Senior Lifestyle CEO Jon DeLuca thinks that 2024 will not be the senior living industry’s year for new development. That said, he is not pessimistic about the road ahead.
Although Chicago-based Senior Lifestyle has grown to around 125 communities over the years in the affordable and market-rate senior housing sectors — much of that through new development — DeLuca sees a big opportunity for well-capitalized companies such as REITs to buy communities at a decent discount.
His view is shaped by the fact that new developments often can cost between $450,000 and $500,000 per unit in the current environment. At the same time, the senior living industry is facing a wall of debt maturities that will surely cause some owners to offload properties, some as recent as three or four years old.
“You’ll be able to buy these existing communities at 70% of the cost,” DeLuca told an audience at the recent SHN BUILD Conference in Orlando. “It doesn’t make sense to develop in that type of atmosphere.”
Senior Lifestyle this year stepped back from new development with the intention of innovating and evolving for the future. But DeLuca believes the operator still has opportunities to grow with a capital partner beyond the 16 different investors it already works with, and is working toward that goal.
“We’re on the hunt,” he said.
Big buying opportunities
DeLuca attended the most recent NIC conference in Chicago, and came away with a sense of “doom and gloom” regarding prospects for new development. With higher construction and capital costs and a still-murky future regarding operations, it’s not hard to see why.
That said, he is not discouraged about the immediate road ahead, tough as it is for new development. For one, the current period gives companies like Senior Lifestyle more time to look inward and improve for the future. He also believes that there are some potential opportunities for new development for companies that are connected to deeper-pocketed partners with a long-term strategy.
“If you’re private equity or for-profit, you’re trying to flip it in five to seven years and it’s going to be very challenging to build right now,” DeLuca said. “If you have the right equity, then you can still develop. But it’s going to be tough in 2024.”
As DeLuca noted, a wave of debt maturities to the tune of billions of dollars is about to crest, and some communities will simply change hands as a result. For companies with the cash to buy, such as private equity and REITs, the period could amount to a feeding frenzy.
To that end, Senior Lifestyle is looking to link up with a partner that can help facilitate the company’s growth in the next 12 to 18 months through acquisitions.
“There are going to be huge opportunities in 2024, probably into 2025, to buy troubled assets, and you’re going to get relatively newer stuff,” he said.
Looking ahead, he sees a 24- to 36-month timeline for the stabilization of senior living capital markets. But the current environment is “survivable” given that interest rates were just as high or higher as recently as two decades ago.
Making the most of the moment
The pause in development has given Senior Lifestyle more bandwidth to change the way it does business in preparation for the future.
Senior Lifestyle has over the years grown into a company split 60/40, ownership to third-party management. In more recent times, the company’s communities are designed with socialization in mind.
Now, the company is looking to branch out into hospice services and is bulking up its ancillary services in other ways, DeLuca said.
The company has looked to diversify its product offerings and services in other ways over the years, including by taking a more than 30% ownership stake in Home Health Solutions, a home health company also based in Chicago. Senior Lifestyle is also involved with Symbria, a therapy, rehab and pharmacy services company in the area founded by a collaborative of senior housing providers.
The operator also has “doubled down” on staffing and training to help reduce turnover, which for some positions can be as high as 100%.
Just as many operators embraced digital practices in marketing during the pandemic, Senior Lifestyle embraced digital-forward hiring and onboarding. The company also increased wages as much as 30% for some positions, De Luca said.
In other areas, the operator is sticking to what it has done for decades. For example, DeLuca said the plan is to keep up the company’s 24 affordable senior housing communities even as it focuses more on the market-rate side of the business.
In the future, Senior Lifestyle will look to grow and evolve primarily where it already has communities in clusters.
“We’re going to continue to focus on buying market-rate communities and developing market rate communities when it’s right,” he said. “And we’re going to continue to focus on our ancillary service businesses and growing that out.”
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