NIC Chats Podcast with John Burns

Lisa McCracken (00:02): 

Hi everyone. Thanks for tuning in to this edition of the NIC Chats podcast. I am Lisa McCracken and I am joined today by John Burns of John Burns Real Estate Consulting. John, welcome. Thanks for joining us. 

John Burns (00:15): 

My pleasure. And actually we changed our name to John Burns Research and Consulting now, so… 

Lisa McCracken (00:20): 

That's right. Well, okay. So that, that leads, 

John Burns (00:22): 

I've gotta get used to it too. No, that's okay. You can leave this. 

Lisa McCracken (00:25): 

No, that leads to my first question because you were founded, what, almost 25 years ago, right? For real estate? 

John Burns (00:31): 

Yeah, that makes me feel really old. But yes, you're right. 

Lisa McCracken (00:34): 

This is actually my 25th year in the senior living industry. It's hard to look back on it. So, for those of our listeners who do not know who you are and know about your firm, I'd love if you can give, so your elevator speech and a little bit of history and how you came about. 

John Burns (00:52): 

Okay. I started my career as a CPA, I ended up in KPMG's consulting practice, and my boss picked real estate when they reorganized by industry. I ended up in real estate and I did that for eight of the 10 years I was there. And then I was traveling too much, which is funny 'cause I've been traveling a lot again lately. And we started, we were having kids, so I said I’ve got slow it down. So I went to a regional firm for a couple years. But then I started the company because I really saw commercial real estate companies, and I'll put the senior housing into that bucket too, just very sophisticated. Paying attention to the economy. Development was a lot of demand supply analysis and the residential industry was a bunch of people doing deals on the back of a napkin that would make a fortune and then give it all back during a downturn. And I just said that is just not a good way to run your business. So I started a business to be the research and consulting for the residential industry, but I had a strong commercial real estate background at KPMG before I did that. 

Lisa McCracken (01:55): 

Very interesting. And I truly didn't know your background, so I appreciate that. I do know that you travel because you are a regular poster on LinkedIn when you're running. And I'm always impressed that people can talk when they're running. So, you're out and about. 

John Burns (02:09): 

If you saw how slow I was going, you would understand. 

Lisa McCracken (02:12): 

Hey, you've got my respect anyway. So you and I were talking a little bit about, okay, so, what's the connection between maybe senior living, the senior housing space, and the real estate and to connect the dots for our listeners, we obviously are often dependent, it's a private pay space, with the exception of on the nursing side of things, and if Medicaid comes into play, but people often sell their home to pay for, you know, housing again, whether you're moving into a CCRC or into, you know, active adult, independent living, whatever. So we do pay attention to the health marketplace and so forth. So you could probably talk for hours about this, but as you step back and you look at, at the housing marketplace and the real estate sector right now, are there any particular trends? And we can talk about the baby boomers, there's obviously lots in them that you feel like, you know, we should be paying attention to or the things that jump out to you that may impact that demographic in our space a little bit. 

John Burns (03:15): 

Well I think all your listeners know the obvious stuff. I should have said in my background, I joined the Senior housing council of the Building Industry Association on their board like 15 years ago. It's now called Sage, because I saw this demographic wave coming. We all did. And, well maybe we'll talk more about that later. Well, I mean, I'll just mention it now. I think that's the one thing people need to focus on is like everybody's seeing this wave coming and so you can have too much of a good thing. So we just gotta be careful of that. The wealth creations during Covid was absolutely insane. We wrote a book on housing demographics eight years ago, nine years ago now. And we broke the population down into decades born. So you could compare 10 year periods to 10 year periods and all this baby born, you know, just 19 year periods are just too long. And the wealth creation that has occurred, and I've got the math, I mean, it's about a 20% increase in wealth in the last five years. So people born in the 1940s are sitting on 23 trillion in wealth, 1950s, sitting on 39 trillion in wealth. My generation born in the sixties, 43 trillion in wealth. It's about 20% higher than it was five years ago, which is just…now they can afford to retire more affluently, a lot of them than they thought otherwise. 

