Senior Living Design Trends

By Scott McCorvie | CEO, Enhance Senior Living

Learn more about Senior Living Investment Brokerage and Senior Living Investment Advisory Strategies at Enhanced Senior Living.

Senior Living Design Trends

Throughout my career, I’ve been fortunate to have toured hundreds of seniors housing communities in markets across the United States. Like many others, I can usually estimate the year the property was built when I first drive around the community. Seniors housing is a young industry, but there are some definite design traits and characteristics that have delineated each period and progressed through the years. In this article, I’ll examine the history of seniors housing design, as well as address some of the current and future design trends within the industry.

Seniors housing was really born in the 1980’s, but didn’t start to become a distinct and acknowledged industry class until the 1990’s. Still today, when I mention seniors housing, many people think of traditional skilled nursing facilities, or ‘nursing homes,’ with long corridors and semi-private units on either side. And, that’s exactly what you’ll find in the earliest seniors housing design. Communities built in the 1970’s to late 1980’s typically resemble skilled nursing facilities with long hallways, primarily semi-private or studio units, and limited common area and community space. As the assisted living product become more acknowledged, new development started to surge reaching a pinnacle in the late 1990’s. Most of these communities have a fairly similar design (think of traditional Brookdale or Holiday), but began to add more amenities like libraries and dedicated activity rooms, along with more options in unit types (although, still more skewed towards studio units). The prominent technology included pull-cords in the resident bedrooms and bathrooms.

The 2000’s refined the industry as it began to expand and become more sophisticated. Dedicated and secured memory care became a new product type, and additional amenities like movie theaters, fitness centers, larger lobbies and resident lounges began to emerge. The resident units also became larger with a greater selection of one-bedroom and two-bedroom unit types (with less studio units). The design still typically consisted of one-to-three story buildings with longer hallways on either side of a central dining room, but more resident lounges and courtyards emerged to add additional interactive space for the residents. New technology like building wi-fi and resident pendant call systems became standard.

So, what are the current trends in seniors housing? The main concept in today’s seniors housing design is to get the resident’s out of the units and engaged within the community. Instead of having the standard amenity rooms scattered throughout the community (library, computer room, game room, etc.) that are rarely used other than marketing tours, newer design trends incorporate a large, central community space that can be converted throughout the day (yoga, dance classes, cooking classes, movies, etc.). This creates a central, interactive hub within the community and helps provide interaction for the residents. Longer hallways are being replaced with connected ‘square’ designs to foster socialization and avoid isolation. Libraries are being replaced with ‘digital libraries’ that can be accessed through provided smart devices. Bistro’s and casual cafes are being added to the community to provide more dining options, as well as more social interaction meeting space for residents and families.  

And, the future is limitless and exciting for the industry. The focus will be on ‘lifestyle,’ so that residents want to move into a community for an upgraded quality of life. Technology will continue to be a main driver, which will include smart locks, digital records, new call systems, and interactive smart devices – all with the ability to be remotely accessed by the families. Virtual Reality is being introduced in memory care to help maintain and improve cognitive function. Also, modular design may help reduce the construction costs to cater towards a more affordable product. Overall, the industry has come a long way in a short time, and with constant innovation and improvement, the industry will continue to make a positive impact on the quality of life of residents and families well into the future.  

To learn more about ways to enhance our senior living industry, be sure to subscribe to the podcast, The Inner Circle of Senior Living.

enhanceseniorlivnig.com | seniorlivinginvestments.com | srgrowth.com | generationalmovement.com

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By Scott McCorvie | CEO, Enhance Senior Living

Learn more about Senior Living Investment Brokerage and Senior Living Investment Advisory Strategies at Enhanced Senior Living.

Per Resident Day Analysis

By Scott McCorvie | CEO, Enhance Senior Living

Learn about Senior Living Investment Brokerage and Senior Living Investment Advisory Strategies at Enhanced Senior Living.

Senior Living Per Resident Day Analysis

Whether you’re creating a proforma model with varying lease-up and stabilization scenarios, or comparing the operating performance between different assets and operators, you’ve probably heard the term, “Per Resident Day” (PRD).  The PRD metric is one of the most useful performance tools within the industry, and can be successfully leveraged to add value in a number of different situations. Within this article, I’ll analyze the actual PRD calculation, discuss why this industry tool is so useful, and demonstrate several ways it can be used to create value in everyday applications.  

Let’s start with the actual calculation. Just as it sounds, the PRD calculation is the actual hard revenue and expense line-items divided by the number of resident days in the period (month, quarter, year, etc.). The revenues and departmental expenses are easily identified within the financials, but what if you don’t know the number of resident days? Well, this can actually be estimated by taking the number of occupied beds in the period, adding an estimate (or ratio) for second residents (double occupied units), and multiplying this figure by the number of days. So, if you had 90 occupied beds in June, and typically 10% are double occupied, the calculation would be ((90+9) x 30) = 2,970 resident days. You would then take the monthly expense (i.e., raw food costs of $18,500) and divide by the number of days (2,970) to calculate the PRD ($18,500 / 2,790) = $6.23 raw food costs PRD.

