Almost a third (30%) of the organizations included on the 2022 LeadingAge Ziegler 200 list released last month provide third-party management to at least one other community.
Such management occurs in both market-rate communities and affordable housing properties, Lisa McCracken, director of senior living research and development at Ziegler, wrote in the specialty investment bank’s newsletter this week.
According to McCracken, companies venture into third-party management for three reasons.
1. To diversify revenue or expand their service lines.
Companies have been known to set up a new business line by way of their third-party management services, or to set the ventures up as subsidiaries, as Christian Living Communities did with Cappella Living Solutions in Colorado. McCracken said that some organizations, such as in Ebenezer Senior Living in Minnesota, manage more communities than they own.
2. To take an interim step toward affiliation.
Third-party management services allow companies to get to know one other as they consider a possible affiliation. For example, McCracken said, the Well-Spring Group managed The Village at Brookwood from 2017 until the community’s acquisition was finalized earlier this year.
“There are a number of not-for-profit organizations who are open to third-party management of another, but only if it is moving towards an affiliation agreement,” McCracken wrote.
3. To temporarily support a peer needing assistance.
Lastly, she said, sometimes a company will step in to manage another organization during a period of transition. McCracken said that this reason is less common than the other two scenarios.
Third-party management is not for everyone, however, McCracken said.
Whether a provider is considering taking on the management of another community or operating under the management of another organization, she said, “These decisions require time spent with the board in dialogue about the benefits and potential downsides of management arrangements.”