By Matt Valley
Seniors housing operators need to take a page from the playbook of the airline and hotel industries and implement revenue management systems to adjust rates weekly based on supply and demand, says Kai Hsiao, president and CEO of Holiday Retirement. The Lake Oswego, Ore.-based company is the largest operator of independent living properties in the country with over 300 properties and more than 35,000 apartment units in 43 states.
“This is the only industry I’ve been in where [operators treat] rate increases and revenue management like, ‘Hey, look, every year in January we will do five percent increases across the board for every unit.’ To me, that’s just crazy because no units are the same, no communities are the same, and supply and demand [dynamics] are different in every single market. How do we not use revenue management?”
The provocative comments from Hsiao came during his keynote address last Thursday morning, Nov. 19, during Interface Seniors Housing Texas at the InterContinental Dallas hotel in Addison. Approximately 250 industry professionals — including developers, operators, lenders, brokers, investors and others — were in attendance for the one-day program.
Hsiao says that even the multifamily industry has caught on to the importance of revenue management, and now it’s time for seniors housing to follow suit. “It will make us a smarter industry, it will make us a better industry. And guess what? It will take us away from the let’s-make-a deal mentality that’s out there today,” said Hsiao, referring to the high frequency of price discounting that occurs at senior housing communities today.
Holiday Retirement was the first company in the seniors housing space to implement a revenue management system, according to Hsiao. The company took 10 years of data collected for every one of its more than 35,000 units and put it into an “algorithm black box,” according to Hsiao.
“Now every single week we spit out a new rate for every single available unit. That rate changes on supply and demand. It’s based on competitive information. It’s based on lead volume. It’s based on a lot of different things, but it comes up with a rate that is actually a little more scientific than someone just saying it’s a five percent increase across the board,” explains Hsiao.
Prior to joining Holiday in 2008, Hsiao worked on development projects for destination spa resort Canyon Ranch in Tucson, Ariz. Previous to Canyon Ranch, he worked for Macerich (NYSE: MAC), a publicly traded retail REIT based in Santa Monica, Calif.,, where he focused on redevelopment projects. A graduate of the University of Arizona, Hsiao began his career in the advertising business.
Five Rants to Remember
Hsiao began his keynote address by using a series of PowerPoint slides to highlight five overarching observations or concerns he has about the seniors housing industry, or what he affectionately calls “rants.”
Rant No. 1: Prebubescent Analysts — Holiday Retirement’s business model is 100 percent private pay in the independent living sector. “If I get one more analyst asking me how many payor sources we have, I’m just going to go crazy on them,” he joked, referring to young analysts just out of college who are unfamiliar with the industry. “I had an analyst ask me the other day what our revenue per square foot is. I said, ‘I did that in retail. I’m not quite sure that’s applicable in seniors housing because there are occupancy swings.’ For the analysts out there, do me a favor and do a little diligence before you start asking me some questions.”
Rant No. 2: Let’s Make A Deal — Price discounting has become all too common among operators, Hsiao believes. “The let’s-make-a-deal mentality is rampant out there right now.” When mystery shopping a seniors housing community, Hsiao recalls being offered a 50 percent rent reduction for the first six months. “The let’s-make-a-deal mentality is something I think is the slippery slope of this industry. Once you stick the needle in someone’s arm from a salesperson’s standpoint, it’s hard to pull that needle out. Once they start getting used to discounting, it’s tough for them to stop discounting. This is something that we as an industry should be aware of, and probably be a little more cautious about.”
Rant No. 3: We’re Not Bad People — Raising rents is not a bad practice, insists Hsiao. “Costs go up every year and we need to raise rents to make up for it too. I think there is a notion that because we’re dealing with seniors, every time we raise rents somehow we’re just bad people.” Hsiao believes it’s important to have a conversation with residents as necessary to explain that operating a seniors housing facility is a business. Workers’ wages and food costs can increase with some regularity, he points out.
Rant No. 4: Hey Salespeople, You’re Not That Good — Over the past several years, Holiday has been able to raise its occupancy rate from 75 percent to nearly 93 percent. “My sales team gets credit for no more than half that increase. They hate me when I say that, but I honestly believe that’s the truth,” said Hsiao. In short, demand has outpaced supply in recent years. “If you just turn on your lights, you should gain some occupancy,” he emphasized. Referral companies like A Place for Mom send operators enough leads to help boost occupancy as well.
Rant No. 5: Not All Operators Are Equal — Operators specialize in different aspects of seniors housing. A developer recently approached Hsiao to express his interest in building memory care facilities. Hsiao told the developer, “I’m not quite sure we’re geared up for memory care.” It was clear to Hsiao that the developer didn’t understand the operational differences between independent living and memory care. “As operators ourselves, we need to be cognizant of the fact that we need to pick and choose a little better out there.”