Senior Living Executive Forecast 2023: Industry Stands at Crucial Inflection Point

Senior living is at an important crossroads at the dawn of 2023.

The new year will surely bring new and important opportunities for operators to grow beyond pre-pandemic results. But elevated expenses and staffing are fixed challenges that are not going away with the new year.

To LCS CEO Joel Nelson, 2023 is a time for the industry to up its game in light of the new challenges and opportunities.

“Interestingly, 2023 likely presents greater uncertainty for our industry than 2022,” Nelson said. “There are some real tailwinds behind us as we approach the next series of challenges this next year.”

For operators already growing and gaining ground, 2023 is likely to be a year of building on that success and strength. But those who are struggling going into the new year might also find the runaway for further improvement is shorter than they had hoped.

Nelson is not the only senior living leader hoping 2023 is the year to substantially grow beyond pre-pandemic occupancy and build back margins. And he is not the only one who believes the industry is at an important inflection point, and one that could have an impact on the years to come.

To learn more about how senior living executives are feeling heading into the new year, Senior Housing News connected with a variety of industry leaders. What follows is the first part of a two-part series sharing those responses:

Joel Nelson, President and CEO, LCS

The senior living industry is seemingly at an inflection point. On one hand, persistently high expenses are eating away at margins, and there are real questions about when those will return to pre-pandemic levels even as occupancy continues to rise. On the other hand, many companies are gearing up to grow, even as doing so remains challenged and perhaps even gets harder in 2023. All the while, the industry is continuing to evolve with new offerings and product types to serve a new incoming generation of older adults.

Interestingly, 2023 likely presents greater uncertainty for our industry than 2022. That said, there are some real tailwinds behind us as we approach the next series of challenges this next year. The primary focus at LCS will be our workforce and occupancy.

The good news is that agency reduction has been significant this past year and, in many regions, we are agency free. For the most part, residents and families are supportive of employee wage and benefit increases and, as a result, we are getting closer to well deserved “livable wages” for our front-line employees. We are also placing a heavy emphasis on the health and well-being of our employees. Burnout and turnover cannot be underestimated – It is real and will require continued attention. In terms of occupancy, we have seen great market recovery and have surpassed pre-Covid levels and have set our eyes on fully stabilized occupancy for 2023.

I expect 2023 to have many of the same challenges we experienced in 2022. Interest rates continue to increase, debt is scarce, and the availability and cost of labor continues to be a challenge. Although these challenges will present greater development risks in the short term, new development will still get done if we approach it with a long-term view. Low leverage owner/operators like LCS have more flexibility and are well positioned, and well capitalized for the capital market challenges ahead.

And, as an industry, we need continued collaboration to educate about our industry and advance legislation that can positively impact the seniors we serve. This year, that united front supported appropriations for federal workforce development programs, but continued work is needed to conquer the workforce challenges to attract new, young talent and existing talent from other industries.

As the third largest operator, one of our biggest worries is the lack of action as it relates to market rate management fees. Like all other disciplines in the sector, management companies have experienced a significant increase in expenses as a result of an erosion of margins.

As an industry, I always hear “The key is in having a strong operator.” The reality is the senior living industry is becoming more complex, requiring greater sophistication and broader system enhancements. And each of these demand top talent to make it all work. No operator can provide all that is required for 5% of revenues – which is frequently referenced as “market rate.” The future of this industry needs big and small, national and regional operator growth. Clearly, this will be a challenge for both investors and future operators, but it must be addressed if we are going to advance this sector with data aggregation, workforce employers of choice and product evolution beyond the hype of active adult.

It’s important to not lose sight of how well positioned the senior living industry is as we look at the opportunities ahead. The consumer market continues to get stronger each year. We know the key to future success will be the right product, the right value with the ability to execute with precision on the delivery of services – we have proven ourselves strong in each of these areas but will keep them front and center as we execute in 2023.

Our industry will remain people centric and will require “upping our game to attract the best talent.” At the same time, we are integrating technology and digital tools for our communities and residents to improve the services we provide without losing or sacrificing the human touch.

