia — will continue to enable Mather LifeWays to expand its outreach program to seniors and fund research at the Mather LifeWays Institute on Aging, notes Leary.
At Tysons Corner, Mather LifeWays has land under contract that is currently occupied by a vacant office building. The location is close to a metro station and a number of retail shops and restaurants.
Municipal approvals are still underway, but the marketing campaign began in June. The project is scheduled to open in 2022.
The community is currently billed as “The Mather,” and will consist of 300 apartment homes in two high-rise towers that rise 28 and 17 stories. Two floors will span both towers at the base. This area will include 20 assisted living apartments, 16 memory care units and 42 skilled nursing units.
The project will include ground-level retail space, and a park with a number of amenities open to the public.
Unit prices are not available yet, but entrance fees will be 90 percent refundable. The community will offer a variety of healthcare and service packages.
3. Expect system affiliations
Competition and the complexity of the senior living business are making it harder for single-site providers to remain viable (see sidebar).
The big wake-up call was the affiliation in 2016 between the be.group and ABHOW. (Mergers in the nonprofit world are called affiliations.)
The new entity was named HumanGood, which is based in Glendale, California, and has 18 life plan communities, 63 affordable communities for seniors, 4,000 employees and 10,000 residents in five states.
“The reasons we came together two years ago are more intense today,” says John Cochrane, president and CEO at HumanGood. He cites the fact that nonprofit providers face a lot of competition from the growing number of communities owned and operated by for-profit companies.
“Nonprofits have lost their competitive edge,” says Cochrane. He adds that HumanGood is looking to grow its footprint by affiliating with other healthy nonprofit organizations. “Consolidation will help us regain that advantage,” he says.
In May, West Des Moines, Iowa-based Lifespace Communities and Addison, Texas-based Senior Quality Lifestyles Corp. signed a nonbinding letter of intent to explore the possibility of affiliating. A merged company would be the fifth largest not-for-profit senior living organization in the country.
Acts Retirement-Life Communities has completed seven affiliations over the last 15 years. The West Point, Pennsylvania-based nonprofit owns and operates 23 CCRCs in nine states, serving 9,700 residents.
Recent affiliations demonstrate the Acts strategy, which focuses on finding a partner that fits with its culture, mission and values. “Without that, there is no deal,” says Jeff Kaighn, executive vice president and chief administrative officer at Acts.
In May 2017, Acts affiliated with Westminster Village, Spanish Fort, Alabama. The community features 250 independent living apartments, 30 assisted living units and 60 skilled nursing units.
Acts seeks affiliates close to its other properties. Westminster Village is located about an hour from an Acts community in Pensacola, Florida.
In February 2018, Acts affiliated with The Evergreens in Moorestown, New Jersey. It has 200 independent living units, 66 assisted living units and 34 skilled nursing beds.
The property is located close to Acts’ communities in Delaware and Pennsylvania.
Both affiliations were with faith-based organizations, which was an important criterion, says Kaighn. As members of the Acts family, the communities are gaining economies of scale. “We can provide significant management expertise, enhanced access to capital and support to enhance their operations and marketing efforts,” says Kaighn.
4. Nonprofits are decreasing their skilled nursing units
Skilled nursing units are declining in number overall and nonprofits are part of the trend. The changes underway in the healthcare delivery and payments system are having a big impact on skilled nursing providers. Nonprofits are re-evaluating the optimal number of skilled units for their communities, and, in some cases, whether they should be in the skilled nursing business at all.
“Nonprofits are moving away from offering on-site skilled care,” says Leary at Mather LifeWays. She still believes in providing skilled care in high-end life plan communities, but she expects new care options to surface over time.
HumanGood is evaluating the skilled nursing component across its portfolio. “There is no standard ratio of independent living units to skilled nursing units,” says CEO Cochrane. “It’s a market-by-market phenomenon.”
He adds that more changes have occurred in the skilled nursing arena in the last two years than in the previous 20 years.
Hospital systems want skilled nursing providers that can control readmissions and get patients back home as quickly and inexpensively as possible, says Cochrane.
Creative arrangements are emerging. In March, Front Porch, a nonprofit provider, closed its skilled nursing unit at Vista del Monte, a community in Santa Barbara, California. The unit is being converted into 19 new memory care units slated to open in the summer of 2019.
Front Porch is partnering with HumanGood, which will offer skilled nursing at its nearby Valle Verde community to residents of Vista del Monte. “We are consolidating usage,” says Cochrane. “You will see more of that.”
With three retirement communities in Pennsylvania, Redstone Presbyterian SeniorCare has taken a different approach. Though the system does not want to increase its number of skilled nursing beds, Redstone is using a nimble strategy to keep the current complement of 77 beds fully occupied. “We had 566 admissions last year,” says John R. Dickson IV, president and CEO at Redstone based in Greensburg, Pennsylvania.
In an effort to reduce length of stay and improve quality, the organization created a navigation department to interface with referral sources and payors. Redstone became a preferred provider for Highmark Health, the region’s big hospital system.
Redstone is also a recognized specialist in stroke, cardio care and hip replacement therapy. “We manage those conditions,” says Dickson. “The nursing home business is no longer for generalists, but for specialists.”
5. Rentals on the rise
Many rental retirement communities are operated by for-profit owners, while nonprofit entities have traditionally focused on entrance fee communities. But a growing number of nonprofit communities are offering rental contracts.
Also, nonprofit executives see rental communities as a possible solution to the issue of affordability. Middle-income seniors may be able to afford monthly rent, but may not have enough money for a big entrance fee.
For now, the rental option is typically used as a way for potential residents to try out a community before paying an entrance fee for a permanent place. In other cases, it’s a way to boost occupancy.
What’s more, baby boomers may prefer the flexibility offered by rentals, says Dickson. Redstone tested the rental option at its entry-fee community in North Huntingdon, Pennsylvania. Ten units set aside for rent filled quickly. Another five units offered for rent also filled quickly. Monthly rents range from about $1,500 to $3,500.
Redstone’s Murrysville campus also introduced a rental option. Residents sign a year lease and receive transportation and housekeeping. Meals are purchased separately.
The program has been so successful that Redstone may offer a straight rental option for assisted living. Residents coming into assisted living from outside the community currently pay a $5,000 entrance fee, which would be eliminated.
“We have no intention to fully shift to all rental units,” says Dickson. Offering rental units alongside entry-fee units is a balancing act, he explains. Rentals help boost occupancies and provide a regular cash flow stream.
But too many rentals could negatively impact the long-term viability of the community that provides life care for entry-fee residents, emphasizes Dickson. “We have to be careful.”