The opportunity for middle-market senior housing is vast — and so are the number of markets that may be a good fit for Clover Management communities.
From New York and Pennsylvania to Ohio and Indiana, the Williamsville, New York-based company is expanding its model of reasonably priced senior housing communities. Today, Clover has 35 occupied communities, with another 12 projects in the works. The company’s capital partners include private equity giant The Carlyle Group, as well as real estate investment trust Welltower (NYSE: WELL), which in 2019 acquired a portfolio of 32 Clover communities for $343 million.
At the heart of Clover’s expansion is a deep need for more middle-market senior housing communities in the U.S. — a trend that is only accelerating due to the Covid-19 pandemic. To help meet that demand, Clover has developed a vertically integrated construction model that can work in diverse metro areas across the country — the company’s “secret sauce,” according to founder and president Michael Joseph.
“We went to Pittsburgh, and we went to Cleveland, and we went to Cincinnati and we went to Indianapolis, and that gave us the idea that, as long as we stayed to a very structured system of expansion, we could really go to any of these cities and recreate the same product over and over,” Joseph said during the Senior Housing News event BUILD, which was held virtually last week.
That’s not to say doing so is simple, or that any one of these cities is a monolith. But the company is learning a little more about middle-market senior housing with each new project it undertakes, and today it’s inching closer to major markets like Philadelphia or Chicago, Joseph said.
Making the model work
At its core, Clover’s model hinges on keeping costs low during the construction and development process. The goal is to keep costs in check so that rates are accessible to Clover’s core demographic of older adults in their late 70s who are relying on a combination of savings, Social Security and a small pension to retire — the “middle of the middle market,” Joseph said.
A typical Clover community has between 120 and 125 units, and carries average monthly rates ranging from a little over $1,000 for a one-bedroom apartment to around $1,200 for a two-bedroom apartment. Residents don’t receive any meals or care as part of their monthly rates, but internet, heat, electricity, cable TV and water are all included in the base price.
“When middle-income people retire, they actually take big pay cuts typically,” Joseph said. “So, we have a very tight margin of operating.”
Having a variety of stakeholders involved in a single project is commonplace in the senior living development and construction process, but it can make controlling costs a challenge. That’s why Clover prefers to manage the entire process from development until opening, including by acting as its own general contractor.
“What we came to realize is that it’s so cost-restrictive to develop these,” Joseph said. “You have to be the whole package: you have to be the contractor, you have to be the developer, you have to be the operator.”
For now, that formula works best in non-major markets such as Cleveland, Syracuse or Buffalo, where development costs are more agreeable than in larger cities. But Clover, which has built communities for more than two decades, is still honing the model as it goes.
“We build the same thing, effectively, over and over,” Joseph said. “You build one building, okay, but by the time you build your 40th building, which is very similar to your first building, you really understand … how many nails are going in the building.”
Lean staffing, key partners
Another key component of Clover’s middle-market model is its operations, which are more pared down than other types of senior housing. The company only employs a community manager, a maintenance supervisor and worker, and potentially also a part- or full-time leasing agent.
“Our managers are as much social directors as they are anything else,” Joseph said.
The company’s residents are also one of the keys to its success. Unlike traditional multifamily apartments where annual resident turnover is as high as 50%, Clover’s properties have a resident turnover rate of closer to 15% to 20%, according to Joseph. The company’s residents also take good care of their units, as if they owned them. This alleviates costs related to ongoing maintenance and repairs.
Still, there are significant challenges to making the process work. Although Joseph anticipates that competition will heat up in the coming years, he thinks the difficulty of serving this part of the market has deterred others from entering the space while Clover has established itself.
Site selection and acquisition are two of the challenges to development.
“We want to be close to retail, grocery stores, drugstores, dry cleaners — whatever you would have that would be part of their normal lives,” Joseph said. “Which is a challenge for us, because where we want to put our sites is where regular old multifamily developers want to put their sites, and they will pay more for the site than we will.”
Although Clover had to do more work to convince capital providers of the model’s effectiveness in the past, these days, the company can point to its completed projects as evidence of its expertise. Where the company had to “fight to find capital” before, it is now able to have more “intelligence conversations” with sources of capital.
“And that led us to the realization that, boy, we can really expand this,” Joseph said.
As Clover expands, it’s also improving its middle-market senior housing model, and looking ahead to future innovations. Up next on the company’s radar is finding new ways to connect residents to care options — perhaps even in the building where they live.
The company is currently working with multiple health care providers and systems that Welltower has relationships with, Joseph said. That includes a partnership with health system Geisinger to integrate its care programs in certain Clover locations in Scranton, Pennsylvania.
In the longer run, Clover has its eye on an integrated model that co-locates middle-market senior housing with other services.
In Joseph’s “dream property,” he imagines a senior housing property with a health system’s urgent care clinic on the first floor, doctors offices on the second or third floors, and then another three floors with senior housing units on top of that.
“That would be sort of the ultimate idea,” Joseph said. “Now everything’s together, and we can really help these people to live better, longer, healthier lives.”
The post How Clover is Scaling Middle-Market Senior Living Using an Integrated Approach appeared first on Senior Housing News.