As an industry, we also need to get serious about aggregating today and tomorrow’s consumer data and adapt the product accordingly. It’s time to leave the lens we have used to define senior living behind – we can learn a lot by looking at data to answer the question ‘what’s the product or model of care that defines the next generation of aging consumers?’ Easier said than done.

Dale Watchowski, President and CEO, American House Senior Living Communities

We continue to look at a recovery in multiple phases and executing on initiatives to drive growth. While we have seen a recovery in occupancy to near pre-pandemic levels, we are focused on revenue and margin recovery.

Our industry tends to focus on occupancy, but for us revenue is a more important indicator. We need to be appropriately compensated for the services we provide; therefore, we need to charge accordingly. Right now, rent increases are dominating many conversations. At American House, the discussion is not just what our residents would accept, but what we need to charge to recover margin.

In 2023, our strategy will be to continue our focus on operational excellence, revenue generation, managing expenses and maximizing income. This year should be an inflection point where we are compensated for the services we provide.

The competitive landscape led to pricing pressure and in some cases a loss to lease. We looked at each unit at our communities focusing on the potential for a return to adequate rents based on market factors, current and future. The result of this was some choppy rate increases, but finally getting us back to an appropriate margin. That said there is no way to make up for the pressures from inflation, wages, and interest rates.

As for new investments, we are pursuing strategic acquisitions to counterbalance increased construction costs and rising interest rates currently impacting development. This will give us an opportunity to further expand our platform, in accordance with our strategic vision, with a footprint in states with favorable demographics.

That being said, there is a demographic wave on its way for the senior living industry. Between now and 2030, 10,000 baby boomers will turn 65 every day. By that same year, seniors will make up over 20% of the population, according to the U.S. Census Bureau.

Right now, the single greatest driver of change is the cost of senior living. This is due to inflationary pressures, supply constraints and staffing shortages.

With respect to the current staffing shortage, we will need to continue to adapt and evolve as an industry to attract the best talent. At American House, we focus on training and career advancement to give back to our hard-working team. We want to be a support system for our front-line workers and we are committed to open and honest communication with our team members. We provide competitive wages and training, incorporate flexible scheduling and, most importantly, we create programs to keep our staff and residents safe and healthy.

As we head into 2023, I am most excited about the impact our team will continue to have on the lives of our residents. Over the last 18 months, we have built an amazing team that is uniquely suited to weathering the challenges the industry is currently facing. While we were hyper focused on the impact of the pandemic then recovery from the challenges created thereby, we remained focused on our utmost priority, resident care.

Everything we do is centered around resident-based programming that is driven by our mission, “Living Well Is Being Well”. We have built and are working to implement “Total Brain Health” and our new memory care program, “Living Well Memory Care.”

Our brain health, wellness and enhanced mindfulness programs help our residents discover and grow and make personal choices that improve and support a healthy lifestyle.

Our wellness team has redone and rolled out every clinical policy to increase consistency and safety. Since then, we have seen fewer number of cases such as the flu, shingles and norovirus.

As for worries, I am always concerned for the wellbeing of our team, the continued impacts of staffing shortages and the high rate of employee turnover throughout the industry. We have been running hard for three years and going from a pandemic to a challenging market cycle hasn’t left us time to recover and enjoy all we have been able to accomplish together. We have worked very hard to build a great culture at American House and with all that we have done the challenges remain. We have, however, seen some improvement and we would like to believe the modest shift is due to the focus we have placed on our greatest asset, our team members.

My top priorities for 2023 will be delivering on our brand promise, with tight margins there is no room for mistakes. We’re in for some monumental changes in this industry. The worst thing we can do is to keep doing something because that’s the way it’s always been done, so continuous improvement has driven my agenda.

Alan Butler, CEO, Erickson Senior Living

As we close out 2022, the senior living industry is at an inflection point as we collectively move forward from the unprecedented challenge of the pandemic and into headwinds of inflation, rising interest rates, staffing shortages, and supply chain issues. In the coming year, there’s no doubt that we will continue to face obstacles as we strive to provide for the evolving needs of today’s seniors. To succeed, it will be more necessary than ever to adapt the way we do business to meet changing market dynamics.

