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How Unit Mix Helps Arrow Senior Living, Bridgewood, Priority Life Care Hit Higher Margins

As operators tweak their portfolios in 2023 with margins in mind, unit mix is among their most crucial considerations.

New data from the National Investment Center for Seniors Housing & Care (NIC) showed that appropriately sizing care segments is one of the most important factors when developing and designing a senior living community, and one that can have an outsized impact on asking rates and occupancy trends.

Arrow Senior Living CEO Stephanie Harris has long been a believer that balancing the number of independent living residents with other care levels can drive better margins in a senior living community overall. The company is also able to offer more affordable rates in certain units using that approach.

Looking ahead, she believes the ever-complicated nature of senior living operations will push more operators to explore and fine-tune unit mixes.

“I think the days of standalone memory care and the days of standalone assisted living need to be reconsidered,” Harris said. “They may be over.”

Unit mix for margins

In 2023, many operators across the country set monthly rates higher, sometimes more than in any year before. How much an operator can change varies by the size of the unit, according to data collected and analyzed by the National Investment Center for Seniors Housing & Care (NIC).

Of all the care types, memory care units saw the highest year-over-year increase in asking price, ranging between 6.5% for one-bedroom units to 11.7% for two-bedroom units in 4Q2022, according to the NIC data. That is compared to an increase in assisted living that ranged from 5.3% for one-bedroom units to 7.3%.

“In independent living segments, you’ll see that the larger the rate increase, the larger the demand growth and occupancy,” NIC Associate Principal Omar Zahraoui told Senior Housing News. “But in assisted living and memory care – the more needs-based segment – the smaller the rate increase, the larger the demand growth and the occupancy recovery.”

For communities with larger independent living units, occupancy rates tend to be higher, according to Zahraoui’s research. On the other hand, AL and memory care communities with smaller units tend to have relatively higher occupancy rates.

St. Louis-based Arrow Senior Living has a portfolio of 29 middle-market communities, and Harris is a believer that tweaking certain details can make a significant difference in the company’s overall margins. Unit mix is one of those details.

Arrow has in the past relied on communities with many independent living units to help build margins while keeping resident rates for certain units in the middle-market range.

Arrow has been honing its unit-mix model for nearly ten years, after redeveloping an independent living community into an IL, AL and memory care community. Now, 18 communities later, that model is still the modus operandi for Arrow.

By fine-tuning the amount of units in a community, operators can also plan for future demand. For example, while Fort Wayne, Indiana-based Priority Life Care focuses more on the higher end of the care continuum, the company’s leaders believe that offering a full care continuum makes building occupancy an easier task. 

If someone is willingly making the choice to move into independent living, that person is likely also more open to the next phase of assisted living and memory care, Priority Life Care Co-founder and COO Bobby Petras told Senior Housing News.

“If we had a community of 100 units, we’d want at least 20 of those to be dedicated for memory care or what we consider enhanced personal care,” Petras told SHN. “For some of our communities that are around 150 units, we’ve got about 40 for either memory care or higher-acuity assisted living.”

While Priority Life Care has independent living options, “they are more so to get people in the door, knowing that they may need more services than they were planning on,” Petras said.

“[IL] is more for marketing for assisted living and memory care because the residents are going to move into that level,” he added.

Harris noted that in some cases, by the time a prospective resident comes into senior living, they are actually further down the care continuum than they originally thought.

“Most people looking for a senior living think that they need independent living may still find themselves choosing an assisted living level of care – there’s always confusion around that,” she said.

Getting the mix right

Unit mix is driven by a wide variety of factors, from market dynamics to resident demographics. Getting the ratio of units right can help make all the difference between relative success and failure.

Luxury senior living developer and operator Bridgewood Property has a 36-community portfolio across the Southeast and Midwest, with a unit profile of roughly 50% IL, 40% AL and the remainder dedicated to memory care, according to co-founder and president Alex Pichon.

He said that for Bridgewood, a higher ratio of independent living usually translates into a higher margin. But Pichon thinks other unit types have a valuable role to play, as well.

“We have historically done a majority-IL product, with all of our recent builds ranging between 50% to 100% independent living,” Pichon told Senior Housing News. “But adding assisted living and/or memory care can also serve as an amenity for both existing residents and residents whose needs may exceed what a typical independent living setting can accommodate.”

Sometimes, certain units have great synergy. For example, there are seven communities in the PLC portfolio that offer separate independent living cottages. At those communities, nearly three-quarters of residents end up moving into assisted living.

“The cottages are always full,” Petras said. “People are fighting to get into them,” he said.

He added: ”The downside is that nobody wants to see the next phase of care, whether that’s IL to AL or AL to memory care.”

Priority Life Care’s total portfolio comprises more than 3,500 units with about 3,000 in assisted living, 471 in memory care and just 110 in independent living..

Priority Life Care has also carved out a transitional care level between assisted living and memory care that has helped keep the demand high for AL and memory care, according to Petras. The “enhanced personal care” is for older adults with memory- or cognitive-related care needs that might exceed what assisted living can provide, but who have also not received a diagnosis of Alzheimer’s or dementia.

“Our higher margins are coming from memory care, no question,” Petras said.

He added that depending on the location, PLC’s memory care can generate a monthly rate of $6,000 per $7,000 per room, amounting to near-middle-market rates relative to the product type. he said. On the assisted living side, the operator sets monthly rates at an average of about $4,200.

For its independent living units, PLC reports rates in the general range of $1,700 per month. But not only are rates higher as acuity increases, margins are, too.

“For a memory care neighborhood that’s about 15 units, we’ve seen margins hit 45% to 50%,” Petras said.

Arrow likes its IL presence in a community to be double that of the assisted living or memory care presence. This creates a feeder pool for transfers to higher-acuity move-ins down the road. That is a strategy Arrow has wielded to its success in recent years, and one the company will likely embrace from here on out.

“How we solve for affordability is through the unit mix and having the independent living residents that will transfer … coupled with technology to improve their outcomes and their length of stay so that they can stay longer at each level of care,” Harris said.

The post How Unit Mix Helps Arrow Senior Living, Bridgewood, Priority Life Care Hit Higher Margins appeared first on Senior Housing News.

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