Doubts about the viability of standard management fees in senior living are increasing and — after years of debate and hand-wringing — the time has come for a more sustainable contract.
As investors pour capital into the industry and owners continue to assemble portfolios, some are forging management agreements with new operators. For owners and developers, these are usually set at favorable terms; but for senior living operators, a management fee coupled with a meager promote is often barely enough to make the math work these days, if at all.
Some senior living operators — especially the smaller upstarts — might consider these sort of arrangements the table stakes for working with established companies, or a price to pay for building out an initial base of operations with which to grow down the road. And to that end, many companies have grown at breakneck speeds using this strategy, adding dozens of communities to their portfolios in a span of only a year or two.
But I believe that this could be setting up the industry for a rash of failures down the road, if a whole crop of senior living communities carry a ticking time bomb in the form of unsustainable agreements. Recent conversations with senior living CEOs have only emboldened my view that this is a big problem for the industry, and one that must be solved sooner rather than later given how the industry is evolving.
In this week’s exclusive, members-only SHN+ Update, I analyze the state of management fees and offer key takeaways for senior living providers, including:
- Rapid cost inflation makes these kind of agreements unsustainable in the short-term
- Current management fee structures could hurt the industry in the long-term
- What healthier management fees for operators would look like
The post Management Contracts Are Broken. Senior Living Operators Must Realize ‘Power of Their Flag’ appeared first on Senior Housing News.
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