NIC Middle Market Investor Summit Gets the Conversation Going

Capital providers and operators are talking about the challenges and opportunities of serving middle-income Americans who will not be able to afford private-pay seniors housing and care at current price-points, yet also don’t qualify for government assistance. While the discussion has only just begun, it is already generating excitement amongst investors and operators, along with a host of new ideas, and an openness to innovation and new partnerships aimed at meeting a huge demand that will only grow over the next several decades.  

Just a month after hosting an event in DC hosted by Health Affairs to publicly announce findings from “The Forgotten Middle:  Middle Market Seniors Housing Study”, NIC released the full study to the public, and hosted an investor briefing and discussion in a special event at New York City’s Yale Club. Co-sponsored by Institutional Real Estate, Inc. (IREI) and Real Capital Analytics (RCA), the event featured insights from study authors, detailed data, and expert panel discussions aimed at inspiring discussion and interest amongst the capital providers who underwrite much of the seniors housing and care industry in the United States, as well as operators and developers in the industry.  

Following an introduction and welcome given by NIC Chief of Research & Analytics Chuck Harry, NIC Chief Economist and Director of Outreach Beth Mace provided key findings and takeaways for capital providers and operators 

Mace’s summary of the study’s findings highlighted the challenges and opportunities facing the sector. She said “This investment opportunity is big. Our study indicates that there will be more than  14 million middle income seniors in 2029. That’s 6 million more than today.” She went on to explain that these numbers are conservative, and will actually continue to grow beyond 2029, and to point out that at today’s penetration rate of 11.2% and today’s construction rates, it would take 17 years to open the 700,000 new units it would take to meet this demand in 2029. After reviewing other key data points, Mace said that “the goal of today’s event, really, is to get the conversation started, to see how we, collectively as an industry, can start to address the care and housing needs of this cohort.” 

Study author Caroline Pearson, Seniors Vice President of NORC at the University of Chicago, then provided insights into the potential for further study, down to the local level, which would be potentially very useful for investors. Referring to last month’s Health Affairs event, she said, “I was in awe of the response that we got from the policy community to the research. I’ve released a lot of research; people are always very kind and gracious and say, ‘thank you’ but the excitement in the room this time was palpable.” She closed by saying “I’m eager to hear the discussion today. I’ve received lots of questions from the press, and lots of people have said to me, ‘you’ve convinced us this is a really big problem. Now we’re really scared – what should we do about it?’” 

What followed was a series of panel discussions, organized by industry perspectives, which yielded a host of ideas, plenty of questions from the audience of investors and industry leaders, and some general agreement on key issues that the sector will face, in an environment of cautious optimism.  

The first of three panels, moderated by Mace, featured equity investment executives Pam Herbst, Managing Director, AEW Capital Management, and Andrew BrettDirector of Real Assets ResearchNEPC. The discussion yielded numerous ideas that Herbst and Brett have considered – or would consider – for making seniors housing more affordable, while retaining viability as an investment for their firms and the industry.  

The idea of shared space was raised, both as a means to lower construction and operating costs, and as a potentially attractive option for the boomer generation and seniors who might find a social living arrangement attractive. Reducing common areas from today’s average of 35%-40% would lower costs. Herbst also raised the possibility of gaining additional Floor-to-Area (FAR) allowances from municipalities in return for adding units to serve the middle market. This could help eliminate additional land basis costs, something she suggested could be relatively easy for communities to grant. 

Other ideas the panel discussed included state and municipal tax grants and investment incentives, renovating and/or repurposing older buildings, such as malls and big box retail, reducing dining and labor costs through existing programs such as “meals on wheels”, and allowing younger volunteers to “bank” volunteer hours towards their own retirement. 

The following panel, also moderated by Mace, was designed to represent the debt perspective. Panelists included Robert M. White, Jr., Founder and President, Real Capital Analytics, Michael Patterson, Vice President, Underwriting and Credit, Freddie Mac, Christopher Callaghan, Group Vice President, Head of Healthcare Banking, M&T Bank, and Heidi Brunet, Managing Director, Newmark Knight Frank. 