Lisa McCracken (04:48): 

It is amazing. We look at that, we are gonna talk about affordability in a little bit 'cause there's definitely disconnect there. But as it relates to a private pays housing sector there's the funds that are available there among the boomers that, you know, if you've got what they want, the value proposition has to be there, but they're the funds that support that. I am curious to know, the boomers, there's been a lot more written about them in some of the mainstream media, Wall Street Journal, I mean, way more articles than we've ever seen before. And it's just interesting to read some of those and watch that unfold. As it relates to the housing stock, the Wall Street Journal did a very interesting article and it was called, this was like last spring, about a year ago ‘Boomers bought up the big homes. Now they're not budging.’ It's this inventory of the large home housing market that the boomers have. Have you spent any time looking at that or, any reactions to that? That's an interesting thing that unfolded there. 

John Burns (05:49): 

We've studied generations here. People don't move in retirement. Now we make a big deal about those who do, but it is a huge minority. And because people have their social circles, they have their friends, they have their church, moving is a pain in the butt. And most people don't do it, which is actually very painful for real estate agents right now. And they're sitting in these big homes. You're right that we really should be in the middle of a remodeling boom because of all this wealth and these people that are in these older homes that need a remodel. But I've also learned over the years that people over the ages 65 are the most patient people in the world. And we can do the remodel this year or next year or the year after that. There's just not a lot of urgency. And anytime there's some uncertainty or even a correction in the stock market, like, oh, let's just wait six months or the $50,000 remodel is now beginning an $80,000 quote, which is what is happening, people are just not doing it. And I have a lot of building products clients now. They're very frustrated by that. 

Lisa McCracken (07:00): 

Interesting. Do you have any concerns, and this maybe gets to the affordability piece 'cause I think, correct me if I'm wrong here, the average age of, I don't know, it's the first time home buyer, second time home buyer, you know, continues to go up. So, the reality is there a limited market for some of these big homes that the boomers have? Because it's just sort of an affordability standpoint of the younger first time, maybe even second time homeowners. 

John Burns (07:24): 

We haven't seen like larger homes sitting on the market longer than other homes, other than $2 million homes sit on the market longer than 500,000 homes. So that's always been the case. One of the things, all this might change with what's going on with immigration right now though, but one of the changes over the last several decades is we've seen a surge in immigrants, immigration from other countries where people live multi-generationally. So that sort of demand is filling the niche if you will, of people that want bigger homes. 

Lisa McCracken (08:00): 

So I don't know if you know Dr. Joe Coghlin, MIT Lab, he actually just wrote a piece on this multi-generational house living. And I think about that we are not incredibly diverse as a sector in terms of who lives in the senior living, particularly again on the private pay side of things. But those demographics are changing. So I think about some of the future viability and how we as the marketplace need to adapt with some of that. I'm surprised to hear you say, surprised and not surprised, but I want to talk a little bit more about the whole migration and the moving thing that, you said because, now I'm in the northeast, I'm in New Jersey, and there's been a lot of the, oh, move south to Florida. And then there's been some written about the halfbacks. Well, we get to Florida, maybe that's a little too far and we come and we settle in the Carolinas. But you're saying that's very few. And the baby chasers thing isn't, maybe it's a very small portion. 

John Burns (08:56): 

I think all of that is true, but it's all relative to, you know, if, if people are, those who do move are most likely to be in a place where the weather is miserable, or I'll just say cold, where the property taxes are high 'cause people hate higher property taxes. And there has been a trend, they call, you call the baby chasers, I call 'em helicopter parents. So these are helicopter parents that are now grandparents and are helicoptering their kids and grandkids. So if the kids are in Florida, we're gonna move to Florida. But you know where the kids are now, they've got a job in Dallas. So you're seeing people move not to go play golf as much, but more of a shift of their continuation to stay near their kids. I read this great study once and I've been looking all over for it. 

