Repositioning is not a new trend in the senior living industry, but it is one that could gain momentum in the latter part of 2022 and into 2023. There are a few reasons why.
The U.S. Federal Reserve has made several recent rate increases with potentially more on the way, which, in combination with rising expenses and lenders tightening their belts, could toss a wrench into future development plans. At the same time, about 40% of the senior living communities in the 31 major metro markets it tracks have average occupancy levels under 80%, according to NIC MAP Vision data.
That difficulty in getting new projects off the ground, coupled with the need to renovate older communities with depressed occupancy, is pushing more operators to take a renewed look at repositioning communities within their own portfolio instead of building anew.
As leaders at senior living operators Merrill Gardens, Vitality Living and Benchmark will tell you, doing so is rarely easy, but it is rewarding if done properly. All three companies have engaged in repositioning efforts as part of their growth strategies in recent years and in the process amassed a wealth of experience.
Market analysis
Like any senior living project, planning a community repositioning starts with analyzing the local market.
Waltham, Massachusetts-based Benchmark, which has a portfolio of 64 communities, recently encountered new competition in its stomping grounds and territory of New England. And “that has changed the way that we position our products,” Benchmark Vice President of Investments and Budgeting Dennis Murphy said during a panel discussion at the 2022 NIC Fall Conference in Washington, D.C.
From a design perspective, repositioned communities usually lack the “shiny penny” appeal of new communities. But, “you can be effective in still getting an NOI and driving great performance” by carefully planning such projects, he said.
“Just make sure that you have your hand on the pulse for what the market has done, what new competitors are charging and how you can position yourself against them,” Murphy added.
For Benchmark, that process begins with sizing up the competition in a market and what’s been successful. The company utilizes information from secret shoppers, from data sources like NIC MAP Vision and from its own salespeople on the ground.
Merrill Gardens has set out to reposition a portfolio of communities in the creation of its new Truewood brand. The communities were “a little bit older,” and the company sought to reposition them for the middle market.
Similar to Benchmark, the Seattle-based company starts with analyzing data from sources such as NIC MAP Vision, according to President Tana Gall. But her leadership team also uses “old school” methods such as visiting project sites in person to “kick the tires.”
That way, they get a sense of not only the competitors in any given market, but also more nuanced characteristics such as where the grocery stores and local attractions are located. In one instance, Gall said she visited a hotel in California and asked what it was like hiring housekeepers there.
“That’s how you get really good information about what it’s going to be like to actually operate that building,” Gall said. “You can read stuff on a spreadsheet, you can read it in an article, but unless I’m there and I’m feeling it and I’m touching it and I’m seeing it, it’s a little hard to grasp.”
Like Gall, Vitality Living CEO Chris Guay agreed that market immersion is a good strategy for repositioning projects. He stressed that, in addition to studying demographics, operators should also study the local workforce to ensure their future community can meet its staffing needs.
“You really have to understand where your employee is going to come from,” Guay said. “Because you can buy a great building that’s got a great design and great income demographics, but if you can’t staff it, you’re done.”
Guay also noted that senior living operators should adopt a mindset more akin to staffing companies. Vitality Living operates 30 communities in states from Texas to Virginia.
Gall added that more senior living companies ought to think like hotel operators with regard to efficiency. To that end, Merrill Gardens employs workers in a “resident experience partner” role to handle multiple tasks.
“We have to find a way to provide the same amount of service with fewer people — it’s just a fact moving forward, at least for the next few years,” she said. “A good example is … Hyatt Place, where you walk in and the same person is going to check you in and they’re going to get your bottle of water.”
When to reposition
Senior living operators often not only face difficult decisions regarding how to reposition a community, but when to, as well. All three leaders agreed that market forces dictate when to reposition — but understanding that is the easy part of the equation.
The best time to start thinking about repositioning is before new competitors move in and occupancy starts dropping, Gall said. That is why Merrill Gardens watches demographic trends and keeps a close handle on data.
“Who’s moving into the market? What does it look like? On the employee side, do you have a lot of agency, and is it because you can’t recruit in that area?” she said, referring to the criteria she might weigh in a new repositioning project.
To Guay, the key of knowing whether to reposition a community lies in never getting too comfortable, and in staying on top of current market conditions.
“If you get comfortable in a market, you will lose,” he said. “It’s constantly looking at what’s going on, what’s shifting and what’s evolving.”
He used the example of an assisted living acquisition in Tuscaloosa, Alabama. The property, which started as independent living before adding assisted living — was “half empty and not really working,” Guay said. Ultimately, Vitality chose to close down the property’s assisted living wing, a tough but necessary decision, he added.
Benchmark has dealt with this trend firsthand, according to Murphy. Many communities in the company’s portfolio are at or over 20 years old, and are located in markets that may have evolved over the years.
When determining whether a community needs a facelift, Benchmark examines the use of the spaces within it. For instance, the company’s leaders examine whether there is an opportunity to better utilize common areas or dining spaces.
“What are the new amenity spaces that you would put in these new buildings, and can I take an existing product and develop some of those in that space and make that amenity still attractive?” Murphy said. “There are a lot of creative operators who have come up with ways to reposition these spaces, make them attractive and bring new things that didn’t exist 15 or 20 years ago — this is your opportunity to do that.”
Art of the reposition
Once a senior living company determines they will reposition a senior living community, the hard work of determining how begins.
For Murphy, efficiency of staff is a big priority. When repositioning an existing building, the company will determine whether the current resident layout makes sense. Moving residents around is a “kind of painful process,” he said, but sometimes a necessary one for long-term success.
“Operators that don’t take a fresh look at that and leave people scattered around the building in these long hallways in large buildings are missing an opportunity,” he said. “And I think that’s where you need to think a little bit outside the box … to have those tough conversations and move a couple of residents to make it as efficient as possible.”
Sometimes, the best senior living repositioning isn’t a senior living community at all. Adaptive reuse projects, such as those that turn hotels into senior living communities, have gained favor among some companies in recent years.
Merrill Gardens has adapted properties including hotels and schools in the past, and Gall said such projects can be done under the right conditions.
“The tricky part for what we do, when you’re looking at some of those conversions that aren’t like a big hotel [are things like] the commercial kitchen, can you get that done?” she said. “And if not, you better rethink the way you do — and that’s okay, too.”
But there are factors that make hotel conversions tough, too. For example, prohibitively small floor plates may limit the amount of units an operator can put in a building in the end. And although Benchmark saw some distressed hotel opportunities since the start of the pandemic, the company ultimately did not chase them.
“You just have to be in at the right basis and know that you’re going to lose keys and doors, and you have to make sure your staffing can be efficient at the end of the day,” Murphy said.
Guay noted that he has seen “a lot of older hospitality product that’s in a great market but not really good for hospitality that could be great for our business.”
At the end of the day, however, the preferences of the baby boomers will drive why and how senior living operators undertake community repositioning projects. And that may be challenging, as they have “champagne taste on a beer budget,” Guay noted.
“Ultimately, how are we going to create a product for a consumer that doesn’t know if they really want it, and when they do want it … they probably can’t afford it,” he said. “It’s figuring out how you use technology and those pieces to come together and bridge that gap.”
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