Moderator Kai Hsaio, CEO of Eclipse Senior Living, and panelists
Thomas Grape, chairman and CEO of Benchmark Senior Living, Gaurie Rodman,
director of development services for Direct Supply, and Judy Marczewski,
CFO of Leisure Care, discuss the middle market.

Several panelists shared insights about current and potential efforts to meet middle-income older adults’ senior housing and care needs on Tuesday at the National Investment Center for Seniors Housing & Care’s Middle Market Investor Summit in New York City.

The event came as NIC released an analysis showing that reducing the annual cost of senior living by $10,000 could enable 2.3 million more older Americans to afford it, and reducing it by an additional $5,000 on top of that would enable 3.6 million more people to afford it.

Here are a few insights that caught our attention.

| Read our previous coverage of middle-market issues here.|

1. Market middle-market communities based on lifestyle, not affordability.

Waltham, MA-based Benchmark has found success opening an assisted living / memory care community that offers shared units — or what the company calls companion units — as a way to reduce costs for the company and for residents. Consumer response has been positive, Chairman and CEO Thomas Grape said.

“Because of the smaller building size, the way that we marketed this was not as a lower-cost option but as a high sociability option,” he said. “We encourage folks to spend more time in the common areas rather than in their units, and when you walk into this building, the vibe is electric.”

Benchmark saved money, he said, by building where land was less expensive and using some wood frame construction instead of steel and concrete. The building is 25% smaller because of the shared units, so the company was able to reduce staffing by 15%, he said. There is no dining room manager and slightly fewer housekeeping, activities and physical plant staff members, although care staffing levels were not affected.

The company has two additional middle-market communities opening soon, and they will feature some one-bedroom units in addition to shared units, to offer some variety, based on feedback, Grape said.

2. Build communities for the middle class based on what research shows they can afford, then spend much time in advance thinking about how to realize efficiencies through design and operations.

Seattle-based Leisure Care has taken a different approach.

“There are a lot of ways to do this, but it has to be thoughtfully designed,” Chief Financial Officer Judy Marczewski said.

The company recently opened its third independent living community for middle-income older adults, she said. Labor costs can be reduced by designing the kitchen to increase efficiency and thinking about menus and food — for instance, offering high-quality food but fewer options, and preparing meals throughout the day rather than all at once.

Serving the middle market doesn’t necessarily mean using the cheapest equipment, either, Marczewski said. Higher-quality kitchen equipment can mean that fewer staff members are needed, she said, and more durable furniture and fixtures can provide long-term value by not requiring as many repairs.

Leisure Care does not directly provide therapies or home health at the communities, Marczewski said, although the communities have space to offer those services around-the-clock on-site.

“That provides some other benefits for being able to build that out, as well as not having the start-up staffing that you need to have,” she said. “That allows us to keep the pricing down.”

3. Regulators must evolve.

“The regulatory environment has to change,” Gaurie Rodman, director of development services at Direct Supply, said, advocating educating “those folks that are looking at permitting our buildings.”

“The requirements they’re placing around construction, that cause undue burden on construction cost, the number of ADA units or how big the units have to be or the space you have to allocate. …We have to take a look at that and see how we can build buildings less costly while still meeting the needs of this population,” she added.

4. Serving the middle market requires a new mindset about senior living — from operators and prospective residents.

“The private-pay seniors housing industry, to a certain extent, has followed a [modus operandi] that it’s never gotten away from, which is, it distinguished itself from skilled nursing, and it distinguished itself to its market, by saying, ‘Look how beautiful we are compared to skilled nursing,’ ” said Bob Kramer, NIC founder and senior adviser. “And then the more folks entered in, the competition was, how much more beautiful you were than the project down the street. …As a result, we’ve been focused so much in the industry on differentiating by our bells and whistles,” he said.

Trade-offs will be required to deliver a more affordable product, he said. Amenities may need to be cut, said Pam Herbst, managing director at AEW Capital Management.

“As some point, you have to say, ‘Not everybody can afford a Ritz-Carlton. And you’ve got a lot of people who can only afford Embassy Suites,” she said. “As a country, we’ve got to get realistic about what’s provided.”

Reducing operating costs is difficult, said Herbst, who recommended focusing on ways to reduce total development costs and taxes.

5. The industry, the government and older adults will suffer if middle market-related challenges aren’t addressed.

“If we, as the private sector, aren’t part of the solution to this, there will be hell to pay,” Kramer said.

If middle-market needs aren’t addressed, he said, many older adults will be “shut-ins” in their homes, governments will face unsustainable pressure on safety-net programs, regulations will “be 10 times tougher,” and operating on the coasts will be much more difficult.

“If this industry is seen only as caring about wealthy elders, there will be hell to pay,” he reiterated.

NIC’s three-hour live and webcast event featured panel discussions focusing on operations, equity and debt. Watch the webcast and see related materials on NIC’s website.

Read McKnight’s Senior Living’s previous coverage of middle-market issues here.

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