Standalone Memory Care Fraught With Challenges, Says InterFace Panel

The State of the Industry Panel at InterFace Seniors Housing Northeast featured, from left, J.P. LoMonaco, president, Valuation & Information Group; Steve Bailey, senior vice president of new business and development, The Kendal Corp.; Michael Stoller, managing partner and CEO, LCB Senior Living; Brenda Bacon, president and CEO, Brandywine Living; Scott Stewart, founder and managing partner, Capitol Seniors Housing; and Wendy Nowokunski, president of Northbridge Cos. The State of the Industry Panel at InterFace Seniors Housing Northeast featured, from left, J.P. LoMonaco, president, Valuation & Information Group; Steve Bailey, senior vice president of new business and development, The Kendal Corp.; Michael Stoller, managing partner and CEO, LCB Senior Living; Brenda Bacon, president and CEO, Brandywine Living; Scott Stewart, founder and managing partner, Capitol Seniors Housing; and Wendy Nowokunski, president of Northbridge Cos.

But at least one regional operator bucks the national trend by embracing the sector.

By Matt Valley

PHILADELPHIA — Standalone memory care facilities were the darling of seniors housing three to five years ago, but more recently this property segment has been tagged as the dog of the industry amid overbuilding concerns and lease-up challenges. 

“They get bashed at every conference,” says J.P. LoMonaco, president of Valuation & Information Group headquartered in Culver City, California. The conventional wisdom is that many investors and lenders have soured on the product. 

Not so fast, says Wendy Nowokunski, president of Northbridge Cos., who cautions against making blanket statements about this specialized niche within seniors housing.  “Actually, standalone memory care is our darling.” The private company based in Burlington, Massachusetts, operates 17 seniors housing communities serving over 2,000 residents across New England.

Five properties in Northbridge’s portfolio are standalone memory care communities, including three in Maine and two in Massachusetts, each ranging in size from 60 to 70 units. “Those communities run at 100 percent occupancy all the time. We have waiting lists,” says Nowokunski, who adds that Northbridge has established partnerships with local hospitals to meet the needs of seniors with memory issues. “It all comes down to programming and knowing the disease process, and having the right people in the right roles.”

The insights from Nowokunski came during a state-of-the-industry panel discussion moderated by LoMonaco at InterFace Seniors Housing Northeast. The one-day conference, which took place Tuesday, Nov. 13 at the Sonesta Philadelphia Rittenhouse Square hotel, attracted more than 250 industry professionals. 

Joining LoMonaco and Nowokunski on the state-of-the-industry panel were Brenda Bacon, president and CEO, Brandywine Living; Steve Bailey, senior vice president of new business and development, The Kendal Corp.; Scott Stewart, founder and managing partner, Capitol Seniors Housing; and Michael Stoller, managing partner and CEO, LCB Senior Living.

According to Nowokunski, Northbridge tends to locate its memory care communities near continuing care retirement communities (CCRCs), or independent and assisted living facilities because they are “a great feeder for us.”

“I know on a national level there was this craze for [standalone memory care], and you have areas like Texas where there is one on every corner. I hear how that might be perceived as ‘Oh my God, it’s a terrible product. Don’t go into standalone memory care.’ But we’ve had tremendous success with it in New England because there is a need,” commented Nowokunski.

The first standalone memory care facility that Northbridge opened was in Maine. It took nine months to fill those 60 units. The two most recent to open took 12 to 13 months to fill. All are private pay.

State of the industry panel Wide Shot

A different take on the product type

Stoller of Norwood, Massachusetts-based LCB, which operates 18 senior living communities and has three under construction, said the company has not enjoyed the level of success that Northbridge has achieved with regard to standalone memory care. LCB has one such property in its portfolio, down from two originally. 

“We see a major fluctuation in occupancy. We have periods of time where it’s 98 to 100 percent occupied, and we have periods of time where there are eight or nine deaths and it takes awhile to recover. So, we see ourselves dropping in the low 80s at times. Probably on average the occupancy is 90 to 92 percent, maybe 93 percent overall for a year,” explained Stoller.

Bacon of Brandywine Living, which is headquartered in Mount Laurel, New Jersey, said the relatively small margins on standalone memory care facilities bother her. Of the 29 properties in Brandywine’s portfolio — which stretches across six states from Connecticut to Virginia — two are standalone memory care communities. Bacon has no interest in building another one. 

“You are investing all of that money and the staffing and the programming that's necessary to take care of late-stage dementia residents, and you've only got 60 units. We charge $300 or more a day in those units, but the margin is still very small,” explained Bacon. 

The new standalone memory care communities that have popped up in the markets in which Brandywine is located are generally not performing well, according to Bacon.

“They are struggling because they are not investing the money in the programming,” she pointed out. What’s more, when they read the statistics about dementia, some investors and operators are incorrectly making the assumption that  “Oh my God, there must be a million people that need to come in here.” That’s not the case, said Bacon.

LCB’s Stoller said that by offering a combination of independent living, assisted living and memory care in its buildings, it has established a feeder system for dementia care. “On average, 30 percent of the building is a memory care wing. So, we have our own feeder system,” said Stoller. “We don’t have to spend as much time going to search for residents. And it’s part of a larger property, so the margins are better than a standalone facility.”

Bailey of The Kendal Corp. said the nearly 50-year-old nonprofit organization’s approach to memory care is to include the specialty as part of the continuum of care. Kendal operates 13 communities in eight states, stretching from the Mid-Atlantic to New England and as far west as Chicago. The vast majority of properties in its portfolio are CCRCs. Kendal is currently adding memory care to its properties that don’t already include the product. 

Bailey is acutely aware that today’s seniors have choices when it comes to memory care. “If we don’t offer it, they will go to a standalone facility.”

Active living, ‘the new frontier’

Beyond memory care, the panel discussed a growing category of seniors housing loosely defined as active living. Stewart of Washington, D.C.-based Capitol Seniors Housing, a boutique private equity group with 48 properties that it either owns, manages or is currently developing, said the firm is branching out in terms of product type. (The partners of Capitol Seniors Housing are Bain Capital and The Carlyle Group.)

Specifically, Capitol Seniors Housing is moving beyond its “bread-and-butter” projects, which to this point have largely been assisted living and memory care communities, in order to focus more on active living. 

“I’m a convert on this issue. I thought folks wanted to stay in their house as long as possible, but we’re finding that’s not the case,” said Stewart . “People who are in the age cohort of 68 to 75 are looking for a third act, and they want to do it in an active living setting. They want to congregate with folks who are like-minded and similar in age, and take off from there. We think active living is the new frontier for seniors housing.”

LoMonaco pointed out that the term active living means different things to different people and asked Stewart to identify the hallmarks of the concept.

“You structure a community around the community center. That's where the focus is,” emphasized Stewart. “You’ve got to have a crackerjack activities director. That's where it's going to start and end.”

Stewart is targeting the middle class with this product type at a cost ranging from $1,800 to $2,300 a month for the consumer. “We've got to build a product that will support that,” he said before reiterating the importance of the activities component. “It's not getting on a bus and going to Walmart. It's folks having different clubs, a lot of scheduled activities where they can congregate, share ideas and find their third act.”

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