Sometimes, all it takes to know the quality of a senior living community is a visit to the employee break room — just ask the top leaders of Ventas (NYSE: VTR) and Welltower (NYSE: WELL).
It’s not that Ventas CEO Debra Cafaro and Welltower CEO Shankh Mitra are sticklers about break rooms in particular. Instead, they see a well-run employee space as a sign that senior living operators care about the most fundamental aspects of their business, and can similarly perform elsewhere.
Fundamentals like building a better senior living sales journey and closer owner-operator alignment are ones that providers must focus on in the months and years to come, Cafaro and Mitra shared during a panel discussion and subsequent exclusive interviews with Senior Housing News at the NIC Fall Conference in Chicago on Monday.
Both real estate investment trusts (REITs) are currently navigating industry-defining challenges and opportunities with their operating partners, including turning around troubled operating portfolio segments and launching a large new operating platform in Canada. And they agree that the prospects for new senior living real estate development will remain dim for several years.
As the senior living industry continues to recover from the Covid-19 pandemic, both leaders have laid out visions for the future that include working in tandem with senior living operators to “sink or swim together.” To get there, they both see a world where senior living operators focus on the basics of the business, and use technology to make better decisions and avoid unnecessary distractions in their own operations.
Mitra’s ‘common sense’ mindset
In a nutshell, Welltower CEO Mitra believes that many of the senior living industry’s problems in 2023 come down to too much “excess.” He doesn’t mean crystal chandeliers or Olympic swimming pools.
The excess that Mitra sees are operational duties that distract community employees from caring for and spending time with older adults — for example, an executive director that spends a decent portion of their job on mundane tasks like collecting resident rent checks.
That likely isn’t what an executive director signed up to do, and Mitra believes that relieving workers of these kinds of duties using technology will be the way forward for senior living operators. But it’s “not about the fancy technology, it’s about business processes,” he added.
To Mitra, operational success is more a math problem than an art project. Senior living operators must be prepared to remake the business from the ground-up with a cold and rational view. He takes the view that operators should start with a “blank slate” that takes a new customer journey into account.
“Incremental change is not going to cut it in this business anymore,” he told Senior Housing News. “You don’t need fancy, you need common sense.”
Welltower COO John Burkart last year compared the senior living industry of today with the multifamily industry of the 1970s, in that prospects must still jump through many hoops in order to live in a senior living community.
“Why do you need to call a receptionist and be on a call waiting for 40 minutes — because they’re trying to answer five different people’s requests — just to know if your mother had a good day or not?” Mitra said.
The multifamily industry eventually remade itself in the years to follow, and today, customers are much more in control of the sales process. Mitra thinks now is the time for senior living operators to similarly recreate the senior living experience.
“We have got to think about a complete business process reengineering and think what needs to be done by people and what can be done better by software, technology, systems, infrastructure, so we can have our precious human capital focus on what they signed up to do,” Mitra said during a panel discussion at the NIC Fall Conference on Monday.
He envisions a world where operators provide residents and their loved ones with all the tools they need or want, such as providing health and socialization information, through an online portal. Or, he sees a world where senior living operators take all orders and requests digitally instead of by hand on a piece of paper.
Of course, all of that is easier said than done, and Mitra said that he believes the hardest part of improving business practices through new technology is change management. But it is worth doing in service of remaking the senior living industry and pushing it into its next iteration.
“We’re making hard choices, because we want to show the industry that if you start from the beginning with a fresh approach — nothing fancy, just common sense — you can get to a viable model,” he said.
Regarding the road ahead, Mitra cautioned against zero-sum thinking, which in many cases means you “have already lost the game.”
“Our highest priority is to support our existing operating partners and help them grow their business,” he said during the panel.
While Welltower is active in working with operating partners to make progress and improve performance for the sake of both residents and investors, Mitra is bearish on economic conditions. In particular, he believes that given the costs of capital, challenges in the construction sector, and ongoing financial and operational headwinds for senior living, the sector is “years away” from “smart development.”
“If you’re a lender today, and you want to led to senior housing construction, I think you’ll have better luck going to Vegas,” he said. “Equity, I personally think the probability of success is higher if you buy lottery tickets.”
Cafaro’s view of a more aligned industry
Like Welltower, Ventas has had success stressing details with operational partners. The company has a data platform that leaders have touted as making a big difference in helping operators make better decisions on the ground. The platform also helps Ventas assess operator quality and performance that go well beyond financial metrics.
“The historic model is giving way to a more aligned model, where the owner and the operator are really in it together and can rise and fall as one,” Cafaro told Senior Housing News. “Hopefully, if you pick the right operator and you’re in the right market, and they’re doing the right things, you’re going to rise together.”
That alignment is harder to achieve when companies are measuring different things, which is why Cafaro thinks the industry’s next level-up moment will come in the form of more agreed-upon metrics, where owners and operators work together in tandem.
“Our industry could consider coming together, at least on some basic fundamental values and metrics, that might be appropriate for the industry across the board,” she said. “There are different care models within the industry going from age-restricted housing to memory care, so it does become a little bit more challenging to come up with uniform standards. But I think that just because it’s challenging doesn’t mean that we shouldn’t try to do it.”
Another way she sees companies working together is through industry “consolidation” — not necessarily by companies joining forces, but by building a critical mass in markets where they have local penetration, using technology, and therefore finding ways to become more efficient together.
“In order for the organizations to be sustainable for the long-term, there has to be some amount of critical mass, and then investment in the critical mass then enables you — and the alignment enables you — to have the financial wherewithal to invest in people and invest in technology,” she said during the panel. “And that’s what it’s going to take, really over time, in order to build a better mousetrap.”
Looking ahead, Cafaro sees a three-to-five year window “at a minimum” where she believes the senior living industry will not see large levels of development as it has in the past. That likely won’t change at least until construction and capital costs fall, and not until average occupancy rates are back into the low-to-mid-90s, she added.
“At occupancy levels where they are today, with construction costs where they are today, with [resident] rates where they are today … and with interest, and capital rates where they are today, it is nearly impossible to justify any kind of senior housing development,” she said.