John Burns (09:48): 

I can't find it, where Dell Webb reportedly started Dell Webb because when people hit retirement in the 1960s, they basically want to get away from their families. It was like, I spent my entire life raising these people. Now I'm going to go play golf and enjoy it. Whereas the retirees now are like, I worked hard and I probably didn't spend enough time with my kids growing up and I want to spend more time with their kids and, I've been helicoptering them and I want to keep helicoptering 'em. That's my biggest amenity is my family. 

Lisa McCracken (10:22): 

Interesting. Well, and then, we don't need to go down this rabbit trail either, but just acknowledging that a lot of the boomers, I mean, compared to previous generations of retirees or, 65, 75 plus actually more likely to have zero children. So even there's just some interesting things in play there. So I want to talk about, I want to shift a little bit to the renter households. So really, the fastest growing segment of renters are the 55 to 74 year olds. And then I don't believe is necessarily just about affordability. I think there's an element of that. But what are you all tracking on the renting trends side of things? 

John Burns (11:07): 

What we're seeing that is probably of most interest to your audience, and I'm sure they've heard about this build to rent trend that has taken off the last five or six years, is a lot of renters in brand new communities being built in Dallas and elsewhere are moving from their owned home in New Jersey or elsewhere to where their kids live and they're saying, Hey, we're going to test drive this. We're going to rent for a year or two, maybe forever, who knows. Or maybe the kids are in Dallas now, but they'll be, they may move in three or four years. And so we're going to rent. So we're seeing, again, it's the baby chaser or a helicopter parent renting. And that makes a lot of sense. And the build to rent industry has been doing great, but it's been struggling lately because these people are moving less right now. And I think that's attributable to some of the uncertainty going on in the world. People are just kind of locking down and staying put. We're seeing that in for rent and for sale. We're seeing that everywhere right now. 

Lisa McCracken (12:13): 

Yeah, I know what you just described. Going in a new market, new area, maybe there's family there and renting for a period of time, there's a segment of the active adult rental market that does that, they're there for a couple years and then they move out, either to another place or maybe they decide they like that area. The kids and grandkids, they seem to staying there and they move out and actually buy a home. 

John Burns (12:36): 

Our clients that have done master plan communities are intentionally putting those built to rent neighborhoods in their master plans. At first, they wanted nothing to do with 'em 'cause they said, oh, these are renters that's gonna bring down our neighborhood. Then they realize they're the exact people we're talking about. And they said, well heck, they're renting and then they're gonna buy a home in our community in two years. So we're seeding our future sales by providing rental homes. That's been a big trend that did not exist seven or eight years ago. 

Lisa McCracken (13:04): 

Those master plan communities, I know all of you keep track of, have lists and rankings of those. Do you have any estimates of how many of those have some type of an age segregated, age qualified part to 'em? Is it increasingly on the radar? Is it a blip, a few here and there? 

John Burns (13:23): 

I don't know the percentages. I don't think it has changed much. I think that's been a pretty steady Yeti component, if you will. I'm probably seeing fewer, like 100% age restricted communities because the trend is a little bit more now. Like I want to live down the street from the kids. So you may see an 55 plus neighborhood in a master plan community, but less so the entire community. 

Lisa McCracken (13:54): 

I mean, unless you think of the magic salt or the secret sauces of the Villages, right. Just what a fascinating thing they've got going on there. Some of the fastest growing zip codes in the country, right? 

John Burns (14:05): 

Yep. Pick up the fastest growing a lot of things there. We won't get into that. 

Lisa McCracken (14:10): 

That's right. That's for another podcast. I mentioned active adult. Do you guys track that at all? And we know, I say active adult, so there's the active adult for sale and there's the active adult rental. You know, we're seeing growing interest from both the multi-family side of things as well as the seniors housing side of things looking at this for a variety of different reasons. So any thoughts on the this future housing option? What you're seeing? 

