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Among the many lessons that Covid-19 drove home in 2020: No one can predict what the future holds.
But as the senior living industry battles the latest wave of infections and starts to beat back the pandemic through vaccination, it’s also more important than ever to look ahead and try to identify what trends will help, hinder or complicate efforts to recover from the worst year the sector has ever endured.
Assuming that the vaccines prove effective and can be widely distributed by the spring, senior living businesses will enter recovery mode in 2021. But as they try to regain occupancy and normalize operations, they will also be on a new playing field — one shaped by Covid-19.
In fact, the pandemic broke the senior living mold. Going forward, the way that communities are developed, designed, marketed and operated will change. Not only 2021 but the next several years will be shaped by efforts to create the next iteration of senior living.
Doing so will not be easy. In the next year, disruptive forces that were present before the pandemic will again rear up; a new administration will begin steering the ship of state; consumers will bring higher expectations and deeper anxieties; and the economic, psychological, emotional and physical toll of Covid-19 will weigh on every aspect of society.
So, even as the vaccine allows them to look ahead with renewed hopefulness, senior living providers will have to draw on their strength and stamina to keep pushing in new directions in 2021.
A new health care paradigm reshapes senior living
Senior living has always offered a blend of health care and hospitality, but debate has raged over which aspect is more important.
Now, the matter has been settled. Senior living is above all a health care product.
Consider the case of Windsor, California-based Oakmont Senior Living, which operates about 30 communities in the Golden State and Nevada.
“Pre-Covid, our value proposition was the luxury of a highly amenitized building, hospitality, renowned five-star dining experiences, amenities like massage rooms, fitness centers, pool, spa and sauna … and that’s what enticed many seniors to move into our community,” Oakmont COO Matt Stevenson told SHN in June. “Covid shifted the value proposition completely.”
The provider made investments in its clinical capabilities, including hiring a medical director, and the company shifted its sales process to focus primarily on care and safety.
Oakmont is not alone. Across the United States, other senior living providers were also bolstering their health care offerings, including by bringing on new clinical staff; implementing telehealth capabilities; and working more closely than ever with hospitals and health systems to manage the flow of patients.
Meanwhile, industry associations spent months intensely lobbying state governments and Capitol Hill, making the case that assisted living is part of the health care continuum and should be included in financial relief and distribution of personal protective equipment, Covid-19 testing supplies and — now — the vaccine.
The pandemic will eventually pass, but its lesson is clear: Providers must accept that their communities are home for a population that has significant care needs and is especially vulnerable to infectious diseases.
Protecting the wellbeing of this population must form the foundation of everything from building design to daily operations, with hospitality — whether extravagant or more bare-bones — layered on top.
In 2020, senior living communities did their best to adapt to this paradigm while facing unprecedented financial and operational pressure. In 2021, expect more substantial changes as providers revisit their long-term strategies.
More providers are likely to get on the Medicare Advantage bandwagon, as the ability to offer more coordinated care now has taken on even more luster. CapEx projects and new developments will reflect the lessons learned in the pandemic, and feature more outdoor access, ways to isolate residents more comfortably, more touchless technology, more intensive air purification systems, dedicated telehealth spaces and on-site clinics, and other health-focused adaptations. As at Oakmont, sales and marketing messages will change to emphasize how these changes will keep residents safe.
In addition, more partnerships will flourish between senior living providers and other parts of the health care continuum, accelerating a trend that was already being driven by Welltower (NYSE: WELL), Belmont Village, and other organizations.
And, with assisted living providers now accepting government financial relief, federal regulation might be inevitable.
That might seem like bad news, but if senior living providers are prepared to work with regulators, they may be able to limit the scope to reasonable measures. Regulation could even bring some benefits in terms of standardizing the industry and clarifying to consumers what assisted living means.
These changes will define a new era for senior living, and not all providers will be eager to accept the mantle of health care. But they might keep in mind the words of Brandywine Living CEO Brenda Bacon, who stressed that this is an opportunity for senior living to define itself.
“We don’t have to be a junior version of the hotel industry or a junior version of the health care industry,” she said. “We can be our own industry because it is a unique product.”
A rising tide will lift all providers — then some will sink
The next 12 months will surely be better than 2020 for senior living providers. But leaders in the industry are divided on how quickly the vaccine will be able to turn the tide on Covid-19, and how rapidly occupancy will rebound once that happens. However, there is almost certainly some pent-up demand in the marketplace, so census numbers should start to rise once the vaccine safeguards communities from infection.
Stronger occupancy and other metrics will bring a collective sigh of relief. But expect the initial period of recovery to give way to more pain, starting in the latter stages of 2021.
That’s because weaker providers will be temporarily propped up as the economy restarts and move-ins tick up, but businesses that lacked the operational chops or the capital to keep improving and innovating in the midst of their Covid-19 response will soon start to struggle again.
