For more than 27 years, I’ve had the privilege of working in investment banking in the senior living sector. I’m currently the head of HJ Sims’ banking team and serve on the board of directors of a large not-for-profit senior living provider in Rockville, Maryland.
I’ve spent my career at HJ Sims providing financial solutions and advisory services primarily for not-for-profit as well as for-profit senior living providers. In my capacity as an investment banker and my role as a board member, I have a broad perspective on senior living sector trends.
As we head into 2025, I’d like to share some strategies to help your organization navigate challenges and achieve sustainable growth.
Tip #1: Growth begins with a growth-ready team
We’ve done a great job as a sector, educating our boards about the importance of planning to grow, and many boards have created a mandate for growth. But do organizations have the right people and resources in place to execute on that mandate?
For example, we have a client with an excellent balance sheet and exceptional senior leadership. But when faced with an attractive affiliation opportunity, they realized their team was built to operate their community exceptionally well, but not built to integrate another community into their organization. They acknowledged that they did not have the people and systems yet to pursue this affiliation opportunity.
So, a lot of our discussion revolves around the things you need to put in place to execute on that plan. All said, growth really starts with having the people, systems, discipline and organizational structure in place to take advantage of these opportunities and mitigate risk for the organization.
Tip #2: Consider for-profit partnerships to increase growth opportunities
We just completed a large financing for a start-up rental community. It’s very high end in California, and what’s interesting to note is that that the project was initially to be owned and operated by a for-profit entity, but they could not raise the required equity or senior debt through a consortium of banks that would be needed to finance the project. So, it ended up being a partnership between a not-for-profit borrower, and a for-profit developer and operator.
We’re seeing a robust pipeline of these types of partnerships between for-profits and not-for-profits. It’s important to start thinking about opportunities for new development through these types of partnerships. It’s also an opportunity for not-for-profits to share in risk if you’re able to bring in the right partner. You may not have to provide all of the equity or credit support needed to access the financial market if you can create a partnership where you’ve got an alignment of risks and reward.
I think we’ll begin to see more and more successful projects based on that model. A lot of the projects that had been on the shelf may now be pencil out, with slight improvements in the interest rate market, and if commodity prices remain more stable than they have been from significant cost escalations over the past few years.
Tip #3: Explore aging product as a middle-income strategy
We all know the overwhelming need for new moderate-income housing, but we’re seeing a real disconnect in terms of what projects are getting financed. The higher-end communities have had greater success getting financed because they’re generating the margins to support the cost of new construction.
The bright spot for moderate income housing is in a trend we’re seeing and working with, which is a natural evolution of an older product that no longer can compete with new product coming to market. The new high-end communities have more amenities. and it’s difficult for older communities to invest at the level required to stay competitive.
These older communities are sometimes better situated to be positioned in the market for moderate income. Over time, you can’t increase monthly rates the way that you might with newer product, so you’re already transitioning, naturally, to a price point that is more affordable within the market relative to the competition.
That can be an attractive and viable moderate-income strategy—repositioning older products—since I don’t think we’re going to see a big surge in moderate income housing financing for new construction. This repositioning strategy can be particularly effective when coupled with providing home- and community-based services.
Learn more about the senior living sector
For more information about senior living sector trends and making growth happen in Life Plan Communities, be sure to watch the fifth annual A Look Ahead: Making Growth Happen Webinar. Our diverse panel of leaders, including myself, provide more information and senior living tips to guide and support you. If you have additional questions or would like personalized advice, reach out to me or my colleagues at Love & Company. Call 301-663-1239 to connect with their trusted team and stay tuned for more webinars.
