The senior living market faces a new reality. The economic fallout of the pandemic has put pressure on the affordability of many communities. Elders who previously had the resources to move into a community may no longer be able to do so, expanding the already large group of seniors with modest incomes in need of housing. At the same time, more middle-income seniors are drifting into the low-cost end of the market.
Alternative housing models for middle-income seniors were explored at the 2020 NIC Fall Conference. The session, “Senior Housing’s New Reality: Impacts and Ideas for the Forgotten Middle,” was led by Torey Riso, an investor and independent consultant. He was joined by John Cochrane, CEO, HumanGood; James Lydiard, staff vice president, CareMore Health; and Bill Pettit, president, R.D. Merrill Company.
Riso kicked off the discussion noting that a NIC-funded study in 2019 highlighted the need for middle-market housing. The study showed that 54% of seniors could not afford much of the seniors housing product on the market. “The pandemic focused attention on the already challenging reality to serve this middle market,” said Riso. He added that there is an opportunity to change the rules and reconsider all elements of the seniors housing model: the building, financing, services, staffing and payment sources.
The panelists discussed three different approaches to help reduce the cost of housing for middle-income seniors.
Create a Mixed-Use Community
HumanGood operates life plan communities and affordable housing for low-income seniors. The challenge is to meet the needs of the 80% of seniors who fall between those two extremes, noted Cochrane. “We have a unique opportunity to bridge the gap.”
Cochrane pointed to the successful example of Plaza Roberto Maestas, a transit-oriented community in Seattle’s Beacon Hill neighborhood, financed with public and private funding sources. The development is more than housing, creating a true community. Elements include affordable apartments for seniors and families, along with retail and commercial space, an early childhood facility and a community center. The project is situated around a central plaza, allowing all age groups to interact. “The project connects to the larger community,” said Cochrane.
Middle market communities will increasingly rely on complex financing structures, such as those used at Plaza Roberto. “That is the future,” said Cochrane. “No one size fits all.” He added that the size and stability of the affordable seniors housing market will attract investors that will enjoy reliable returns over a long period as well as a social benefit.
Rethink the Full-Service Model
Owner /operator Merrill Gardens primarily serves seniors in the upper 25% income category. But management felt the company was losing touch with its traditional middle-income base. So, Merrill Gardens partnered with ReNew REIT and purchased a portfolio of older seniors housing properties. The cost of the properties was lower than that of new developments which could help lower rents for residents.
The properties will be rolled out as a new brand for middle-income seniors. But despite the lower cost basis of the properties, Pettit noted that much of the rent is still driven by operations. “We need to think about how to deliver a valuable product for middle-income seniors,” he said.
The new brand will not be a full-service model. Instead, it will be designed around what typical seniors might do for themselves living at home. “We think middle-income seniors are more open to participating in their own needs,” said Pettit. For example, instead of a restaurant-style dining program with multiple menu items, the new model might offer food options more like those available at an extended stay hotel. The new model also will take a close look at alternative service delivery models to cut personnel expenses. “Take off your full-service hat,” Pettit advised.
Merrill is exploring partnerships with local providers, such as home health services. The family will also be a key partner to provide some care needs.
Pettit believes that through partnerships on the care side, and dining changes, that the buildings can operate at rents of $1,000 to $2,000 less a month than at higher-end properties. That provides a lower profit margin than that of the expensive projects. But when the real estate is acquired at a 40-45% discount to new development, the yield on cost is superior, according to Pettit.
Reduce Healthcare Costs
The pandemic has shown that housing and healthcare are intrinsically linked. Making healthcare accessible and affordable helps reduce care costs and increase the residents’ length of stay. CareMore offers a Medicare Advantage plan for seniors housing properties that can help offset care costs. When enough residents sign up for the plan, CareMore can provide medical personnel on-site. Also, working with one health plan can save the community staff time spent coordinating care among different providers. “Government funded dollars should be part of the equation,” said Lydiard. He added that the Medicare program is seeking novel approaches to reduce costs. Seniors housing, where care can be delivered efficiently to a growing number of elders, will be part of the solution.
The panelists agreed that more than one solution will emerge to meet the challenge to house middle and lower-income seniors. “This is a huge market, and its needs are varied,” said Cochrane. “There will be different models and we will need every one of them.”