These weaker providers will not be able to keep drawing consumers, who will have higher expectations around safety measures, technological offerings, clinical capabilities and transparent communication. These companies will be spurned by health care providers that are seeking to work with high-performing senior living partners. And they will lose ground in a disruptive environment where older adults have more options for where they live and receive care, such as: co-housing communities; with family members who are now working from home full time; and in their own homes, supported by the ever-widening array of on-demand services that they became adept at using during the pandemic.
In other words, leeway from capital partners and limited amounts of financial stimulus helped some providers weather Covid-19, and resurgent demand will keep them afloat a while longer — but when the market returns to a purer survival-of-the-fittest contest, the pandemic’s more lasting effects will start to become apparent.
Owner-operator tensions boil over
In the early days of Covid-19, many senior living owners and operators pulled together to weather the crisis. But there are rumblings that tensions are now on the rise.
Owners understandably can’t give unlimited latitude to operators, and as vaccinations occur and the economy re-starts, ownership groups will be expecting financial and operational improvements. But, even with a vaccine in hand, operators have a long and hard road ahead of them, especially if pent-up demand is weak. They already are in price wars in some markets, as some communities resort to discounting to drive occupancy — at the expense of net operating income. And operators will be weighed down with dramatically higher insurance expenses, and labor and equipment costs that spiked during the pandemic may also remain elevated.
So, there will be situations in which operators feel they are being held to unreasonable standards and are being forced into short-sighted strategies to meet financial targets. Owners, meanwhile, will become frustrated at what they perceive as recalcitrance or a lack of successful execution from operators.
When these tensions hit a breaking point, owners and operators will go through some ugly splits.
Impatient capital — including some of the private equity investment firms that jumped into senior living in recent years — may simply head for the exit early and get out of the sector. This is to the industry’s ultimate benefit but will create near-term dislocation.
Real estate investment trusts (REITs) and other more long-term owners are more likely to bring in new management companies to take over parts of their portfolios that are lagging. This could be bad for the industry, if these owners are too quick to jettison high-quality operators and bring in management companies that are more focused on filling beds or meeting other financial objectives, instead of creating models that are sustainable in the long term, rooted in strong cultures and high-quality care.
Short-term thinking is a danger of the management contract model, and owners might be well-advised to heed the words of Aegis Living CEO Dwayne Clark: “Being shortsighted and not investing in the right management company upfront is a growing epidemic in our industry. Owners that want long-term success must align profit, motive and enterprise value with the operator.”
The digital age of sales and marketing finally begins
When Covid-19 hit, senior living providers had to pivot to digital sales and marketing “overnight,” Atria Senior Living CEO John Moore recently observed.
In 2021, providers will solidify their digital-first sales and marketing approach, marking a long-overdue industry shift. Underpinning this shift is a consumer base that now is more familiar than ever with using digital channels to purchase products ranging from groceries to cars and even houses.
This shift to digital was a long time coming. As recently as 2016, direct mail, in-person events and print ads beat out digital marketing methods in an industry survey by Brooks Adams Research and the American Seniors Housing Association (ASHA). So, while some providers had the digital tools and know-how to adapt readily to Covid-19, many other providers had to make bigger investments and operational adjustments on the fly.
With the pandemic making in-person visits impossible, sales and marketing teams adapted by implementing virtual tours and leveraging their websites, social media and online advertising more heavily than ever to reach prospects.
Compared to a year ago, internet advertising was generating 106% more inquiries for independent living, 54% more inquiries for assisted living/memory care communities, and 27% more inquiries for life plan communities, according to Oct. 2020 data from Enquire.
In 2021, providers are going to make additional investments in technology and people and be more strategic in how they operationalize a digital-first sales and marketing function. One provider that operates a portfolio of more than 2,000 units recently told Senior Housing News that the company is increasing its sales and marketing budget by 40%, with the majority of that increase being allocated to digital efforts.
And providers — especially those that have under-invested in digital up to this point — have a lot of work to do. Action items include updating websites so that they are not simply virtual brochures but are interactive and capture valuable data about consumers; implementing greater automation; leveraging video more effectively; and implementing more powerful customer relationship management and other tools to enable a data-driven, omnichannel approach.
The greater investment in digital also should help providers’ efforts to rely less on third-party referral streams. But providers have to be realistic about the role that third parties play, in terms of their reach and their ability to add efficiency to the complicated and often confusing process of selecting a senior living community.
Being able to reach consumers on a large scale is especially important because media coverage of Covid-19 worsened the confusion between nursing homes and senior living, so the industry faces the daunting task of dispelling misinformation and winning consumer confidence. Step one is being able to effectively reach as many people as possible where they now spend so much of their time: staring at the screen of a smartphone, tablet or computer.
