The Rise of the Regionals

by Jeff Shaw

Regional owners and operators are enjoying a goldilocks moment as local hands-on management gains favor in the wake of the pandemic.

By Jane Adler

Regional companies may have found their sweet spot. 

Last October, the real estate investment trust Ventas (NYSE: VTR) announced that it would transition operations of 90 of its owned senior living communities from Eclipse Senior Living to eight regional operators. Chicago-based Ventas said in a statement at the time that the communities had been adversely affected by the COVID-19 pandemic and would be best positioned for recovery by executing on its strategy of “the right asset with the right market and the right operator.” 

The new operators were expected to provide a strong local market focus and oversight, according to the Ventas statement. Eclipse, with a national footprint, has since ceased operations. Some of the new operators include Sinceri Senior Living, based in Vancouver, Washington, and Sodalis Senior Living, headquartered in San Marcos, Texas. 

How’s that working out?

On a May 5 earnings call, Ventas Executive Vice President of Senior Housing Justin Hutchens noted that the portfolio had completed its transition to the new regional operators and was showing early signs of improvement as occupancy and net operating income (NOI) are both starting to grow. 

In a fragmented industry marked by its swings of scaling up and then down, regional senior living operators have reached their goldilocks moment. Successful operators are seen as not too big, not too small, but just the right size and in the right places. 

The industry has long debated the optimum size for senior living operations. While scaling up can be an advantage, the pandemic has led industry stakeholders to favor a regional strategy. Owners and investors worry that the big operators — those with more than 50 communities — were stretched thin by the pandemic and lacked strong onsite management. At the same time, small operators with only a handful of properties could be under-resourced. 

Regional companies with about 30 properties have the upper hand for now. The pandemic proved that nimble regional operators and owner-operators have been able to navigate the ever-changing conditions at the local level. Regional operators have what one source calls, “concentrated scale,” or big-company advantages in a tight geographic area.

Decision-making is streamlined because of the smaller footprint. On-the-ground knowledge of the local market, especially of healthcare services, has proved to be an advantage. Regional operators have also had the resources and capital connections to weather the pandemic, a safeguard not available to small operators. 

Of course, big and small companies alike face many of today’s same headwinds. Quickly rising expenses, labor shortages and low occupancies are just some of the challenges, though even these factors can vary by region. 

The regional advantage

Often content to stick with a proven formula, regional owner-operators know their markets. They don’t want to venture into unfamiliar areas. And they don’t want to be physically far from their assets. Less is more.

Investors and owners vying for the best operators like the fact that in a high-touch business, regional operators have regular contact with their properties. Regional operators aren’t spread thin. They know the staff and customers, and what’s going on in the buildings. 

“Regional operators have a better presence,” says Scott Stewart, managing partner of Washington, D.C.-based Capitol Seniors Housing. The company owns 30 properties in partnership with the Carlyle Group and Bain Capital. Four new communities are under construction and 15 more are in the planning stages. The company currently works with 11 regional operators. “We like operators who know all the details,” says Stewart.

Debt providers often prefer regional operators, too. “Lenders are hyper-focused on working with operators whose assets are in their backyard,” says Jessica Johnson, managing director at Tulsa, Oklahoma-based BOK Financial, speaking recently at an industry conference. “Being regional is important.”

Also, bankers and equity partners like being able to pick up the phone and talk to the CEO, which is easier to do with a regional company versus a big, national company, sources say. 

Regions vary

Senior living has many of the characteristics of a local business. Performance varies widely by the individual property and by market and region. 

For example, properties on the East and West coasts typically outperform properties in other regions for a variety of reasons. In the first quarter of 2022, the East North Central region posted an occupancy rate of 78.3 percent, according to NIC MAP Vision, an industry data service based in Raleigh, North Carolina. The Pacific region had an average occupancy rate of 81.5 percent, compared to 82.3 percent in the Northeast and 79.5 percent in the Southeast. Occupancy numbers include assisted living and independent living, based on NIC MAP’s 31 primary markets. 

Regional differences are also evident in rent growth at a time when expenses are rising due to inflation. The East North Central Region recorded annual rent growth of 2.2 percent in the first quarter of 2022. The Pacific region tallied annual rent growth of 4.1 percent in the same quarter.

“Each market has its own story,” confirms Beth Mace, chief economist at the National Center for Seniors Housing & Care (NIC) based in Annapolis, Maryland. She adds that competition among investors for quality operators has ramped up as more equity has flowed into the sector. She notes, however, that most established regional operators already have capital partners. 

More regional operators are emerging, according to Stewart at Capitol Seniors Housing. He’s on the lookout for solid regional companies to manage new developments. A red flag for Stewart is an operator that’s on an ambitious growth track. “That’s alarming,” he says. “It takes them away from the day-to-day operations.”


So, what’s the optimal size for a regional owner/operator? Somewhere from between 30 to 45 properties, sources say. The company needs to own or operate enough buildings to achieve some of the advantages of scale, such as efficient back-office systems. But the company can’t have so many properties that it loses touch with employees and customers. 

After holding various executive roles at Emeritus Senior Living and at Brookdale Senior Living following the merger of the two heavyweights, Chris Guay launched Vitality Living, headquartered in Brentwood, Tennessee. The company owns and operates 30 communities in the Southeast. 