Reflecting on the past year, I am proud of our team at Erickson Senior Living for once again achieving industry-leading occupancy rates and a record-setting number of settlements. This level of success speaks not only to the hard work and dedication of our team, but the quality of the lifestyle we offer to residents of our communities.

The company’s growth trajectory continues, as we welcomed residents to a new community in the Richmond, Virginia, market and opened sales centers in Fairfax, Virginia; and Bethesda, Maryland.

Looking ahead to 2023, we remain as optimistic about the future of this industry as ever, in large part because of our confidence in the valuable services we provide to a growing demographic. The boomers are coming, and we are ready for them.

Our priorities in 2023:

Make no mistake that there are hurdles to overcome. Recruitment and staffing remain the most critical challenge. We are in the ultimate relationship business. The products and services we offer are only as good as the people who deliver them. That’s why attracting, developing, and retaining top-tier talent will continue to be among our top priorities in 2023.

We’re eager to build on the success we had in 2022, adapting our recruitment practices to more effectively compete in the war for talent. This included the launch of an employee recruitment marketing campaign. Focused on driving quality applications for the most critical roles across the enterprise, the campaign has helped drive more than 13,000 job leads and significantly reduced our cost per application.

Of course, attracting top talent is only the beginning. Senior housing is, at its core, a business of service. To be successful over the long-term, it’s critical to develop and continuously invest in a culture where team members are inspired by being a part of something bigger than themselves. At Erickson, we’re working to cultivate an environment where employees are able to bring their true selves to work and share their unique talents with residents and each other. Robust education and training provide opportunities for team members to hone these skills across a range of disciplines and develop long-term careers—all within the organization.

In addition to proactively addressing the challenge of staffing, the industry will also have to grapple with the impact of inflation and interest rate volatility. Fortunately, at Erickson Senior Living, we are able to leverage our national economies of scale to operate as efficiently as possible to deliver the highest quality services at the best value for seniors. We’re more committed than ever to providing this value so that more people can benefit from the vibrant social connections and access to quality health and well-being services available as part of the Erickson Senior Living lifestyle.

The challenges facing senior housing in 2023 are significant. But my confidence in the future is further bolstered by the insight I get from my own parents, who live at an Erickson Senior Living community. From my conversations with them, there is simply no doubt that they are enjoying their lives to the fullest.

As a prime example, my Dad consistently talks about his four-day-a-week workout regimen at the community’s fitness center. A personal trainer at his community taught him how to use the equipment, which includes virtual reality technology, and he now enjoys a consistent schedule that has boosted his overall health and well-being. He is more committed to a healthy lifestyle than ever before. This would have never happened if he and my mom were still alone at home. It gives me and my family such peace of mind. I want that confident feeling for other families, too.

Because of the valuable services we offer to people just like my parents, I am looking forward to 2023. We are investing more than $4 billion in development over the next five years to meet the demand for our products and services. This growth also paves the way for career opportunities to new employees and to current team members who are seeking to build long-term careers in serving others.

In addition to bringing the Erickson Senior Living lifestyle to more people, our top priorities will also include delivering operational excellence, attracting and retaining talent, and solidifying our commitment to Erickson Senior Living’s phenomenal culture.

The last three years have tested the mettle of the entire industry. I believe that providers like Erickson Senior Living have embraced these challenges, become more nimble, delivered better services to residents, and created a positive workplace culture for employees. I have no doubt that Erickson Senior Living is well-positioned to take advantage of new opportunities in the coming year and our entire team looks forward to the future with confidence and enthusiasm.

Colette Gray, President and CEO, Integral Senior Living and Solstice Senior Living

Throughout 2022, both ISL and SSL saw consistent positive net growth as the need for quality, affordable and compassionate senior care remained strong. Being able to meet this need has allowed us to jump-start our recovery efforts, and we are now seeing move-ins exceeding the pre-pandemic levels.

In addition to recovering our move-in numbers, we also saw a considerable amount of growth in 2022. Across ISL and SSL, we added 20 communities to our portfolio. We fully expect to see continued growth in 2023.

As it is for many industries across the country, our biggest hurdle is staffing. While it may be tough to draw qualified candidates to our industry, ISL and SSL are dedicated to creating working environments geared toward retention through a culture of understanding, uplifting and camaraderie. Our Culture Keepers are our guiding principles; they are aligned with our mission and company values and help us stay accountable to walking the walk.