Big-money SPAC deals drive market consolidation, integration
Special purpose acquisition companies (SPACs) are poised to make a significant impact on the health care landscape — and that includes senior living.
Also known as “blank check companies,” SPACs raise capital in public offerings, which they then use to acquire and take public companies with high growth potential. In 2019, 59 SPACs raised $13.6 billion in their initial public offerings; in 2020, a record 210 SPAC IPOs raised $72.4 billion, according to SPAC Research. As The New York Times DealBook put it: “The undeniable star of the deal industry in 2020 was the SPAC.”
Health care companies that focus on the older adult market have been among the most popular targets for SPACs. In particular, SPACs have gotten behind care providers that contract with Medicare Advantage plans to offer coordinated care to older adults, including primary care and services related to the social determinants of health.
Among these deals: Cano Health is going public after merging with a SPAC in a transaction that valued Cano at $4.4 billion; Alphabet-backed Clover Health is going public via a SPAC merger that valued Clover at $3.7 billion; and CareMax is merging with a SPAC to create a public company with an $800 million market cap.
In other notable news, the founder and former CEO of UnitedHealth Group is launching a SPAC with the intention of raising $300 million to acquire and combine companies that serve the senior market. The SPAC intends to assemble a platform of symbiotic businesses to address older adults’ unmet needs, “from lifestyle to health care.”
Expect more big deals in 2021, because SPACs typically have two years to find takeover targets, or they must return investors’ money.
So, the clock is ticking on these companies to deploy massive amounts of capital, and the result could be rapid growth in more technology-driven, coordinated approaches to how older adults live and receive health care.
Meanwhile, senior living providers in recent years have become more integrated in the overall health care system, including by launching their own Medicare Advantage insurance plans or partnering with MA insurers. And Covid-19 has further highlighted that senior living is a critical piece of the puzzle to keeping the growing population of older adults healthy — and to keeping health care costs down.
So as SPACs look to assemble their portfolios, they may even consider acquisitions of senior living providers.
Juniper Communities CEO Lynne Katzmann, a driving force behind the integration of senior living with MA, said, “An integrated platform for serving older adults so that they remain healthy makes sense — lots of sense that will likely yield many ‘cents.’”
A new generation of CEOs rises
Covid fatigue is not just taking a toll on frontline workers. The top leaders at senior living providers have also been through an incredibly taxing year, and it’s a pattern in business that CEO turnover rises on the heels of a crisis.
For example, between 2008 and 2019, CEO turnover as U.S. public companies peaked in January 2009 — about one year after the start of the Great Recession. So, it stands to reason that top executives who saw their companies through the worst of the pandemic might be looking for the exit when the vaccine brings more stability to operations.
And senior living might be overdue for a changing of the guard. Even before the pandemic, the average tenure of CEOs in the nonprofit space was nearly 16 years, according to LeadingAge/Ziegler data. And while CEOs might be feeling burned out in 2021, they might also have a better sense of who is ready to take the reins, because the pandemic provided a crucible for younger leaders to prove themselves.
“A few of the leaders that are into their 60s are not seeing a reason to keep going,” Ziegler President and CEO Dan Hermann said on a recent webinar. “Instead, they’re saying, ‘Why don’t I use this at a time to step away?’”
Not to mention, senior living organizations might also have more opportunity than in the past to hire experienced leaders from other industries that were largely shut down due to the pandemic, including hotels and restaurants.
A new generation of CEOs should bring fresh — and, hopefully, more diverse — perspectives that will help revive the industry after Covid-19. But, they will also be taking the reins during a time of rebuilding and uncertainty. So, creating a sense of both stability and new possibilities will be among their biggest initial challenges.
Small cities become development hotbeds
Before Covid-19, heavyweight developers such as Related Cos. and Hines were partnering with providers like Atria, Watermark and MorningStar to bring projects to major metros including New York City and San Francisco. These pipelines are still underway, but in 2021, expect much smaller markets — think Bozeman, Montana or Tupelo, Mississippi — to become hotbeds of new development.
That’s because the pandemic led to outmigration from the largest U.S. cities, and work-from-home policies are now enabling people to prioritize quality of life over the location of their job. They’re likely looking at places with less density, including college towns and spots with good weather, as well as places where they already have family.
Among the locations that saw the biggest influx of new residents during Covid-19 were places like Katy, Texas and Cumming, Georgia, according to U.S. Postal Service data. Meanwhile, the number of people moving out of Brooklyn quadrupled compared to 2019.
As the population shifts toward these smaller markets, real estate development — including senior living development — will follow. Two cases in point: Bozeman is already on the radar of Chicago-based developer CA, and new developer WELL — involving former executives with Sterling Bay and Avamere — has made Boise, Idaho its home base.