White presented data profiling the recent history of debt financing in the sector, with his insights on who is providing debt financing and who is not, and who may be providing debt in future. Following this, the panel answered questions from Mace on their perspective – and their ideas on dealing with potential middle market investment. 

When asked by Mace whether Freddie Mac would be able to securitize mortgages for lower margin housing and care models, Patterson said “we have obviously been able to so far…and we are wanting to continue doing that. We think this may be part of those securitizations.” 

Referring to the conversation around cost, Callaghan, whose bank underwrites seniors housing construction, said, “We can underwrite to a lower margin for permanent debt, and get comfortable with sustainable cash flows. The lower to moderate income seniors housing has margins that are half those of high-end seniors housing, but you can still underwrite those cash-flows.” 

Ideas the panel discussed included adding Medicare reimbursements above rent, as the value-based care system begins to expand what the government will pay for, to include services such as providing nutritionrehabilitation, and assistance with activities of daily living (ADLs). It was suggested that properties that provide multiple levels of care might benefit from numerous advantages. Also, the panel discussed the need for local and regional banks to be educated on the sector, to encourage further engagement. Another suggestion was to consider the growing sources of foreign capital interested in the sector. 

A panel of operators included Thomas Grape, Chairman and Chief Executive Officer, Benchmark Seniors Living, Gaurie Rodman, Director, Development Services, Direct Supply, and Judy Marczewski, Chief Financial Officer, Leisure Care. Moderator Kai Hsiao, Chief Executive Officer, Eclipse Seniors Livingbegan the discussion by saying, “This is where the rubber meets the road now. The question is can we actually make this middle market operating model work.” Hsiao then pointed out that his panelists had all “dipped their toe” in the water of middle market and would share what they had experienced so far. 

When asked about the decision to get into lower-cost private-pay seniors housing, Grape responded that, “we were drawn to it for the reasons that motivated the study, which is that we’ve seen rents and costs continually increase and knew that there was an unserved middle that we wanted to see if we could tap into.”  Marczewski, who said her company was about to open their third middle market property, said that, “what we have done is build an efficient model for operating and for construction. I really think the last piece of that is coming up with the efficient capital structure. That’s what’s missing.” 

Rodman said that, “for the middle market I believe the solution lies in looking at every layer of the development process and the operating process comprehensively, from the beginning.” She supported finding communities willing to work with developers with payments-in-lieu-of-taxes, increasing FAR, and leveraging infrastructure improvement taxesas part of the land-selection processin order to remove land basis costs. 

In addition to the ideas that came from the previous panels, the operators contributed many of their own. Grape’s company found cost-savings by simply reducing the building size, having shared units, and he explained how reducing non-care staff was possible, as well as using wood frame construction instead of steel and concrete as a cost-savings measure.  

Marczewski’s company lowered costs with efficient kitchen and menu design, resulting in high quality foods, but fewer options, and lower staff costs. Rodman described a cost-savings of $1,200 per unit just by replacing a closet that had a sprinkler in it with an armoire. 

Other ideas the panel discussed included achieving more labor efficiency with a “generalist” modelpartnering with multi-use partners and developers, incorporating smart technology, partnering with healthcare, and leveraging community resources such as high schools and universities for volunteer groups. Panelists also suggested working with Medicare Advantage plans, adopting “social” models that emphasize the appeal of common areas, and attracting investor interest from the healthcare sector. 

The event concluded with remarks from NIC Founder and Strategic Advisor Bob Kramer, who challenged attendees and viewers to think about the day’s key takeaways, as well as to consider what was not discussed, and to take the discussion back to their own companiesHe emphasized that, “As we look at 2029, this is a huge market, which, for the most part we’re not serving now. It’s going to grow exponentially in size.” He went on to point out that for 20 years beyond the study’s projections to 2029 the market will continue to grow. 

He discussed how demographics are changing, driving necessary shifts in how seniors housing must be conceived and marketed in the near future. Referring to aging baby boomers, he said, “they’re not going to want to move in to anything with the name ‘seniors’ on it, because they don’t want to be called a seniors.” Concluding his remarks, and the event, Kramer said, “We want to bring a spotlight to ideas, in terms of models…we’ve mentioned development efficiencies, we’ve talked about operating efficiencies, we’ve talked about capital efficiencies, and the last one…regulatory efficiencies – or I might say inefficiencies – but we need to put a spotlight on these and NIC wants to continue to do that.” 

