In the News: Senior Living Must Scrap Old Playbooks as Change Sweeps Industry

Brenda J. Bacon

April 17, 2019 / Senior Housing News — Senior living is in a period of tremendous change and upheaval.

Providers must accept this and get creative if they are to survive and thrive, five senior living executives said this week at the Argentum conference in San Antonio.

“I think the common theme is change — change in how we operate, change in technology, change in our consumer, change in our labor market, I think we all agree on that,” said Lynne Katzmann, CEO of Bloomfield, New Jersey-based Juniper Communities. “What do you need to deal with these times?”

Katzmann and her peers from other senior living providers that operate in different regions of the country offered a variety of perspectives on this question, pushing for new business playbooks and identifying some conventional industry practices that need to be reconsidered.

An unprecedented time

Senior living providers are facing workforce challenges of historic proportions, said Brenda Bacon, CEO of Mount Laurel, New Jersey-based Brandywine Living.

“I would say that we’re probably in an unprecedented time in terms of labor,” she said. “We’re at the lowest unemployment rate in 50 years.”

Prevailing wage rates are rising quickly, and at the same time a glut of new supply in some markets is adding to worker shortages while also suppressing occupancy. Providers are experimenting with “all kinds of new methods” to recruit and retain, and leadership is focused on this area like never before.

“Scheduling, for the first time in our company, has become a C-suite problem,” Bacon said. “We are less tolerant of call-outs, less tolerant of unintended overtime. We’ve all got to be as efficient as we can be.”

Given the scope of the challenges and the confluence of different pressures, even seasoned leaders and well-established companies are having to adapt, she emphasized.

“We’ve seen some cycles before — we’ve seen the census cycle, the oversupply, the labor issues, the price pressure, and so you tend to go back to your old playbook, this is how you fix that,” Bacon said. “And I don’t think you can fix it that way anymore. I think you have to stop and say, that’s what worked then, what’s going to work now, what’s changed, how do we bring people along in the change?”

Learn a new language

The labor pressures that Bacon spoke of demand that senior living providers “learn a new language,” said David Eskenazy, president of Seattle-based Merrill Gardens.

About 83% of job applications today are being filled out via a mobile device, he said, citing data from a company called Jobalign.

“We need to text, communicate in mobile ways, use a mobile language for a completely new society, and recognize that this is a language we need to learn because this is a language they’re speaking,” he said.

Next-generation senior living communities must be more integrated into the fabric of society, such as through being located in mixed-use developments alongside shopping, dining and other amenities and types of housing, he argued.

This is not enough, though; older adults are craving connections, and senior living providers must foster a sense of belonging and engagement. That is, providers must create communities that people want to “join,” not simply places for people to live.

“To be able to ‘join’ — that’s a word I think we should all take home with us, if there’s one word you get out of this entire conference,” he said.

Look beyond what’s known

The fast-changing senior living landscape has Juniper’s Katzmann seeking people with new skills, attributes and experience.

For example, Juniper no longer hires leaders who are only tacticians. Instead, the company needs people who are both tactical and strategic — people who can “think their way out of a problem and execute a solution,” Katzmann said.

In terms of attributes, she is placing a premium on flexibility, creativity, and most of all on curiosity.

“It’s very important to look beyond what you know to figure out solutions to new problems,” she said.

Juniper has been dedicated to innovation since its founding, and so it has a deeply ingrained culture that can handle change, according to Katzmann. However, as the company pursues a slew of initiatives — including launching a Medicare Advantage plan as part of The Perennial Consortium — it is increasingly seeking people who have experience in change management, who can support and drive change all the way through the organization.

Moving forward, change will be a constant in order to meet and exceed the expectations of baby boomers, Katzmann predicted, using herself as an example.

“I’m not sure I would want to move into one of my communities, and I think they’re pretty darn good communities,” she said. “What is today isn’t going to be tomorrow.”

A customized retirement

Chris Hollister, chairman of Dallas-based Pegasus Senior Living, agreed that senior living will undergo a tremendous reinvention driven by technology and baby boomers’ wants and needs.

“I think the next big thing is baby boomers figuring out — it’s 50 years after Woodstock — they’re going to figure out how to go back to the commune,” Hollister suggested, half-jokingly, to make his point. “Someone’s going to figure out Airbnb to co-habitate and bring in services and do their own customized retirement.”

Even as the boomers will redefine and reinvent senior living, Hollister is wary about putting too much faith in surging demand as this generation ages. Advanced medicine, a move toward proactive care to maintain wellness, technological innovations and other factors are making it possible for seniors to thrive until later in life and defer a move to congregate living.

This is especially true for older adults who have the means to tap into all of these resources — and this is the affluent demographic that private-pay senior living primarily serves today, he noted.

Developing a more affordable senior housing product is therefore one way to broaden the industry’s reach, and changing payment models could play a role.

For instance, Medicare Advantage plans are beginning in a limited way to pay for senior living services; if this expands, seniors could tap into insurance to cover costs that today are entirely out of pocket. However, if senior living’s early forays into Medicare Advantage do not go well, it could hurt the industry in the long run, he fears.

A dirty little secret

Many senior living providers are eager to transform their businesses, but they run into financial constraints, said Kai Hsiao, CEO of Lake Oswego, Oregon-based Eclipse Senior Living.

“It’s part of the dirty little secret out there,” he said. “There’s a demand for change, but can people get it accomplished?”

The financial roadblocks go beyond margin pressure due to eroding occupancy and rising labor costs, but are stemming from the capital structures and types of financial partnerships common in the industry. One problem that Hsiao singled out: triple-net leases that have providers “drowning” in rent obligations.

Implementing new technologies, launching Medicare Advantage plans and other changemaking plays burden a profit-and-loss statement, but these types of investments may very well be mission critical. So, senior living providers must communicate with and carefully choose their financial partners, which in turn may have to revise their expectations or restructure their relationships to facilitate better alignment with operators and support long-term success.

Hsiao worked in the hospitality industry prior to joining the senior living sector, and he pointed to how owners are aligned with their operating partners in hospitality.

“In hospitality, as an operating company or management company, you get paid a management fee, you get paid a technical services fee, you get paid a brand fee — all in, you’re making into the 13% range,” he said. “Any [senior living] operators getting 13% right now? Probably not.”

The good news is that there is no shortage of capital in senior living, and investors are entering the space as returns in hospitality, retail and other sectors have diminished, Hsiao noted. While not all this capital is savvy to senior living, there is an opportunity to find and work with groups that have done their due diligence and bring a new level of sophistication to the industry.