“I’ve worked for national players,” says Guay, CEO of Vitality. He adds that he doesn’t want to manage 500 buildings anymore, though he points out that Vitality’s 30-property portfolio is not the company’s upper limit of assets. 

Similar to executives at other regional companies, Guay likes the fact that he can get to any one of his communities within a couple of hours either by car or plane. Problems can be addressed quickly. Decision-making doesn’t involve layers of bureaucracy. “We are nimbler,” he says. “We can get things done faster and sooner.”

During the pandemic, Guay was able to obtain personal protective equipment (PPE) and other needed materials. “We never had supply issues,” he says. 

Guay notes that being a regional company is less about size, and more about having the team, platform and systems to help communities be successful.

Other owner-operators agree. 

“We have a rule of thumb,” says Chip Gabriel, executive chairman at Generations, Clackamas, Oregon. “We will not take on new opportunities unless we have the human capital to manage the property without jeopardizing our current operations.” Generations operates 11 communities and owns about half of the properties in its portfolio. Generations manages several properties for Longview Senior Housing, a portfolio company owned by Blackstone, the New York City-based investment giant. 

Evolving from a smaller operation to one with a big institutional partner, Gabriel has learned that some scale is necessary to be effective. Regional companies are generally big enough to have back-office infrastructure systems similar to those at big companies to handle processes such as accounting and quality assurance. 

Boots on the ground

Commonwealth Senior Living manages 33 communities principally located in the
Mid-Atlantic region. “The biggest advantage is to have our folks in the communities on a regular basis,” says Earl Parker, CEO at Commonwealth, based in Charlottesville, Virginia. Regional vice presidents manage clusters of five to seven communities. The clusters are strategically located near each other to keep drive times to sister communities manageable. “We try to keep a tight geographic focus,” he says. 

Additional support is provided to each community. Subject matter experts in the home office are available to help with dining, programming, accounting, sales, maintenance and human resources. The subject matter experts are responsible for developing, maintaining and improving the systems, standards and signature programs for their subject area.

 In addition, the company’s goal is to establish a peer mentor for each service area in each of the six clusters. There are currently just over 40 peer mentors already in place across the company. Situated in communities near the ones they advise, peer mentors assist with onboarding and training new department heads. The subject matter experts also help train and support the peer mentors. 

Parker cites the pandemic as an example of why a regional approach makes sense. Shipments of PPE were delivered by car to properties. N-95 masks were quickly distributed, and workers were trained on how to fit them properly. Local hand sanitizer was sourced and delivered to the buildings. Communities located near each other in the same cluster were able to provide additional support as needed. Managers frequently visited the communities.

“The ability for us to be in the communities helps to reinforce our culture and core values,” says Parker. “We can demonstrate that we are there to support them through the tough times we’ve had over the last few years.”

The 17 communities operated by 12 Oaks Senior Living are tightly clustered in Texas and Oklahoma.  The communities offer a mix of independent living, assisted living and memory care. Currently, 12 Oaks does not own any of the properties. 

“We employ a high-touch operating model,” says Greg Pucklicz, president at Dallas-based 12 Oaks. A regional vice president oversees each cluster and is required to live somewhere within an hour of the communities. “This is a tremendous benefit,” says Pucklicz, explaining that the executives can quickly get to the properties. “Our regional VPs are real operating partners who spend quality time at the communities to address operational needs and build the culture.”  

Know your market

With the labor shortage among the most pressing industry issues, regional operators say they are better prepared to handle recruitment and retention efforts. “It’s about knowing your market,” says Gabriel at Generations. Regional operators have a better sense of local wage rates, benefits packages and the competition. “We know who is stealing our employees,” says Gabriel. 

Commonwealth Senior Living added a director of career outreach who visits trade schools and job fairs to attract new applicants. A director of talent acquisition was added to fill open positions more quickly by screening applicants to take some of the workload from executive directors. 

A big plus for a regional approach is the ability to tailor operations to local tastes. Marketing materials and programming can be designed for the residents and potential customers who live in the area. The same community activities prescribed by the central office of a big national company may not appeal to residents in both Minnesota and Alabama. A deep understanding of local referral sources can help boost occupancy, especially at skilled nursing facilities. 

At a time when expenses are rising rapidly, regional companies have less purchasing leverage with vendors than big national enterprises. Wages are up, along with the cost of food, equipment and supplies. “A national player probably has better buying power than we do,” says Guay. 

Regional operators partner with buying groups to obtain discounts and boost purchasing power. Generations, for example, partners with the Oregon Healthcare Association. Commonwealth Senior Living partners with Innovatix, the New York City-based group purchasing organization.

When Commonwealth reached 25 communities, it was able to hire an internal procurement executive to manage software to verify that vendors were charging what they had quoted. “We got to the size where we could afford that position,” says Parker. He adds that the company’s regional focus with multiple buildings in one area provides opportunities to secure competitive bids from vendors such as painters and landscapers.

The results of a regional approach speak for themselves, according to Stewart at Capitol Seniors Housing. “Our capital partners love it,” he says. Stewart compares senior living to politics. “It’s local,” he says. 

Gabriel at Generations says a regional company, because of its size, can focus on relationships with families, residents and employees. “This is a people business,” he emphasizes. “We don’t want to be the biggest, we want to be the best.”

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