The invite-only event was live-streamed and is available on video, along with access to the study itself and many related resources, at https://www.nic.org/middlemarket-resources 

What Kind of Housing Do Baby Boomers Want? Ask Millennials.

While the industry scratches its collective heads trying to figure out what baby boomers want in a senior living community, millennials are pointing the way.  

The two groups have a lot in common. Baby boomers and millennials currently represent the largest cohorts in the American population, 74 million and 71 million respectively.  

Baby boomers are the parents of millennials and share many of the same values that shape their housing preferences. They’re both more interested in having experiences rather than accumulating things. They want to make a difference too.  

“Compare the values of someone 62 and someone 26, and they’re very much the same,” said Lilian Myers, an expert on aging and co-founder of EconomyFour, a social impact company based in Washington, D.C. Both groups are interested in exploring what’s next.” 

Myers has built a career around looking at the trends that shape our views of technology and of aging. As a serial entrepreneur she helped launch several health technology start-ups. She eventually moved on to work for IBM, initially consulting with global clients on the digital transformation of healthcare.  

A project in Japan that linked isolated seniors by iPad to services from the postal service led her to become IBM’s global leader for aging and the longevity economy, conducting seminars on several continents to find industry solutions for age and longevityWhat it taught me was how universal and institutionalized age bias has become,” said Myers.   

The age of 65 began to be attached to decline and need of help only a century and a half ago as industrial era social safety nets were established, said Myers. Today older adults are better defined by their vitality than their age. “Boomers aren’t using traditional definitions of who is considered old, she said. “It’s more about how we feel, and we don’t feel old. We’re working, starting new businesses, and giving back in ever-greater numbers. 

Likewise, millennials are defying expectations. Many millennials, for example, are digital nomads, working remotely from anywhere without a formal office. They can travel and work, settling for months at a time in one place they like.  

The idea can be applied to baby boomers who might like a living arrangement where they can continue to work remotely and live where they want. Myers herself is a bit of a digital nomad, working remotely from her condo in Florida when she’s not on the road. 

The idea of digital nomads fits neatly with concept of portable living arrangements which are growing in popularity. At the NIC Spring Conference, attendees conducted a hackathon to brainstorm ideas for senior living communities that would appeal to baby boomers. A common feature of the communities was a portability component. One proposed project gave residents the ability to travel and live in different communities around the world.  

New alternatives 

Millennials like the idea of coliving, an idea that might also appeal to baby boomers, said Myers. For example, Roam is the global coliving and coworking community that combines work, travel and adventure. The website promises, “Strong, battle-tested wifi, a coworking space, chef’s kitchen and a diverse community.”  

Another emerging housing alternative is the modern micro apartment. These tiny, fully-equipped urban units are well suited to those who want tswitch cities easily without being tied down by a lot of things they have to move.    

Millennials prefer urban spaces to the suburbs and so do a growing number of baby boomers. The city offers the advantage of walkable neighborhoods near services, parks and entertainment. No one needs a car.  

Senior living providers have been trying to cram everything into one building adding a hip bistro or coffee shop, said Myers. “It makes more sense to simplify operations and build partnerships that surround the resident in the way universities have for students.” Urban locations already have everything built in.   

Other trends are shaping housing choices. Like millennials, many boomers prefer living in a community with a multi-generational population. Both groups also want to stay connected without being walled off or being dependent. 

As a selfdescribed optimist, Myers believes the coming generation of 45, 50, and 60 year-olds will alter stereotypes about aging with the help of their younger counterparts Myers stopped coloring her own gray hair when she noticed that young people in Asia and Europe were dyeing their hair white or grey. “It’s about stage, not age,” said Myers. “We’re looking for what’s exciting and what makes us feel connected, growing, and contributing in work, play, and relationships.” 

