A well-oiled machine is a culmination of various parts that all successfully perform their duties in pursuit of a larger goal.
While seniors housing isn’t quite as black and white or unemotional, a group of industry experts realize their product’s inherent value will always be tied to the sum of its parts. Or, in the case of investors, its partners.
The concepts were shared by panelists at the State of the Industry and 2019 Outlook discussion, held at InterFace Conference Group’s Seniors Housing West. The event drew nearly 300 industry professionals to the Omni Los Angeles on March 7.
“It’s not real estate, real estate, real estate. It’s management, management, management,” noted J.P. LoMonaco, panel moderator and president of Valuation & Information Group. “There has been a huge change in the structure of this industry, and that requires an alignment of capital.”
Capital nowadays must align not only with the goals and objectives of the asset’s investors, but with the quality of people the team is willing to work with to ensure their seniors housing project is as successful as possible. That starts, naturally, with management.
“The standard 5 percent management fee is a thing of the past,” LoMonaco continued. “This is no way to think about a manager anymore.”
Kai Hsiao, fellow panelist and CEO of Eclipse Senior Living, believed this type of mentality — reducing talent to quantifiable numbers and sacrificing quality — is exactly what got many seniors housing players in trouble in the first place.
“If you want to build a management platform that delivers results, there are certain things you have to do,” he said. “You get what you pay for. Some managers get 3 percent and then investors say ‘how come we’re not hitting our pro forma?’”
Cost is clearly one part of the equation to running a well-oiled seniors housing operation in 2019, but it’s not the whole story. Peter Martin, panelist and managing director of equity research at JMP Securities, said it was also crucial to know what you are, what you’re not, when to do it yourself and when to outsource it to someone else. In other words: the key is clarity.
“We know we’re not operators,” he said. “You have to find the right operator that’s going to concentrate on your operation day to day and incentivize the staff because seniors housing is an effort-based business.”
Finding the talent
Compiling a stellar team to lead your project into the Promised Land is easier said than done. There is an ongoing war for talent that has caused many seniors housing investors to spend an inordinate amount of time and money combating turnover due to dissatisfaction, a lack of interest or pilfering from seemingly “sexier” industries.
“The biggest problem we have is talent,” said panelist Adam Bandel, managing director of seniors housing at Pacifica Cos. “We struggle to keep our good directors, and we want to keep our employees happy and content in their positions.”
Low unemployment has left positions unoccupied across many industries, but hit seniors housing particularly hard. Not only does this sector have to contend with the traditional factors associated with wage growth, costs of living and a general competition for talent, but the aging baby boomer population has all but guaranteed that this industry will continue to grow at a disproportionate rate.
The seniors housing sector will need to add more than 1.2 million employees by 2025, asserts Argentum’s latest report, “Getting to 2025: A Senior Living Roadmap.” The senior living association estimates that the industry is on track to create about 347,000 new jobs by this time, leaving a deficit of about 900,000 positions.
Torsten Hirche, panelist and president and CEO of Transforming Age, believes these industry-wide employment efforts need to start now — and not at the facility level. He asserted the industry needs to do more to enlighten the younger generations about the job opportunities within the industry before they’ve finished their schooling and chosen a career path.
“The price of labor, the costs, the difficulty finding talent in general — they’re all big problems,” he said. “The bigger problem is there are very few people who graduate college and want to work in the older adult market.”
Like Martin, Bandel believed in an effort-based approach that centers on incentives to show employees you see them, you acknowledge them and you appreciate a job well done. This concept can go a long way toward obtaining and maintaining quality staff.
“The competition for the individual employee is much stronger than it’s been in the past,” said Bandel. “We could’ve found individuals in the past, but there are just so many other alternatives right now that you have to make them feel the love. You have to show them you’re there for them. Give them an opportunity for growth. Giving them a path to growth is vital.”
It is even more vital, Hirche asserted, as the younger generations come into their own within the workforce.
“We have to remember we’re dealing with multiple generations in the workforce at the same time,” he added. “And Millennials are looking for a purpose-driven culture.”
Invest in recruitment
This perfect storm of labor, costs and increased competition has led some industry players, including Hsiao, to make a further investment in staffing.
“You need a top-notch recruiting engine because that turnover is not going to get better,” he said. “You need the infrastructure to plan for that. You have to turn to your capital partners and say, ‘are you willing to pay for that?’”
Just as investors from the multifamily and hospitality sectors have seen the opportunities in seniors housing, savvy seniors housing operators have seen the value in outside players who are good at their jobs.
“Don’t be afraid to reach outside seniors housing,” suggested Hsiao. “We look for sales people. We love student housing people.”
“The big thing is turnover’s high. It’s always going to be high moving forward,” added Hsiao. “Welcome to the new world.”
Panelists agreed a reasonable balance needed to be struck between time and money invested to support a successful seniors operation, versis time and money that is simply taken away from the bottom line. This is especially pertinent as operating costs are increasing at a faster pace than revenue growth, according to LoMonaco. Add affordability challenges and the purse strings are likely to constrict even further.
“The spread on the Two-Year and 10-Year Treasury is getting tighter,” Martin said. “We also have some major issues that can change the growth perspective. But what we’re really worried about with the industry is affordability.
“Everything that’s been built in the past three to five years is at a pretty hefty price point. The underestimation was the lease-up. It’s amazing how many people are coming out of the trees with rent increases, saying they want to raise the rent 10 percent. At some point, there’s a problem there.”
Strategies like this have led some projects to fail before they even got off the ground.
“I’ve never gotten so many calls about projects that are either in lease-up or pre-lease up that are in trouble already,” said Hsiao. “Great care doesn’t have to come at a great price. It’s okay that a community doesn’t have a movie theater room if it provides great care.”
After all, nobody wins if a restructuring or financial reshuffling is ever-looming. Least of all, the residents.
“You need to have a sellable product at the end of the day,” Bandel said. “You need the product to be very nice and very pleasing, and you need to promote continuity throughout your communities.”
Bandel cautioned, however, that what is nice and pleasing is in the eye of the beholder. So make sure you’re locking eyes with the right beholder.
“The shiny new penny approach is appealing to the adult child,” he continued. “The resident? They need to know you’re there and you’re going to be there and then you’re going to continue being there.”
— Nellie Day