Overheard at the Ziegler Finance & Strategy Conference
The 20th annual Ziegler Senior Living Finance + Strategy Conference, held October 4th through 6th in Colorado Springs, focused on trends primarily affecting not-for-profit senior living providers.
Nicely dovetailing with NIC’s record-breaking attendance at its recent Fall Conference, the Ziegler event also attracted a record number of attendees, including a notable uptick in first-time participants. And, as witnessed at both conferences, attendees were cautiously optimistic about growth in the senior living industry. That confidence was tempered, however, by a number of concerns: competition for labor, revenue erosion due to staffing and wage challenges, questions on how to develop consolidation and affiliation strategies to facilitate growth and expansion plans, and increased competition from for-profit providers.
These challenges suggest that not-for-profit providers must put greater emphasis on hospitality and lifestyle models, and on flexible and more affordable architectural designs, while increasing their speed to market in order to remain competitive.
A few of the key takeaways for the not-for-profit seniors housing sector from the conference included:
The consumer continues to evolve in the on-demand economy
- The desire for personalization and customization requires new products/housing solutions, repositioning of skilled nursing, affordability for a wider range of incomes, and diverse care delivery options
- Branding is increasingly important (think branded healthcare systems)
- It is not enough to focus capital expenditures on enterprise and healthcare-related technology; consumer technology upgrades need to be addressed in the boardroom
- Architectural density is rising due to affordability needs, and materials such as post-tension concrete available now at similar cost to wood frame construction are allowing for developers to build “less” (and up, with a smaller footprint) while offering greater operational flexibility of space and care delivery options
- Other trends include building towers with an abundance of glass letting in maximum daylight to enhance wellness and healing, CCRCs minus skilled nursing, pod neighborhoods, stacked flats, and designing for the comfort and convenience of the adult daughter
- Three out of four major campus repositionings now incorporate a wellness component. Some properties have expanded their current and future customer base by including wellness and rehab facilities open to public membership to integrate the property with the surrounding community, diversify revenue streams, and build brand identity
Not-for-profit providers need to embrace the disruption to current business models in healthcare and senior care
- Boomer CEO retirement will catalyze the exploration of affiliations as CEO recruitment will be difficult for smaller organizations
- Expect to see more single-sites growing into systems, systems looking to expand into new markets, struggling single-sites or multi-sites exploring affiliation strategies
- Even with continued growth of seniors housing options, the demand for services as the boomers age will continue to grow, creating future growth opportunities through partnerships and joint ventures with home and community based services (HCBS)
- Partnerships provide leverage in the healthcare marketplace, and the growth in not-for-profit HCBS will continue to flow from existing providers
Bank capital is now a significant part of the not-for-profit senior living market
- The public fixed-interest-rate bond market remains strong
- Letters of credit (LOC) backing tax-exempt variable rate demand bonds (VRDBs) predominated through 2008; the financial crisis in 2009 significantly reduced LOC volume; since 2009 direct bank purchases of tax exempt debt, taxable construction loans have replaced VRDBs
- Most of the bank credit activity since 2013 comes from refunding of LOC or fixed-rate debt, however, new money issuances are up significantly
- The majority of bank credit has come from regional banks since 2009 but not-for-profits are seeing a higher proportion coming from national banks
Not-for-profit growth depends on the efforts of existing providers, acquisitions and consolidations
- Not-for-profit providers do not have the same access to capital as the for-profits, and the growth of new, not-for-profit senior living organizations is waning; new growth is now commonly originating with existing providers, mainly the largest 200 multi-site providers and large, financially strong single-site providers
- Acquisitions by not-for-profit organizations are on the rise, and organizations that are financially strong and have cash to acquire communities can seize these opportunities to build out properties and enter new markets
- The for-profits are increasingly moving into markets lacking updated products and services, with more cost-efficient systems, and smaller units to provide affordability and flexibility, along with more common amenity spaces
- However, not-for-profits may have a competitive edge over for-profits in the post-acute space with new concierge-based models and with the expansion of a variety of services offered to seniors living outside of the property
As change accelerates and the status quo is disrupted, all providers need to think differently about planning for the future. Product evolution and the threat of obsolescence, significant convergence in housing and healthcare, the complexity of delivering multi-dimensional services when and where the customer prefers, occupancy pressures, higher patient acuity, bundled payments, the regulatory environment, and managed care pressures may be viewed as threats or opportunities. But successful execution will be key to remain competitive in a market environment where increasingly, choice proliferates.