Senior Lifestyle CEO: We’re Doing Things Differently for a New Era

Senior Lifestyle is engaged in a period of reinvention as the company pivots from the challenges of the last three years and into a new era for senior living operations.

That’s according to Jon DeLuca, President and CEO of the Chicago-based operator, who thinks now is the perfect time to look inward and “refocus where we are.”

On one hand, operators that hoped to have vaulted over their pandemic-related challenges by 2023 are still finding themselves grappling with margins and staffing this year. Though operators have made good progress growing occupancy closer to pre-pandemic occupancy, current challenges and new cost structures mean that occupancy might need to be even higher than in the past to achieve similar levels of stabilization.

At the same time, those challenges have led to a slowdown in construction, with the fewest units currently under construction in 2023 than at any point since 2015. Demand for existing senior living supply is also high, and that is related to the more muted rate of new construction in recent years.

These dynamics inform DeLuca’s belief that operators must do more with less in 2023. Simply put, he believes that what worked in the pre-Covid times will not work in 2023 and beyond.

“We’re looking at the way we do business across the board,” DeLuca told Senior Housing News at the recent American Seniors Housing Association (ASHA) conference in Scottsdale, Arizona. “It’s about doing things differently.”

‘Refocus where we are’

DeLuca’s push for change in 2023 was preceded by a period of slimming down for the senior living company. Over the last couple of years, DeLuca estimates that the company has shed about 70 communities, now sitting at 113 across the U.S.

The reason for that downsizing was not to do with operational challenges at Senior Lifestyle, according to DeLuca. And that period of downsizing was beneficial and helped the company determine where its true priorities were, DeLuca said.

“It gave us the opportunity to refocus where we are,” he added.

Senior Lifestyle CEO Jon DeLuca, by RoboToaster for AMN Senior Lifestyle CEO Jon DeLuca, by RoboToaster for AMN

These days, Senior Lifestyle prefers to build out staff infrastructure with the company’s investor partners in mind.

Senior Lifestyle hires vice presidents of operations dedicated to managing its investor and owner partners’ communities. In the org chart beneath them are various positions to support their efforts, including a regional director of operations, regional director of human resources, regional director of food and beverage, regional director of clinical and a vice president of asset management.

Although Senior Lifestyle is a leaner company than in the past, DeLuca said it still has the infrastructure and scale with which to weather operational hiccups.

The remaining communities in Senior Lifestyle’s portfolio run the gamut in type and size, ranging from affordable senior housing and independent living to mid-market and high-end CCRCs.

Though Senior Lifestyle is still growing in a few places, DeLuca is focused more on improving operations for a new era of senior living in 2023. Currently, the operator’s average occupancy rate is about 80% — including some communities in lease-up — which is slightly behind the industry average of 83% as of the fourth quarter of 2022. 

At the same time, he believes that what is considered stabilized occupancy for a senior living community is now closer to 90%.

But Senior Lifestyle’s occupancy rate is still moving north. The company’s number of average monthly move-ins is actually greater now than it was before the pandemic.

The problem is that residents are moving into senior housing in 2023 at a later stage in their aging journey than before, and thus need more help than residents before the pandemic.

That has caused a decrease in length of stay across independent living, assisted living and memory care. In fact, DeLuca estimated that in 2023, an average independent living community must add twice as many residents per month as before the pandemic to break even on occupancy, given the new and higher rate of move-outs.

“Now, you have just doubled your commission, you have just doubled the churn on your units; renovating the units between residents, you just doubled that cost — so it’s a problem,” DeLuca said.

To help boost length of stay, Senior Lifestyle is making an effort to keep residents well for longer and improve their health outcomes. That is why the company is exploring avenues including bringing in third-party therapy providers, adopting technology to alert staff of health problems sooner and linking up with senior-focused pharmacies.

Senior Lifestyle also owns a more than 30% ownership stake in Home Health Solutions, a home health company also based in Chicago.

At the same time, it is simply more challenging to be a senior living operator from a cost and revenue perspective, and DeLuca does not see that changing any time soon.

Some of the cost pressures compressing margins — staff wages, for example — will never return to pre-pandemic levels, he said. Food is another area of operations where costs are simply higher now, with no relief in sight.

In response to those pressures, Senior Lifestyle is experimenting with the offerings of the traditional model itself and exploring different ways to provide resident services. For example, DeLuca thinks there is an opportunity to alter the number of meals IL residents get per day, going from three meals to two plus snacks.

On the staffing front, turnover is still a challenge, and DeLuca said the company is in the midst of exploring new training methods and other ways to keep employees engaged and motivated on the job.

For example, Senior Lifestyle leaders are checking in with employees at more regular intervals to make sure they are on the right track. They also are opting for in-person meetings instead of the Zoom calls that became ubiquitous during the pandemic.

“I think that’s made a big difference because people feel like they’re part of something,” DeLuca said.

“We think if we stay true to the mission, it will actually improve both retention for the resident as well as our team members,” he added.

2023 outlook

Like many other senior living leaders, DeLuca believes the industry is not out of the woods in 2023 with regard to its pandemic-related challenges. But he is hopeful that this is the year when the senior living industry finally turns a page and starts a new chapter.

He believes the coming year will yield record levels of resident move-ins, but that pre-pandemic margins will still be largely out of reach given the new baseline for staffing costs. One way Senior Lifestyle dealt with that in 2022 and 2023 was by raising resident rates 8% to 9% and 10% and 12%, respectively.

With interest rates higher, some investors will potentially look to “cut the bleeding” this year, he said. That should give certain investors, such as new entrants to the space, natural openings to grow a platform.

“That would mean the new investor would probably get a better valuation because cap rates follow interest rates,” DeLuca said.

Senior Lifestyle has in recent years developed 22 communities, and this year, the operator will open a new-development community in Severna Park, Maryland, DeLuca said. Beyond that, the company’s development pipeline is still up in the air thanks to the high cost of construction in 2023.

Although the company is stepping back from development for the time being, DeLuca said there could be some acquisitions in the company’s future — but only if it finds the right opportunities. For Senior Lifestyle, the right opportunity is a value-add community compatible with the company’s current slate of investment partners.

And while DeLuca said he personally would like to scale the company up to gain more funds to reinvest in its people and processes, he also believes the company is in a good position in that it does not need to grow, either.

“We’re going to be very picky about what we do,” he said.

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