An Assisted Living Owner/Operator’s Thoughts on the State of the Industry.
It is widely reported that occupancy levels are at recent lows, and owners/operators have been feeling the pressure for years. These trends are more acute in certain geographies, but, with very few exceptions, there is certainly a degree of census softness across the country. How did the industry get here, and what can be done about it are two very different questions, with the later having very few answers.
It is important to note the next few paragraphs are just the observations of one owner/operator, based on his experience. They are not intended to be reflective of the entire market or of all segments of the seniors housing industry.
Overbuilding… of course.
It is clear that a decade of historically low interest rates, and low cost of capital to individual and institutional investors alike has resulted in years of new supply pouring into the market. These investors have long-term time horizons, and their patience and low return requirements have resulted in dramatic overbuilding in many cities across the country. Some markets are absorbing these new units, but others remain in a state of continued construction.
The face of assisted living has changed
What is less obvious to new participants to the industry is that acuity levels have been steadily rising in the assisted living space over the last decade. In part, recession of 2008 can be pointed to as the catalyst of this acuity shift, which changed the face of assisted living. The result of potential residents delaying their move to assisted living because of difficulty selling their homes, was that when they did come to the industry, they were further along in their disease states than they have ever been. Although we expected this concern to be resolved through a rebound in the overall economy, it did not. Since then, the industry’s image is now one of older seniors, with more health concerns, perpetuating the advance of acuity levels in the segment. The once active community with vibrant residents looking for companionship has turned into a community of seniors with deeper care needs that are moving because of necessity rather than a lifestyle choice.
The result of the impact of the 2008 recession is dramatically shorter average length of stay, which combined with overbuilding in most markets, results in operators running twice as hard to remain in place.
Employment & Staffing
Even in the face of dramatically increasing competition and shorter length of stays, the greatest of the challenges in the assisted living industry is likely to be neither of these, although the impact of both of these exacerbates what is likely the biggest concern to daily operations of senior living providers. Finding qualified and passionate team members is likely the concern that most frequently keeps owner/operators up at night. The industry is full of participants that are passionate about residents and improving the quality of care in their communities, but building and retaining a motivated work force can be considered the greatest challenge in the industry, especially because census concerns and subsequent rate compression make it more difficult to provide salaries and benefits to associates that deserve improving compensation.
What, if anything, can a provider do about it?
Assisted living is faced with significant challenges, for which there are few short-term solutions. No single action, for sure, can solve a communities’ concerns, nor can providers sit back and wait for the demographic trends to solve local absorption issues. In the meantime, providers should be focused on:
- Building relationships. Seeking new ideas from a variety of outsiders who know senior living. There are a variety of companies that serve the industry that have seen innovative approaches result in successful efforts within the community. Creating meaningful dialogue with these qualified industry professionals to build a true team approach can help you to ‘look up’ from the weeds of your business and see what opportunities might exist to drive change.
- Re-calibrate to focus on your passion. You got into the industry to help people. Although key business functions are important, taking a step back and motivating team members to provide the absolute best care for your residents will help your community to re-prioritize. I believe that a great and caring community will eventually break through, and census will follow. With reckless abandon, celebrate the incredible things that you and your team do for your residents.
- Create an environment that is supportive of your employees. Assuming you provide a base level of compensation and benefits, creating a working environment in which your team is supported in their mission, celebrated for their passion, and coached to improve quality of care and teamwork will help your community to build a reputation of being the best place to work in the industry. You are searching for the best of the best of those that care for seniors, and it is a competitive environment. Creating core values, evaluating your team based on these values, and promoting those that fit your values will naturally build a team of people that share a common bond that is ultimately defined by community leadership.
At the end of the day, there are market forces at work that have a high degree of impact on the success of owner/operators in the business. For sure, it will get better, and positioning your community to come out of this state of hyper competition is key to survival.