John Burns (14:37): 

I don't think most people want to come out of a house into a 1100, 1200 square foot apartment 'cause they have too much stuff and that's when this built to rent has been playing to those folks. 'cause they've got storage and about half of them have a garage and it feels more like a home. High rises in Miami might be an exception to that. 

Lisa McCracken (15:02): 

I had someone recently say to me, and I told them I was going to steal this. And it's to what you just said, that active adult is the gateway drug for senior housing as in that downsizing piece because you growing from a single family home, like you said, to maybe even if it's a one bedroom, certainly a studio, but, there's not a huge demand for them right now in seniors housing. There's hundreds of thousands of 'em out there. But downsizing that dramatically to maybe a senior living option, independent living and so forth, that that's a big leap where active adult seems to be a little less psychologically impactful. 

John Burns (15:43): 

I mean active adult is like, it's not the end of your life. I mean, it is the next phase of fun. I mean, look at what's happened to the Margaritaville communities, which is the ultimate party. It's all the Jimmy Buffett fans there saying I'm just going to have fun for the next 20 years. That's been the draw and the builders have done a great job leaning into that and promoting that. 

Lisa McCracken (16:05): 

I want to shift it a little bit to a topic. I'm curious if you have any insights on, so it relates to the affordability, but in our industry there are many staff, often we build senior living communities and not always but many in very high end affluent neighborhoods. You might have a view of the water of the ocean on the coast, whatever it might be. And increasingly, a lot of these particularly high-end communities and these locales, the staff can't necessarily afford to live in close proximity to the senior living community. Have you followed any of the workforce housing stuff? I think that the workforce piece is something I know our sector among many others are going to be struggling with. 

John Burns (16:47): 

And I saw it firsthand too, and my dad was in an assisted living facility in Marin County, and my mom was in another one and just these people were commuting an hour and a half to work. My short answer to that is nobody likes, which is you just need to pay these people better. I mean, if you're paying, well, you're going to get the staff. Nobody wants to hear that. But if you pick a Marin County, which is north of San Francisco, those retirees are crazy affluent and it is already expensive to live in there. And I just think you need to charge a little more and you'll get the labor that way. 

Lisa McCracken (17:23): 

Yeah, there's a lot of conversations around, how far can you go, with some of the rents and the monthly fees and what will the market and the resident tolerate and 'cause at the end of the day, you need to make a margin obviously to stay in business, but also, how much can you pass through? And the wages are a big one. 

John Burns (17:43): 

Nobody talks about this, but I think the biggest amenity in those facilities is the quality of the staff and on how they treat the people and so. I mean, I run my own business too. We got about 160 employees now. You got to treat your people really well if you want to hold onto them. And you know what, if you do that and you pay them more, you'll have less turnover and it'll drop, that'll drop to your bottom line too. So I'm a big believer in that. 

Lisa McCracken (18:11): 

Yeah, absolutely. Well, we'll hop on another time and talk about the workforce stuff. No doubt. They are not number two customer. Many say, they're sort of your number one customer and then the residents are obviously a close second or they're equal. That mindset I think is important. Right now there is limited new development happening in the senior living space. And a lot of that is because of the construction costs, capital, there's some stuff going on there too. What do you see on that front? I mean, is it just always going to get more and more expensive? And I know the construction side of things, there's a combination of labor on their end, there's always some supply chain issues. Although I think those have gotten better since the height of the pandemic. Are we looking at just sort of a long journey here on the construction call side of things? Where do you see that? 