 

 

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May 10, 2019 

janekadler@gmail.com 

Innovations that Work – NIC Lightning Talks Series

During the upcoming 2019 NIC Fall Conference, the “Innovations that Work” session will share ideas on innovative technologies and tools that are changing the way operators and investors care for residents. Rapid-fire, seven-minute presentations on five key topics will address real-world examples of innovative solutions to some of the most pressing challenges in the industry today.  

The session will include six speakers – each covering a solution to a key problem facing seniors housing and skilled nursing today.  Have you faced a challenging issue and used some type of innovation to solve it? If so, we would like to hear from you.  We are looking for solutions to problems that: 

  • Are deployed (i.e. not hypothetical) 
  • Have data showing the benefit associated with the soluti8on that can be shared 
  • Have an operator willing to speak about their experience with the solution 
  • Are innovative – approaches, systems, or solutions not familiar to >~ 80% of operators 

We are looking for your best solutions to help shape the thoughts and strategies that will influence industry peers. Ideally, those impacted by the problem will introduce a solution to fix the problem that shines a light on innovative thinking. This forum is not the place for canned sales pitches! NIC is specifically interested in your real-life experiences building on what’s worked in your partnerships to bring solutions to problems. 

Ready to start your proposal submission? CLICK HERE for more information 

Vision 2025: Focused on Expanding the Workforce

Safeguarding the overall health of the seniors housing and care industry well into the future is a well-publicized initiative. Nowhere is that more on display than the upcoming Vision 2025 event to be held in Chicago June 19-20. This event will host over 30 colleges and universities, more than 35 seniors housing and care operating companies and key trade associations and strategic partners within the industry. The goal of the event is to ensure the health and continuity of the industry through the identification (and development) of at least 25 robust university and college programs. 

Vision 2025 is being sponsored by NIC, American College of Health Care Administrators (ACHCA), American Health Care Association/National Center for Assisted Living (AHCA/NCAL), American Senior Housing Association (ASHA), Argentum, LeadingAge, the National Association of Long Term Care Administrator Boards Foundation (NAB Foundation) and Ziegler.  

The content at the event will be robust and thought-provoking. Representatives from universities will provide an overview of the programs in existence today and their successes. They will also provide insights around opportunities that enhance partnerships between the industry and academia, as well as challenges faced over the course of developing their programs and partnerships. Attendees will also hear from key trade associations and operating companies about the business case for expanding university programs focused on seniors housing, care, and aging services. Several trade associations within the industry are deeply involved in efforts to expand the workforce and are already working closely with several of the universities in attendance. These efforts will be discussed throughout the day in panels and forums. Finally, the symposium will offer opportunities for attendees to interact in very purposeful, facilitated discussions focused on key priorities and next steps. 

Vision 2025 will be the first of its kind in the industry at a time when collaboration, passion, and action centered on expanding the workforce are of utmost importance. Getting this many key influencers and participants to rally around this single issue at one event is a monumental effort and all involved should be commended. The thoughts and ideas shared as a result of the event will surely move the seniors housing and care industry forward. 

A Lot of Jobs Created in April: 263,000

The Labor Department reported that there were 263,000 jobs added in April, above the consensus expectation of 190,000.  This marked the 103rd consecutive month of job growth.  The latest six-month average is 200,000, less than last year’s 223,000 monthly average but still very strong for this stage of the economic expansion.

Revisions added 16,000 to the prior two months.  Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.

In April, employment in health care rose by 27,000. In the past year, health care has added 404,000 jobs.

The unemployment rate slipped back to 3.6% in April from 3.8% in March.  This is the lowest rate in 50 years or since 1969.  A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—remained at 7.3%.  This was the lowest rate since 2000.

Average hourly earnings for all employees on private nonfarm payrolls rose in March by six cents to $27.77. Over the past 12 months, average hourly earnings have increased by 3.2%, down from 3.4% last month.   For 2018, the year over year pace was 3.0% and in 2017 it was 2.6%.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work fell to 62.8% in April from at 63.0% in March, very low but up from its cyclical low of 62.3% in 2015.  The low rate at least partially reflecting the effects of an aging population.

This report, in combination with other recent data on economic activity, will support the Fed’s recent position of pausing interest rate increases.