Chatting with the Masters - Michael Baldwin, Oracle Healthcare Advisors
/
Learn more about tailored senior living investment solutions at Enhance Senior Living.
In the next installment of Chatting with the Masters, I chat with senior living valuation and market analysis expert Michael Baldwin. I have known Michael for more than a decade, and have watched his dedication to the industry (and especially market analysis) through the years. With my mission to drive smart, thoughtful growth within senior living, I wanted to reach out to Michael to talk about market analysis for new senior living development. If you have any comments or questions, feel free to e-mail Scott McCorvie at scott@srgrowth.com.
Question: Why are there so many different metrics and methodologies out there that people use to analyze if there’s enough demand to develop a new seniors housing community? Sometimes in the same market one person will say to build but another will say not to, so how does anyone know who is right or wrong?
Answer: That’s an important question because it gets to the mental framework of what market analysis is. The goal of a market study is to be as accurate as possible about the market’s health. Demand estimation models are just tools to do that. They’re like funnels, with the funnel’s mouth being the starting point where a total population count goes in, and its stem is the end result of the model, narrowly defining how much net demand exists in an area. With that framework in mind, clearly some models are better than others because they more accurately quantify net demand. The worst methodologies are those where the ultimate level of accuracy is still very wide, like simply testing the subject market’s penetration rate or capture rate against some benchmark range and concluding that the subject’s market is good or bad based on whether the rate is above, below, or within that broad range.
Question: If you don’t use penetration rates, what market metrics do you analyze?
Answer: We definitely use some of the same broad metrics that everyone else is using, such as acuity rates, income levels, and certainly the starting population data with most people using Claritas or ESRI. But the key difference is what we do with those metrics and how specifically we use them. We developed the quantitative piece of our model through many years of reading the latest industry research and building the results of those studies into our models, as well as through our experience doing hundreds of market studies nationwide every year. We also have really geeky conversations with the best in-house analysts at some of the industry’s most successfully growing operators—the ones who we see nailing their market selection almost every time they build a new project. Then after each major improvement in our modeling, we back-test our model’s results to make sure it works. At this point our “funnel” is quite narrow because each metric we use is very specific itself and then is very specifically applied to the subject’s market.
Question: What income and age qualifications do you typically utilize?
Answer: That was something memorable about developing our models because at first it was challenging and then it became funny as we dug into it, that there was such a simple fact about age versus income and acuity that seemingly no one was accounting for previously, and most still aren’t. Age, acuity, and income aren’t three separate variables where any possible combination is equally likely. There are way more old seniors with medium acuity needs and low incomes than say young seniors with high acuity and high income. People know this intuitively, but as we asked around, we found that when it comes to estimating demand people are just applying those qualifiers in a linear way, one on top of the other, without thinking through how much double and triple-counting it creates. We quantify how those multiple levers shake out in a given market, so up to a certain point in our model we’re actually running separate tracks to estimate demand from each age cohort before combining them.
Question: Do you utilize other non-senior metrics when analyzing the seniors housing market strength (i.e., adult children population, housing market, labor market, etc.)?
Answer: A few other qualifiers we look at are how adult children impact demand as well as supply side variables like how many seniors are receiving care from home care aides or adult daycares. We go through several layers of analysis beyond what most market study firms do. That lets us identify those markets where demand is great and getting better faster than others realize, as well as advise our clients where not to build, where at first it may look like there is demand but the affordability isn’t there for the price points they need to get.
Question: With all the reports of oversaturation, how do you analyze new supply coming into a market?
Answer: We have access to subscription-based data services that give us leads on who is building where, but on that point we find that there’s no substitute for old-fashioned legwork. We call all of the appropriate planning and zoning departments to see what other developers have in the works, and we also search local news, but oftentimes the best information comes from driving the market and speaking with the people who live there and work in the industry. Once we feel like we’ve found everything possible, we dig into the projects one by one to assess how likely it is that they end up getting built. The toughest situations are when we find a great market for our client but there’s one other project someone is trying to do, and there’s only room in the market for one—them or our client. In those situations we have to just give our client all of the information and analysis possible and let them make their decision to try to beat them to the punch or look elsewhere.
Question: How do you conclude on the appropriate primary market area and secondary market area for a new seniors housing development?
Answer: We just ask Google, Siri Alexa, and Cortana and see if any two of them agree, and if not, we guess and shake The Magic Eight Ball. Just kidding, of course, but we can dream. After mapping all existing and proposed projects and speaking with existing competition about how far away they draw from ,we're able to hone in on the PMA. We don't put weight on what's going on in the secondary market unless it has a cluster of competition that's pulling from within our defined PMA or if there are proposed projects that will do so in the future.
Michael Baldwin, President, Oracle Healthcare Advisors
Michael Baldwin has specialized in the valuation and market analysis of seniors housing and healthcare properties since 2005. Mr. Baldwin stays directly in touch with the senior housing and nursing care market by visiting hundreds of properties each year to interview on-site management and has personally toured over 2,000 senior housing and long-term care properties across almost every state in the U.S. He has led the development of over 1,500 appraisals and market studies nationwide for lenders, developers, investors, and operators. Prior to forming Oracle Healthcare Advisors he held leadership roles in several national healthcare real estate valuation firms.
Scott McCorvie, President, Senior Living Growth Advisors
Scott McCorvie has over a decade of experience within the seniors housing industry, and has a strong passion to help cultivate smart, thoughtful growth. From 2004 to 2012, Scott worked for one of the largest dedicated seniors housing consulting and advisory firms, where he completed hundreds of seniors housing valuation, feasibility, regulatory, and market analysis assignments in markets across the United States. From 2012 to 2017, Scott worked for two public, non-traded healthcare real estate investment trusts, and was actively involved in the full spectrum of the investment and asset management process. In 2017, Scott launched Senior Living Growth Advisors to assist owners, operators, developers, and investors achieve their desired growth success. Scott has a strong passion for the industry, and strives to combine innovative investment strategy with strong knowledge of seniors housing market and operating fundamentals.
enhanceseniorlivnig.com | seniorlivinginvestments.com | srgrowth.com | generationalmovement.com