“Active seniors come to towns like Boise, and they see cost of living that is 35%-40% less than where they are coming from, with equivalent amenities, and unlimited opportunities for wellness and outdoors,” WELL Founding Principal Ryan Haller told SHN. “Usually, their adult children and grandchildren are attracted and come along for the ride.”
And this trend also holds the potential to help meet the growing need for middle-market senior living.
“The land costs are going to be less than in some more dense urban areas,” NIC Chief Economist Beth Mace said. “And if you can get the basis down, that’s part of the secret to making middle-income housing available for seniors.”
Active adult outshines independent living
Fear of contracting Covid-19 might not have been the biggest factor deterring people from senior living in 2020. Rather, the fear of being isolated from loved ones held them back.
Because they generally had less strict visitation bans compared with independent living, active adult communities held more appeal for some older adults. In some cases, they even moved out of IL and into an active adult rental community.
“People are deciding that if they can move into active adult, where there may be a nice meal plan, they can socialize a little bit better than they can today, and their families can still come visit, they’re going to do that,” said Pedro Soares, CEO of senior living sales enablement solution Sherpa.
The sales numbers reflect the strength of active adult. In November, move-ins were two times higher in active adult than in other care segments, Soares told SHN.
The performance of active adult during the pandemic will only add to the significant momentum that active adult rentals have built up over the last few years. Major developers such as Greystar have created significant portfolios — and Greystar now has learned lessons from its first projects and is going in new directions with its Album brand. Meanwhile, traditional senior living players continue to enter the active adult space in growing numbers, with Allegro and Vitality Living being two examples.
Vitality’s first active adult community might be a harbinger of things to come; the project includes innovative “quad” style houses that offer a blend of socialization and privacy at a lower price point. And, future phases of the project could include assisted living and memory care — creating a continuum that replaces traditional IL with active adult, with the expectation that through technology, residents will be able to age in place for longer periods of time before needing or wanting a congregate setting.
To be fair, independent living also has held up reasonably well during Covid-19, and the performance of IL is contributing to Fitch’s stable outlook for life plan communities in 2021.
But Covid-19 might have been the turning point in proving active adult’s value proposition, making it more appealing than IL to more investors, developers, operators and consumers.
Trial-and-error period starts for new senior living models
As all the trends above show, almost every aspect of senior living has been affected by Covid-19, prompting fundamental changes in how communities are designed and run.
But developers, architects, operators and other professionals across the space will have different ideas about how to create successful senior living communities for the post-pandemic age, resulting in a period of innovation and experimentation.
Already, some organizations have begun to integrate lessons learned and new approaches developed during the pandemic to create their next-generation models. Atria, for instance, unveiled what it is calling “the community of the future,” and Watermark is aiming to be the “Tesla of senior housing” with its “precision wellness” model. These projects and approaches showcase some of the most important elements that will drive innovation in 2021 and beyond.
Among those elements, technology is prominent, because senior living relied on technology like never before to weather the pandemic. Going forward, communities clearly must have robust infrastructure to support stable connectivity in all locations, but that is just the starting point.
Tech will have to be baked into all aspects of design, from monitoring capabilities that can help with future contact tracing needs, to touchless systems that underpin infection control, to the use of voice-activated in-unit resident engagement technology like Merrill Gardens’ Google Nest initiative. Entire rooms might be dedicated to telehealth visits, which were essential during Covid-19 and will remain a more common way for residents and even staff to connect with clinicians after the pandemic.
Future models also will try to lessen the burden of isolation if other pandemics or serious infectious disease outbreaks occur. The small-house model is promising in this regard.
Even before the pandemic, the small-house trend was gaining steam. For instance, more life plan communities were creating pocket neighborhoods of small houses arranged around communal outdoor spaces. New players on the scene, such as Cantina Communities, were planning projects consisting of small, tech-enabled homes. And Green House Founder Bill Thomas had introduced his Minka tiny houses, with providers such as Christian Living Communities exploring their use.
Expect even more small-house projects going forward. Small houses are larger than typical apartment-style living units, meaning they are more comfortable places to be if residents do have to self-isolate. And direct access to the outdoors and close proximity to neighboring small homes means that socially distanced interactions are easier.
The small-house model is just one potential route to innovation, and there certainly will be others, with co-housing and co-ops, and large buildings broken up into more self-contained suites or neighborhoods, also appearing to hold promise. But even more creative and unpredictable approaches will be taken, perhaps from entrepreneurs who witnessed the problems besetting the industry during the pandemic and have bright ideas for a better model.
Some of these experiments will ultimately falter or fail, but those that succeed will be more widely emulated across the industry. The winners will not be determined in the next 12 months, but exciting glimmers of what is in store for the future will start to appear.