Market Studies Are ‘Just One Piece of the Puzzle’ for Developers

Investing in a quality market study is an important step for a developer to take before breaking ground on a new seniors housing community, but the analysis alone cannot predict the success of a future property. 

“The report gives you a point-in-time idea of where you’re at, but it doesn’t take into consideration what’s really happening within the marketplace, on the ground, in competing communities each and every day,” said Joe Jasmon, CEO and managing partner of American Healthcare Management Group, a consultant to the seniors housing and healthcare industries. 

According to Jasmon, in order to get a true feel of the properties you are competing against, it’s imperative to have boots on the ground. 

“Everybody looks good on the Internet and everybody will tell a good story on the phone,” he said. “But if you don’t actually go into these communities, you’re missing out on a whole story about the marketplace.”

Jasmon’s comments came during the “Getting Good Data” panel discussion at the fifth annual InterFace Seniors Housing Southeast conference held Wednesday, Aug. 29 at the Westin Buckhead in Atlanta. The one-day event drew nearly 520 developers, lenders, investors and operators in the senior living space. 

Joining Jasmon on the panel were Bryon Cohron, senior market analyst at ProMatura Group; Colleen Blumenthal, managing director of HealthTrust; Dominic Romeo, vice president and treasurer of PruittHealth; and Chris Sides, president of Senior Solutions Management Group. Will Childs, partner and executive vice president of seniors housing at OHC Advisors, moderated the panel. 

By definition, a market study analyzes consumer demand for a particular product or service in regard to influences such as location, demographics and competition.  Depending on the scope and complexity of the project, market reports can range in price anywhere from $3,000 to upwards of $20,000, according to industry sources.

Digging Into the Data

While market studies alone cannot ensure success, a quality report yields a multitude of data points that can give developers a preliminary idea of whether a market is a good fit for a project. For example, if the area is growing or expanding, it’s most likely a smart time to develop. 

According to Jasmon, American Healthcare Management Group gathers data on the number of schools being built in an area to help identify future growth opportunities for seniors housing. 

“If they are building new schools, population is growing,” said Jasmon. “A [community] is not going to invest money in a bunch of new schools if it doesn’t see movement.” 

A growing population typically means more employers and families are moving into the area, which makes the long-term demographics favorable for seniors housing. What’s more, operators find that many seniors want to live near their adult children, but live independently. 

Another factor is the number of single-family neighborhoods going into a market. While that has its caveats, it’s more or less a strong indicator of the viability of the marketplace. 

“Granted, the market for single-family homes could be overbuilt, but it can give you some projection of whether or not the growth of the market is sustainable,” said Jasmon. 

Zip codes are telling

Still another important factor to consider in a market study is the drive time to a particular property. When prospective residents are considering making the move to a seniors housing community, how far are they willing to travel? 

If a client is considering the acquisition of a property, Cohron said one of the first data sets ProMatura Group requests is resident zip code data so it can quantify where existing residents are coming from. The company draws two circles —comparing those residents within a five- and 10-mile radius.

“If we don’t feel relatively comfortable that we can be successful within that five- or 10-mile radius, that is usually a good indicator that maybe this isn’t the market for us,” said Cohron. 

While that radius is a solid benchmark in most communities, if a market is deemed a “destination location,” Jasmon added that residents are more likely to travel greater distances. 

“If you look at Ormond Beach, Daytona Beach and the Port Orange areas of Florida, those are significant destination areas for many folks from New Jersey and New York because that is where they have wintered for most of their lives,” he said. “If it’s determined a destination location, then there is a higher propensity for folks to travel from wherever.”

However, Cohron emphasized that it is not enough to rely solely on the market study, citing one of ProMatura’s communities in Knoxville, Tennessee. 

“We ran the data on residents who moved to the community from within a five- and 10-mile radius, and the demographics were very good,” he said. “However, half of the census in that building came from greater than 25 miles away, and the market study never indicated that.” 

It all goes back to having boots on the ground, according to Romeo of PruittHealth. For example, is there a bridge that is going to make it an extra 20-minute drive to the property? 

“Until you drive the area you’re going to be in, until you are there at 5 p.m. on a Tuesday, you don’t know what will inhibit a family from visiting a certain property,” he said. “You really have to be careful.”

Overcoming Challenges

One theme that emerged during the conference was labor availability and the cost to staff seniors housing communities. While it’s important to examine drive times for residents in a market report, Sides of Senior Solutions Management Group argued that it was equally important, if not more so, to consider the travel distance for employees. 

“We have two very complicated formulas,” he said. “Can we fill it, can we staff it?”

In metro Atlanta, Sides said that while most residents fit within that 10-mile radius, the majority of his employees are coming from 25 miles away or even farther. 

“It’s an important factor to consider,” he said. “On days we have an inclement event, it can be very devastating trying to get people to work.” 

Blumenthal of HealthTrust added that the everyday commute by employees to a property could potentially become a competitive challenge for an operator. 

“Some employees are driving 45 minutes to an hour each way to a property, which is great until a new one opens up that’s closer to home,” she said. “Even though they love the building and they love the staff, it can be very tempting.”

Operators also point out labor costs are becoming increasingly high in order to attract good workers.

Wage pressures with regard to cook positions have increased noticeably in the last eight months, according to Sides. “Right now we’re averaging $14 to $16 an hour for a cook. Anything below that we find they are typically not a very good worker.”

While market studies can provide developers with a general idea of labor availability and costs in the market, they are not the be-all and end-all. According to Romeo, it really just depends on the market. 

“We had a community in Durham, North Carolina, where we didn’t think we’d have any problem,” recalled Romeo. “But the wage costs there are far above what we thought we’d have to pay, and that has made it very challenging for us.” 

Labor availability is such an important issue that developers agreed it could sway a decision about where to build a seniors housing community. 

“I’m hearing instances of developers not moving forward with projects, or management companies not taking on projects because they can’t find the executive directors or the department heads to run them,” said Blumenthal. 

— Camren Skelton