So, why is this metric so important? One of the greatest advantages in this tool is the ability to compare the operational performance between properties with varying sizes (number of units) and occupancy. Obviously the expenses are going to be higher at a 100% occupied 120-unit AL/MC property compared to a 90% occupied 40-unit MC property, but how do the same departmental expenses compare on a PRD basis? The 40-unit property may be doing a more efficient job in expense management, and actually have a lower PRD expense indication than the larger property. Or, the smaller property may be doing an excellent job in dietary, but the housekeeping and nursing expenses are much higher PRD. Having a solid understanding of the PRD performance between properties is not only valuable in comparing performance, but can also be used to identify key areas of inefficiency and help create plans for future improvement. Linking this performance to industry reports (State of Seniors Housing, etc.) can provide dynamic industry benchmarking analysis and dashboard reports.

PRD assumptions are also very crucial in creating sophisticated senior housing proforma models. Analyzing the revenues and expenses on a PRD basis can show regressions and trends within the performance that can be utilized to more accurately project the go-forward performance. Linking the proforma model to the appropriate PRD assumptions can also provide a more precise sensitively and scenario analysis. Last, including the PRD variables with a multi-year staffing model, unit revenue matrix, and a monthly absorption can provide more in-depth forecast on future lease-up performance and stabilization. This can be crucial in accurately projecting the financial performance for new development, conversion projects, management transitions, and other lease-up scenarios.

Overall, the PRD metric is one of the more vital tools within the industry, and can be used within a number of applications.

To learn more about ways to enhance our senior living industry, be sure to subscribe to the podcast, The Inner Circle of Senior Living.

By Scott McCorvie | CEO, Enhance Senior Living

Learn about Senior Living Investment Brokerage and Senior Living Investment Advisory Strategies at Enhanced Senior Living.

enhanceseniorlivnig.com | seniorlivinginvestments.com | srgrowth.com | generationalmovement.com

Senior Living Development Feasibility

By Scott McCorvie | CEO, Enhance Senior Living

Learn about Senior Living Investment Brokerage and Senior Living Investment Advisory Strategies at Enhanced Senior Living.

Senior Living Development Feasibility

With the increasing number of seniors housing transactions trading at a large premium to the replacement cost (sometimes double), along with the increased availability of construction debt, there seems to be a renewed energy in the seniors housing development space. However, what makes a seniors housing development project feasible?

Simply put, a development project is feasible with the expected returns are greater than (or equal to) the weighted average cost of capital (WACC). But, what is the WACC of each project, and how is it calculated? As an equation, the WACC is a percentage-based average of the cost of debt added to the cost of equity (WACC = (% debt x cost of debt) + (% equity x cost of equity)). Since the equity is in a riskier position then the debt (remember, the debt holder will always be paid first), the cost of equity is always higher than the cost of debt.

Let’s say you receive a 75% loan-to-cost construction loan with an effective (inclusive of loan fees, etc.) interest rate of 6%. Also, let’s say you were able to secure the remaining 25% equity from an investor expecting to make a total return of 20%. Multiplying these together will give you the implied WACC of 9.5% ((75% x 6%) + (25% x 20%)). In other words, you would need an unleveraged internal rate of return (IRR, or annualized total return) higher than or equal to 9.5% for the project to be feasible.

Since the internal rate of return includes a holding period assumption and uncertain exit cap rate (to be discussed in a later article), another simpler way to analyze the feasibility of the project is to measure the WACC to the stabilized yield-to-cost. The stabilized yield-to-cost is similar to a cap rate, but divides the expected stabilized net operating income by the total development budget (YTC = stab. income / dev. budget). The development budget should include all fees and costs needed to fully stabilize the project (including pre-marketing costs, development fees, and lease-up/interest reserves). So, for a senior housing development project to be feasible, the stabilized YTC must be higher than the WACC. Also, the selected market rates, care charges, and operating margin should be carefully analyzed to determine the suitability of the proforma assumptions. Since the annual income drives both feasibility metrics, an unrealistic proforma model can artificially inflate or deflate the returns.

Last, one of the most important metrics to determine the feasibility of the seniors housing development project is to analyze the total development budget on a per unit basis. If the development per unit cost is too high, there is risk that another developer will construct a less expensive seniors housing project down the street, be able to charge lower rates/fees, and most likely drive down your operating performance. But, what is an appropriate development cost per unit? Unfortunately, this varies from market-to-market (varying land costs, entitlement, licensure, CON, construction costs), and operator-to-operator (varying pre-marketing costs, management fees, lease-up reserves), but generally can be compared on a segmented basis by allocating the land costs, hard costs, soft costs, FF&E, contingencies, developer fees, pre-marketing costs, and reserves.

To learn more ways to enhance our senior living industry, be sure to subscribe to the podcast, The Inner Circle of Senior Living.

By Scott McCorvie | CEO, Enhance Senior Living

Learn about Senior Living Investment Brokerage and Senior Living Investment Advisory Strategies at Enhanced Senior Living.

enhanceseniorlivnig.com | seniorlivinginvestments.com | srgrowth.com | generationalmovement.com