The challenges we are most excited to tackle as an organization are the integration of innovative technologies and the continued focus on engaging and enriching programming that residents want most and will benefit from.

We are always looking to utilize new technology if it can help us create a more efficient work environment that alleviates associate burnout and allows us to work smarter, not harder, while promoting the very best care for our residents.

Quality programming can have a monumental impact on residents and truly change lives. In 2023, we are looking to continue to grow our Livin’ the Dream program, which provides joy, hope and a sense of purpose for our residents.

As we move to the next chapter, we can reflect on the hardships and experiences the pandemic presented us with and look at the opportunities it created, one of those being collaboration. In 2023, ISL and SSL will be doing our part to work toward continuing to create an industry that has a more synergistic approach that allows operators to come together to solve our industry’s challenges for the overall betterment of our residents and our associates across the country.

Fee Stubblefield, Founder and CEO, The Springs Living

Heading into 2023 it feels a bit like anticipating the results of Groundhog Day. Will Punxsutawney Phil see his shadow in 2023? And, if he does, will we have 12 more months of Covid or will we have an early spring without workforce, supply chain, and other challenges related to the pandemic?  

This is the question. Since we shouldn’t worry about what we can’t control, it seems best to go with a strategy in 2023 that is sure to produce the very best results in either instance.

Our strategy in 2022 was to simply get folks refreshed and rested after two years of what felt like trench warfare (with all due respect to our armed forces).

We recovered 70% of our 2019 occupancy and turned around our NOI trends from a 10% decline to 10% growth rate in 2022. That 2022 growth rate equates to an increase of 1.5% versus 2019, which we consider a positive trend. We have had results over the last three years that ranged from 10% of our properties struggling to 10% never missing a beat through Covid. 

On average, during Covid, we dropped from 94% to 85% on average occupancy and 10% on NOI margin. We are now over 90% occupancy and trending to 92% in the first quarter of 2023.

To build on our recent positive trends, our 2023 strategy is to execute on what we can control: delivering quality experiences and outcomes. We are dependent on the quality of the interactions between our residents and our direct care staff, 24/7/365.

Our growth, scaling, and strategies are all dependent on that, period. Faith in our sector must be regained and that is done one resident and one employee at a time. With that in mind, we will focus to perform in each of our 19 operating communities in 2023.

Predictions for 2023:

• Customers will not put up with Covid and supply chain excuses.
• Finding employees will be much easier than getting a construction loan.
• Consolidation
• A tech platform breakthrough. Of course, there are indicators for potential risks that we are monitoring for 2023, namely,
• A new strain of virus that sets us back into lockdowns
• Renewed pressure on workforce recruiting and retention
• Pressures created by rising interest rates on those properties that have permanent and construction loans coming due
• Outgrowing quality resident experiences

It is no secret that many REITS and other real estate owners are not happy with the performance of their assets. Many are ready to make management changes, and we are seeing a lot of movement in assets and management contracts.

The danger zone for operators is accepting more work than our organizations can handle. For those organizations that have capacity and their existing properties have stabilized, 2023 will be an exceptional growth year. However, we have seen organizations outgrow their quality, which is fool’s gold.

Another trend is “data analytics” — a word that holds great promise to help raise a lot of money. We need data, and we need to know how to interpret and use it to improve outcomes. However, it is meaningless if we don’t take care of the folks who live in our communities. In our organization we have big dreams and goals of how this may work.

The problem is that we have not found a way to actually make it work, yet. We are hopeful that some of the new entrants to senior housing technology, or maybe some of the long-timers, will be able to offer a true solution to fill the void. Many platforms promise to make our life easier, save us money, and give us the holy grail of data analytics. Yet, I fear that most are like that boat I once purchased.

You know the saying about the two best days of owning a boat? The day you buy it and the day you sell it. To all our tech company friends, we need you and really enjoy the sales pitch and free Yeti mugs, but what we really want is results. We are counting on you to help us deliver quality care in the future, so don’t give up! We just prefer you make it happen sooner than later.