John Burns (19:06): 

We have some of the largest building material companies in America are clients of ours too. And the largest retailers as well. I mean Home Depot, Lowe's, etcetera. So we're paying a lot of attention to this. Material costs are up 40% during Covid, and I can't name any of my clients that is planning on dropping price this year. And I mentioned that they're struggling particularly 'cause the remodeling construction is down, the remodeling is down. You think there'd be a price war and you know, there probably is, a little bit, but they're raising prices and if there's a change, it's to maybe a lower quality material. I mean that, that's how people are saving money on costs. And I don't see any relief on the labor side of construction either. So that, and they're getting cost increases. The raw materials are going up. And this was before we started layering tariffs in. Now tariffs are just gonna make it even worse. 

Lisa McCracken (20:08): 

I had heard a statistic that, and this seemed high to me, but I'm not an expert in it, but on the labor side of things, that about 50% of the construction workforce in this country is immigrant labor. So when you look at some of the immigration stuff too, it seems like just a lot of things that are some headwinds on the construction side of things. 

John Burns (20:31): 

I believe that there's certain, like drywall is way higher than that. But where I thought you were gonna go with that is a huge percentage of construction labor is over the age of 50. You've got an immigrant lack of immigration problem now and a retirement problem. And I think what is happening is people in the trades now are starting to make good money. And that's becoming a pretty pro…I mean, you can now raise a family if you're a construction worker. 

Lisa McCracken (21:00): 

Yeah, it'll definitely be interesting to watch that. I know we have seen in our space, the construction timelines lengthen for a lot of the reasons that we talked about, but there's a lot of concerns too, even just about the increased red tape. I don't know how much of that is just local. It's like this last mile just getting approvals and so forth and time is money on those. So I feel like at a certain point we're gonna hit a tipping point. And again, does this happen locally, and so forth where groups are like, all right, we've gotta do something here to at least try to not have as many barriers to some development activity in, in our neighborhoods and markets. 

John Burns (21:37): 

Yeah, I mean that is all local. You're right. And all of my clients see the same thing. The home builders when they go to outlying areas find less resistance, places that are not as mature and there is land. And so you see that's how you see metro areas expand to the outlying areas. And the last couple years we've done, I think last year we, we did feasibility studies in 140 metro areas, 30 of which we had never done a study in four or five years ago. So we're going to all these tiny little markets. And you talk about, I mean, they don't get the headlines because there's not thousands of people moving, but there's hundreds of people moving to little small markets in the southeast in particular because it is affordable. 

Lisa McCracken (22:26): 

So talking about some market specifics, I know in my brain, there are some hotter markets in the senior living, maybe even some of the development side of things and so forth, but, and where certain markets are more saturated than others. Are there any on the, just housing market in general. Are there any hot housing markets right now versus other ones that are not as hot? I would say probably more so in terms of the ability to sell your home. How long it takes to sell a home? 

John Burns (22:55): 

This is probably a good example of the, you can have too much of a good thing comment. So everybody, including I'm sure all your listeners wants to go to the SMILE states. 'cause that's where the strong growth is. And so what we have seen is an oversupply in the strong growth markets. So the softest markets in the country are Texas, Nashville, Salt Lake, Denver, I haven't quite gotten to the bottom of what's going on in northern Florida, but Jacksonville and Orlando too. All the markets everybody was rushing into, and it's because of this, the demand there has slowed, but there's, it's still good. But they're oversupplied and they were oversupplied with some investors too, not just real people moving in. And that caused a problem. And then on the converse, we're seeing things are fine in the Midwest, things are fine in the Northeast. Nobody was, those aren't the smile states. The biggest surprise to me because I live here is Southern California is still one of the strongest markets in the country. I mean, the migration here is terrible. The affordability is terrible. They, I employ people here. They make it really hard to be an employer in California. And yeah, yet we're seeing strong demand from affluent people and actually people from Asia who want to get out of where they currently live. 

