Good Operators in the Senior Housing Industry
For the past several years, the senior housing industry has experienced drastic changes. New product has flooded the marketplace from inexperienced players with a fresh supply of capital. Many seasoned investors are worried how the influx of new assets will affect the senior housing industry, and it has finally become clear what will happen in the next few years.
The senior housing industry still offers lucrative opportunities, but it takes more than money to make senior housing investments work.
Why Invest in the Senior Housing Industry Now?
Seasoned investors have the upper hand in the current senior housing industry. The timing could not be better to acquire senior housing investments.
Parts of the industry have taken a hit, experiencing slow growth or declines in valuation. Overall this is due to high supply and lower demand of beds available. Eager investors have over-built skilled nursing facilities and assisted living facilities in some markets, and at the moment there simply are not enough people to fill these facilities.
Specialists within the senior housing industry expect the next two to three years to be filled with some turbulence. A significant number of new assets will struggle with occupancy and be forced to sell at severe discounts. This creates a perfect opportunity for those looking to acquire senior housing investments at incredibly low prices.
It would be a smart move to take full advantage of this change in circumstance. Investors should partner with solid operators to acquire these assets, turn them around and reposition the assets using their proven operating systems. With the right team, these discounted senior housing investments should yield returns well into the double digits.
What Makes a Quality Operator in the US Senior Housing Industry?
Inexperienced operators and ineffective operating systems can degrade senior housing investments. This is why many of the new products in the senior housing industry right now are struggling to perform to expectations.
A solid operator knows how to run a facility at a profit while delivering high quality care to consumers. Unfortunately, many operators are unable to juggle these two objectives.
Good operators both meet the financial goals of the company and deliver high quality care to residents. These successful operators typically maintain an occupancy rate of 85 to 90 percent. Their rental rates consistently rank in the top 10 to 15 percent of their market and enjoy an operating margin between 25 and 30 percent. While some of these numbers shift depending on the rental rates, nevertheless good operators perform to a high standard. What they achieve is what makes the senior housing industry as lucrative and attractive as it is.
Why do these operators consistently succeed? Simple, they routinely offer and maintain both quality service and product that consistently attract and satisfy residents.
The senior housing industry serves senior residents at a very specific life stage. These residents need medical care, lifestyle accommodations and other requisites specific to their age group. If a senior housing investment meets the specific needs of these seniors, census should never be an issue. Unfortunately, many new investors do not recognize quality service as being a key factor in turning a profit.
Good operators also stay on top of financial reporting, care and obtain all the licenses, certificates and talent necessary to ensure a smooth operation free of trouble that make them seem unsuitable to possible residents. After all, a facility in the senior housing industry deals with the lives of hundreds of people, many of whom require medical assistance. It is imperative that operators have the appropriate clearance, permission and rights to safely operate a facility and provide care for residents.
How Do Medicare and Private Pay Affect Performance in the Senior Housing Industry?
Within the senior housing industry, operators run on one of two pay models: Private pay and Medicaid.
The Private pay models allow operators total control over rental rates that reflect the value of a worthy product and service. Under the private pay model, there are hundreds of sub-business models. These would include owner/operator, developer/operator, management companies and rental vs. buy-in facilities.
With private pay models, operators can truly customize their senior housing investments and position themselves uniquely in the senior housing industry. They can design in-house activities, upgrade the physical plant and control how many residents stay in their facilities. With complete control over their senior housing investments, these operators have the chance to accomplish a great deal financially.
On the other hand, Medicaid works under the mercy of politicians. If the government decides to reduce funding and services available to senior residents, operators must abide by those changes. There may be little to no warning about these impending changes. As a result, operators are constantly working with shifting operating systems.
Operators working on the Medicaid pay model have the added challenge of being cost leaders. Because the government determines rental rates and revenue lines, in order for senior housing investments to profit expenses must be managed to the tee. Paperwork must be absolutely accurate. There is no room for mistakes.
While private pay offers more room for profit, not every senior can afford that senior housing available on the private pay model. Typically, these senior housing investments are upscale and tailored for a specific consumer base. Meanwhile, there remain hundreds of thousands of seniors needing affordable housing, which they can only achieve through Medicaid. As a result, both pay models are necessary to serve the entire senior housing industry. Operators simply must be savvy on how to make themselves the most attractive choice to their respective residents in any given market.
Connect with The JCH Consulting Group for the Right Housing Investments
In the end, the senior housing industry serves senior citizens. Those acquiring senior housing investments must stay vigilant about their consumers. Regardless of financial situations, every senior deserves a safe and clean place to live. The operators who understand their customers are those who succeed in the senior housing industry.
At the JCH Consulting Group, our investments specialists understand what seniors want and need from their operators. We also know what operators need to do to succeed in the senior housing industry.
To elevate your operating system or make the next move in the senior housing industry, work with the JCH Group. Our experts are here to help with your senior housing investments.