Since 1880, Punxsutawney Phil has accurately predicted the future 39% of the time, about half the accuracy of the modern era meteorologist who has data analytics. I hope these predictions live up to his record in 2023.

Larry Rouvelas, CEO, IntegraCare

In 2023, I anticipate the industry will see more balance in how we manage communities.

Over the last three years, we’ve all woken up most mornings facing three main challenges: census, Covid, and staffing. Some days it was Covid, staffing, and census, And other days staffing, census, and Covid. That meant other useful tasks such as expense management and fun resident activities sometimes didn’t receive the amount of attention they got pre-Covid. That has been changing over the last six months and will accelerate in 2023.

Census has been rebounding solidly in the industry. In our stabilized communities, occupancy is up 500 bps in the last six months, (“Stabilized” here means “not a new-build” though of course many were destabilized census-wise by Covid). So, while we cannot rest, the sales cylinders are firing in most of our communities.

Covid is much more manageable now. Day-to-day staffing is showing glimmers of getting better, more for unlicensed staff than for nurses.

These trends are allowing us and other operators to balance our efforts across a broader range of good things. Each senior housing operator has their own list of good things they’ll be able to tackle with more vigor in 2023. Here are some on IntegraCare’s list.

One focus is driving greater consistency in resident service quality. When an ED is consumed with filling shifts, it’s tough to spend, for example, a lot of time sweating table service during dinner. But when hourly staffing is good, hospitality can re-emerge as a focus of leadership. Same with activities, billing, family communications, transportation, and a lot of other areas of resident satisfaction.

The greater balance also allows us—along with most other operators in the industry– to put more shoulder into expense management, particularly non-labor expenses. We’re switching many phones from Verizon to TMobile. We’ve renegotiated TV contracts into a lower price with Direct TV. We’re driving more volume through our GPO.

More balance allows us to invest more leadership time into developing our team members. Our MAP program creates career paths for our most accomplished hourly team members … but it relies on leaders making the time to do it right. In 2023, I anticipate we’ll have more such time.

Balance allows us to drive our quality campaigns. For example, every senior housing operator puts a lot of work into recruiting and interviewing and training new team members… then, too many leave in the first 90 days. Nobody joins a company with the intention to leave in the first 90 days. Either we didn’t hire right or we didn’t on-board them right. Through root-cause analysis, we can identify what went wrong in each quick exit and then make continuous improvements.

Other senior housing operators will have different priorities. But in 2023, we’ll all be able to make more balanced progress in improving the product and strengthening performance.

Gary Smith, President, Vi:

Going into 2022, we were highly focused on continuing to manage through the impact of Covid on our residents and team members. We were cautiously optimistic that inflation would be more transitory than permanent. We were concerned about staffing challenges, which began to surface in 2021. And, we were pleased that we had gotten back to pre-Covid occupancy at about half of our communities, with the others making good progress.

The Omicron variant of Covid resulted in a spike in cases in January 2022, but eased up afterward. Our infection control protocols have been successful in managing Covid to a point now where our team and our residents feel it is more under control. That said, we continue to be concerned and will closely monitor the seasonal uptick expected with the start of the new year.

It turned out inflation was not transitory, which, combined with labor shortages, became the big story for the year. To address worker shortages, we adopted a more robust approach to recruiting, hiring corporate level recruiters, offering signing bonuses, enhancing referral programs and providing gratification awards. We increased pay levels to meet market conditions throughout the year and increased our minimum pay to no less than $15 an hour at every community to attract frontline workers and others. In many markets, our minimum wage is higher. The strategy paid off; we’ve reduced the number of open positions every month since July. This progress helps ensure that we can staff our many varied programs with qualified and engaged team members and keep open all amenities for residents.

In response to inflationary pressures, we used our best efforts to control expenses while not impacting the high level of service that our residents are accustomed to. It was necessary for us to increase our monthly fees charged to residents by 7% to 10% for 2023. This will help us meet the increased operating costs of our communities and maintain our high service levels. We were up front with residents about the factors behind the increase, and I was encouraged that we saw minimal negative comments about these unprecedented monthly fee increases. The executive directors at our communities did a great job communicating the rationale for the increases. Most residents understand that inflationary conditions are driving today’s higher cost of living. It is likely an easier message for us to communicate in that our returns come primarily from our entrance fees rather than our monthly fees.