Lisa McCracken (24:21): 

Interesting. And that's why we often report on some national statistics, and of course we go down into markets, but within markets it can vary. So you just gotta know your backyard and what's happening and the dynamics that are unfolding. So you do know a bit about the senior housing sector, obviously, you gave a bit of that in your background. So given the expertise that you have on the real estate trends side of things, knowing our audience, is there anything that you would say to senior housing operators, owners, developers, as we think about the next decade of our evolution? The one good thing about being a little quiet on the development side of things right now, I think it's forcing us to sort of think about, pause a little bit, and say, what are some lessons learned and how do we need to think maybe a little differently about the next decade and evolution of our space. But from your perspective, anything you would share, advice or perspective? 

John Burns (25:15): 

I'm gonna give some technology things that maybe people aren't thinking about. So, and I've been doing a lot of research on this. So, I think artificial intelligence in particular, and some of this quantum computing is really going to accelerate the health industry where you can get more customized medicine and immunotherapy and all sorts of things that can cause you to live a lot longer. So we're already talking demographically about 60% of growth in people over the age of 85, 10 years from now. It could be a lot more than that. So that's a positive. On a cautionary side of that, I think there's some things going on in robotics and, other things that can allow those people to stay in their house longer. I mean, there's already robots that will dispense the pills on time, and call 911 if somebody's breathing is a little off, or the toilet water isn't right. So pay attention to both. 

Lisa McCracken (26:26): 

The home's, the biggest competition, staying in your home. It's always the biggest competition to the senior living sector. And so I think, I mean, it's easier and easier to age in your home. Now, the socialization piece, you don't get there. And the pandemic was a big reminder of I think the importance of that. But I agree. I think it's gonna be easier and easier. And to your point about the living longer, there's a lot of time spent among folks in our sector too, just really trying to look at not just lifespan, but health span and the wealth spans not just living longer, but living longer, healthier. Some of these AI conversations go a little over my head, but there's a lot of people that are very, very bullish on what you talked about and this living longer and it's this personalized health and predictive stuff that, is absolutely a part of what we do. 

Lisa McCracken (27:19): 

I mean, it's not just housing that's provided in our spaces and you know, there's multiple elements of care, social determinants of health, all that stuff. So I definitely think, a decade, two decades from now things are gonna look very different. I had a CEO recently say to me, he's like, you know, I remember when we would do the big, everybody in the community would do a big birthday bash when somebody turned a hundred. He's like, my gosh, we're doing them all the time now like people living longer. It's just fascinating to see even some of these, multiple generations under the same roof. So yeah. 

John Burns (27:55): 

You're bringing up a good point though. There's probably some side businesses from there. I mean, people are gonna be more focused on exercising longer and there's a lot of different type of amenities you can put in there. And I'm sure you've read, like everybody's read that outlive book by Peter Atia, what you call it, medicine 3.0 where we, we get it, we get to you before the disease happens rather than afterwards, which that could be game changing. 

Lisa McCracken (28:19): 

Yeah, absolutely. And we've gotta be thinking like that as a sector without a doubt. So, I appreciate your time today. Any final thoughts? Anything we didn't touch on where you'd like to say? Lisa? I, I'd like to comment on this before we wrap up. 

John Burns (28:32): 

The only thing we skirted over a little early on was the supply. So that's the hardest thing to monitor. We started some capital surveys and maybe we should do one for senior housing too, because I think that's the best way to figure it out. If the money is flowing in, you're gonna see a lot of supply. So I guess give myself a new idea for a new survey to pay attention. 

Lisa McCracken (28:59): 

Well, and we know that there are, the senior living is more, is seniors housing is definitely more on the radar in circles that it hasn't been ever before, which we think is a good thing. And capital included in that. And it's gonna be interesting to see how that unfolds. And that's exciting. I think it requires education. So people are making smart investments 'cause the operational complexity of senior living is very different than a multi-family housing. But I think that that's exciting and it presents opportunity. Well, thank you again, John Burns for being our guest on the NIC Chats Podcast. For those of you who want to check this out and then other podcasts, you can visit nic.org, and appreciate you listening today. Thank you very much.