Market
is Ripe for Assisted Living
Assisted
living facilities offer seniors a more home-like environment
at a reasonable price.
By
Ron Present
Above:
Opting for assisted living at a facility like Garden Villas
South does not mean active residents have to give up lifelong
pursuits, such as golf. A putting green is one of the amenities
that help residents remain active and able to pursue their interests.
One
would think, with the growing population of seniors, that developers,
operators, and investors would be falling over each other trying
to jump into the market for assisted living. But developers
and operators are finding it a highly competitive market and
investors are discovering that the promise of big returns is
often illusionary. Even with the competitive marketplace, there
is still opportunity out there.
The
demand is certainly there. According to David Schless from the
American Seniors Housing Association, "People who need supportive
services have more options at their disposal than they did 10
to 15 years ago. Because of the increased levels of services,
approximately 25 percent of the elderly who would have gone into
a nursing home 10 years ago can now go into an assisted living
facility with a more home-like and less institutional environment."
So
what's the problem? Why do we read daily about nursing homes and
assisted living facilities closing, declaring bankruptcy, or looking
for a buy-out or merger partner?
As
with any new market, two factors are at play. The first factor
is that the first ones into the market have the first choice of
customers, and in this case, the majority of newly developed retirement
communities and assisted living properties have gone after the
more lucrative upper-end, private-pay seniors. That is where the
second factor comes in--in the senior market the upper-end, private-pay
customers are a smaller and finite segment.
The
upper-end market is becoming overbuilt and average financial returns are
declining because pricing strategies used to stay competitive
with the glut of facilities catering to private-pay customers
are cutting into profit margins. It is also becoming harder to
restructure large debt loads, because the use of bond financing
is becoming increasingly limited as the health care bond market
is shrinking.
These
market forces have developers and operators of senior housing
looking for creative new options for the delivery of senior services,
especially in the untapped middle- and low-end markets.
A
frequently overlooked segment of the senior housing industry is
existing multi-family housing communities. These communities are
home to 3.7 million persons over the age of 65 (26 percent of
all occupied apartments) and 1.5 million persons over the age
of 75 (10 percent of all occupied apartments). In many
of these "naturally occurring retirement communities," seniors
make up more than half the residents.
The
opportunity exists because many of these multi-family communities
have not been designed for the delivery of assisted living services.
They are ideal for the hospitality model of services, where hotel-like
services such as meals, housekeeping, transportation, laundry,
and some level of security is provided. These non-medical support
services can be offered without creating a perception of "nursing
home" or "institution." They also fill a need.
Above:
Meal service frees Garden Villas South residents of an assisted
living community from the chore of cooking and cleaning the kitchen,
helps assure good nutrition, and provides an opportunity for social
interaction. Most assisted living apartments, however, also include
kitchens to give residents the option of cooking for themselves.
"We
had so many people who were placed in nursing homes when they
didn't have to be, when, with a modest level of assisted living
services, they could have remained in their homes," says Mary
Rudolph, director of Chesterfield Villas, explaining why her retirement
community converted some apartments to an assisted living community.
Chesterfield Villas is one of 11 retirement communities and nursing
centers operated by Delmar Gardens in the St. Louis area.
The
residents in the Chesterfield Villas' assisted living wing can
take advantage of a wide-range of assisted living services. Rudolph
says the services are tailored to each resident's needs and designed
to allow them to remain as independent as possible.
The
move toward conversion of existing multi-family and retirement
communities to assisted living communities is supported by market
studies. A study conducted for the American Association of Retired
Persons (AARP) found that when seniors are in need of services,
41 percent of them choose to live in an apartment with services
provided. And according to the National Investment Conference
from 1998, almost 32 percent of senior housing locations are chosen
because of the services provided.
According
to the Census report of 1990, seniors' wealth has increased at
a greater rate than for those under the age of 65. Growing numbers
of adult children of seniors also are providing financial support
for senior services, because they do not live in the same cities
as their parents and therefore cannot physically care for them.
"That's
an important consideration," Rudolph says. "Children move away
and they don't want to uproot their parents in order to provide
for them--and many of the older parents don't want to have to
move. We provide that measure of security, that looking in on
mom and dad every day to make sure everything is OK, that the
children would provide if they were here."
According to market data, approximately 16 percent of seniors
needing services have assistance from their families at an average
of $200 per month.
Market
estimates indicate that non-medical services developed and marketed
correctly can be provided at costs at least 60 to 70 percent below
those of traditional senior housing services (not including the
cost of the apartment). With a lower cost structure transferred
to a lower pricing structure, seniors needing these types of services
can afford to purchase them and live there longer.
The
average cost for a resident of a traditional senior living facility
in 1998 was approximately $25,000 per year. By comparison, the
average non-subsidy multi-family housing apartment cost with assisted
living services (housekeeping, flat linens, personal laundry,
transportation, social events, and some level of meal service)
is between $14,400 and $16,800 per year.
As
the industry continues to expand, we must get out of the Field
of Dreams mentality of "build it and they will come." There is
existing housing where seniors are currently living that can be
adapted to provide a wide range of services. It may not work for
every property nor for everyone living in those properties. However,
if it works in many instances, it's an alternative worth pursuing.
Ron
Present, CPA, is principal-in-charge of Health Care Consulting
for Rubin, Brown, Gornstein & Co. LLP in St. Louis. He has
nearly 17 years of experience in the health care industry, concentrating
exclusively on service delivery to seniors for 14 years, and is
the former president and CEO of SeniorService, Inc.
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