A primary focus for us in 2023 is to continue reinvesting in our communities. On average, we are investing about $3 million per year per community on apartment renovations, to bring their finish levels up to a level that competes with the newest residences being built in the market. In addition, we continue to move forward with multi-million-dollar common area renovations. We believe it’s necessary for us to remain the premier provider in each of our markets. At our Vi at Bentley Village community in Naples, Fla., we just started the fourth phase of a multi-year, $300 million expansion and revitalization project. The latest phase includes the construction of 64 new independent living apartments, which average 3,100 square feet and will open in 2024. These units are priced between $2.3 and $4.3 million, and they are 77% pre-sold.

We’re continuing to invest in our care centers, where occupancy dipped from 82% to about 70% during the pandemic. Those levels have recovered and are now moving toward 85% occupancy.

We’ve come a long way since the days when pandemic conditions required all meals to be served in apartments. As our amenities have reopened and residents have returned to our restaurants, we have continued to invest in our culinary team and programming across all 10 of our CCRCs. We’re reviving our longstanding relationship with the Culinary Institute of America.

Longer term, we will continue to assess how we can appeal to future generations — Baby Boomers and beyond. I believe that Vi is well-prepared to meet their expectations. We are currently conducting a comprehensive research study with older Baby Boomers to understand their needs and wants in their later years. We want to make sure that we are developing programs and amenities that will be attractive to this increasingly important segment.

We continue to offer pricing transparency, something that we believe is important to our prospective residents. Those interested in our communities can see entrance fee pricing and monthly fees on our website, as they would for any home on the market. We are also very open with our residents concerning the operations of our community. Each community has resident-led advisory committees, including finance, food & beverage, building and grounds (to name a few) to provide input and feedback to our local teams.

Although today’s inflationary cost environment, increasing interest rates, and challenges in finding reasonable financing have resulted in a significant decline in the development of new senior living communities, we remain optimistic that the current uncertainties we have been experiencing will begin to dissipate during the second half of 2023, or perhaps not until 2024. We remain bullish on the opportunity to pursue new development in the upscale independent living sector. We believe it’s a good time now to line up land parcels for development in the future.

Jane Arthur Roslovic, CEO, Treplus Communities

The forecast for active adult living in 2023 is poised for growth, growth, and more growth. Many active adults have reached a true “point of inflection” given the current economic climate.

As an industry, we must continue to innovate and serve an incoming generation of older adults with new offerings and product types that meet the needs of every individual. Active adult living must be positioned as “the” solution that offers greater financial flexibility for middle income adults.

Active adult living is a lifestyle solution that is no longer just found in the southern or southwest part of the United States. It is a rural setting on the outskirts of metro areas. In this phase of life, having a sense of community, living in a low-maintenance environment, unique amenities that support a higher quality of life, and lot of social activities to enjoy are key drivers for this consumer.

Real estate and housing took a turn with higher interest rate increases impacting historically low inventory across all segments of the market in 2022. Post-pandemic demand continues as the 55+ demographic continues to maintain a close connectivity to family while simplifying their lifestyle and returning to more “normal” social engaging activities. Staffing continues to be a challenge to find qualified and committed individuals.

Bringing national awareness to active adult multifamily continues to be a critical component for all of the developers in this asset class. Treplus Communities continues to educate the influencers and the baby boomers on the advantages of the active adult lifestyle solution. It is critical to developers in the active adult space that they continue to collaborate with digital providers on the use of “55+” and “active adult” as they are terms that resonate with our target market and elevate the awareness.

As a developer and property management company of active adult, we are excited for so many reasons, the time is now to be bullish and to drive results. With no healthcare licensure required, operational intensity is less than senior housing, high rent growth potential exists compared to conventional multifamily properties, and typically offers longer retention than senior living or traditional multifamily residents.

Treplus Communities brought one project online in 2022 and started construction on a second. Supply chain is getting better, we are seeing better materials and FFE delivery and labor for our upcoming projects in 2023. Our biggest issue for growth is finding land at a location and price that works for our product. Should there be a recession, it may bring land prices down for all developers. 

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