Economic Pressures, Technology Complicate Industry Outlook, Says Power Panel of Experts

by Jeff Shaw

CHICAGO — Headwinds and tailwinds are driving the senior living business in a new direction. Owners and operators are bullish on the long-term prospects for the industry, but they still grapple with the aftereffects of a punishing pandemic and the struggle to regain healthy operating margins.

Demand is strong and expected to only improve as baby boomers age. However, expenses, including wages, continue to rise. Rents are higher, but so are interest rates, compressing valuations. On the plus side, innovative technology and new revenue streams could help boost profit margins. 

So, what direction is the senior living market headed?

“The industry is being forced to evolve moving forward,” said Justin Dickinson, co-founder and partner at Chicago-based Evolve Senior Living. “We need to figure out how to evolve the operating model to maintain solvency.”

Dickinson joined a panel of industry leaders to discuss the crosswinds impacting the business at the seventh annual InterFace Seniors Housing Midwest, a conference sponsored by France Media’s InterFace Conference Group and Seniors Housing Business. Nearly 170 attended the event, which was held in Chicago on Wednesday, Sept. 27. 

Brian Cloch, principal and co-founder of Innovative Health, moderated the panel.

Property values are a big concern. Disruption in the capital markets and inflation have depressed property values, according to Dickinson. 

“That puts even more pressure on operations,” he said. The “valuations crunch” will cause some communities, especially older ones, to become financially obsolete. The winners will be newer communities, those built after 2009. Strong demand coupled with the scarcity of new construction will result in an undersupply of product by 2028, Dickinson predicted. 

Technology is both a tailwind and a headwind, according to Sevy Petras, CEO and co-founder at Priority Life Care, Fort Wayne, Indiana. Innovative technologies will boost efficiency, improve resident care and could help reduce the cost of labor. 

But she doesn’t want the kind of technology that adds to the workload. Instead, she prefers “passive” technology — user-friendly platforms that do not require workers to spend more time collecting and entering data.

The panelists agreed that expenses are still a headwind. Rising rates for property insurance, utilities and wages hurt the bottom line. 

“We can’t cut our way back to previous margins,” said Guy Geller, president and COO at Grace Management and CPF Living, Maple Grove, Minnesota. “We have to get smarter.” He added that it could take several years of hard work to stabilize expenses, deal with the labor piece, and find other revenue sources. 

Rent increases slow

The double-digit rent hikes of the last 18 months are over. Higher priced properties may still be able to push rates higher, but affordability is becoming a concern. “There is fatigue among our consumers,” said Geller. 

Another wrinkle: Investors are urging rent reductions at properties with low occupancies. “That pushes down revenue and margins,” said Dickinson.

A potential solution is added revenue streams. 

Operators are leaving money on the table, according to Keven Bennema, CEO & co-founder of Charter Senior Living, Naperville, Illinois. In many cases, residents are not being charged properly for the care they are receiving. 

“We need to assess residents carefully,” he said. “People are in our buildings for care, and it is a reasonable charge.”

Geller noted that rent makes up two-thirds of the charges while care only accounts for one-third of the charges. “Maybe the rent should be less expensive and the care more expensive,” he suggested.

Government reimbursements represent another possible revenue stream. Though there are concerns about new federal regulations, the panelists felt strongly that senior living providers should be compensated for the value they add to keep frail people out of more expensive care settings. 

Some services such as meals, certain activities and healthcare are reimbursed in other settings. “Why shouldn’t we get those dollars?” asked Petras. 

The growing popularity of Medicare Advantage insurance plans presents an opportunity. Medicare Advantage is built on a value-based system in which the plans receive a per-member, per-month payment for each beneficiary’s care. Senior living operators could share in the savings generated by helping to manage the health of the resident population. 

The panelists agreed that it can be difficult to find healthcare partners and get a workable plan up and running. But, Petras said, “it can impact margins.”

Dickinson noted that operators must be able to quantify the savings they produce. “It comes down to data,” he said. 

An ongoing challenge is the effort to educate lawmakers about senior living. “They don’t understand our business,” said Geller. “We need more effective lobbying to get the message out.”

— Jane Adler

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