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As mid-size and larger senior living operators seek growth with institutional capital partners, smaller or single-site providers in secondary and tertiary markets risk falling into a kind of operational or financial “purgatory.”
Given their fewer resources, smaller senior living communities and providers are at a disadvantage when competing with larger companies that have deeper pockets. At the same time, smaller properties below 60 units are often beneath the margins threshold needed to make for an attractive acquisition from current buyers.
Owners and operators of these properties can get locked in a cycle wherein they tread water with little to no chance of a sale or recap, a phenomenon that Phoenix Senior Living CEO Jesse Marinko dubbed a kind of “purgatory.”
“There will always be a niche for a mom-and-pop operator, but growing from one location to two, I think there’s such an invisible ceiling for those groups because institutional capital partners require a massive investment to meet their reporting needs,” Marinko told me.
If the senior living industry were a forest, large senior living operators would constitute the trees and canopy, while smaller operators would be the ferns on the forest floor. Nature dictates that there is room for both – but only if the ferns can get the sunlight and nutrients they need to grow.
Zooming out the lens, I think competition from larger providers will prompt smaller companies to shift priorities further toward needs-based and specialized services, like assisted living and memory care, in an attempt to eke out their spot in the sun. I also think they will have to pair those efforts with data collection and staffing creativity in order to survive and even thrive.
In this week’s exclusive, subscribers-only SHN+ Update, I unpack the following dynamics of small and large operators and offer the following takeaways:
- How transaction activity uncovers challenges small operators face
- Unpacking the current barriers to entry in senior living
‘Very challenging’ for smaller properties in 2025
The senior living transaction environment is witnessing a “perfect storm” revolving around slowed development starts, which has led to increased transactions in 2025. But despite an uptick in M&A, the senior living industry remains highly fragmented.
According to a 2021 report from National Council of Real Estate Investment Fiduciaries (NCREIF), more than half of the senior living market is controlled by small owner operators with fewer than 10 communities.
In 2025, it’s still “very challenging” to sell smaller senior living properties, particularly in secondary or tertiary markets, Senior Living Investment Brokerage (SLIB) Executive Vice President Dave Balow told me. That’s because smaller properties under 60 beds are beneath the net operating income threshold needed in order to make an asset an attractive acquisition to current buyers.
“We regularly see private owners run at much lower margins than groups who have more scale,” Balow said. “With inflation, less purchasing power, staffing pressures and agency staffing use, and general competition for residents, it’s getting harder and harder to operate as a private owner.”
While Balow sees a future in which small senior living operators can still compete against larger providers, the dynamics of smaller communities will remain dramatically different than larger ones, with slimmer margins, reduced purchasing power and no corporate support.That could push more owners toward the prospect of consolidation, affiliation or sale to exit the industry, if they can sell their communities for the right price, that is.
Once larger and newer properties have been acquired or all traded hands, investors could turn their interest back to the types of communities they acquired in the 90s and early 2000s, Marinko told me.
“For the next six to 10 years, I think you’re going to see very little institutional capital going in secondary and tertiary markets,” Marinko told me.
Groups with larger scale are more quickly able to invest in systems, talent and community improvements compared to smaller operators’ ability to meet financial reporting benchmarks and weather the many operating challenges they face.
Smaller communities also face “higher variability” in occupancy and smaller providers must spread fixed costs over a smaller unit base, Macquarie Capital Assets Senior Healthcare Equity Research Analyst Tao Qiu told me. Finding the right mix of staff is also a challenge for smaller operators, compared to larger properties with dedicated recruitment teams.
“Institutional capital brings to the table resources to invest in these innovations and evolutions, in addition to enhanced financial discipline and operational sophistication,” Qiu told me. “I think today’s investors understand that roll-ups don’t necessarily work well unless you have a local strategy.”
History has shown that regional and local senior living models can compete against national platforms where everything is centralized in a corporate office, as seen in the rebalancing of senior living investors swapping out operating partners following the Covid-19 pandemic and management transitions executed over the last two years.
Given the lack of new development, even small- footprint communities could fill up in the coming decade given surging demand, Qiu said. But as SHN has noted before, now is not the time for senior living operators to rest on their laurels. While I do think smaller operators have an unique opportunity to stand out among competitors and reap demand, it will take services that residents and their families want.
For example, small-home senior living operator Sage Oak is personalizing its memory care services for residents through a program it launched last year called Curated Care. The program gives the Dallas, Texas-based operator the ability to review resident health information and data to place residents based on their acuity level, programming preferences, social tendencies and care requirements. Using that approach, Sage Oak has been able to maintain an occupancy rate in the mid-90s throughout the Covid-19 pandemic, CEO Loe Hornbuckle has told us in recent years.
Smaller operators can leverage their local-market knowledge and connections to build stronger relationships with families and gain their trust over larger, more impersonal companies. .
“The really smart operators can straddle the two strategies of being a local resource families are familiar with,” Marinko said. But he added that he also believes larger companies can succeed with “support and resources forward that are only available to operators with scale and support teams.”
Avoiding ‘purgatory territory’ in senior living management
Senior living operators have grown quickly in recent years in an effort to rebound from the early days of the Covid-19 pandemic.
In today’s operating environment, margin compression remains the biggest challenge providers face, Marinko said., He noted that it’s tough for management companies to turn a profit without the resources afforded by a large, institutional capital partner.
There’s a “purgatory territory” that some senior living operators can fall into that includes between 5 and 30 properties where “you just don’t make money” in operations due to the resources needed to fill communities with staff across various departments, Marinko added.
“I think being a senior housing operator is less attractive in the space right now because it’s about the barrier to entry, cost of doing business and it’s a revenue structure that hasn’t changed in decades,” Marinko told me.
In order to avoid “purgatory” in scale and revenue, today’s senior living operators must get creative in building new capital relationships, from management contracts evolving to the profit received by the operator increasing.
I’m confident that smaller senior living companies can compete against larger providers due to their ability to harness grassroots marketing and a deep base of local knowledge to personalize services and stand out. But how many actually will is another question.
As ownership partners require more financial reporting from their operators, small and large providers have their work cut out for them and the industry must adapt to meet the growing number of older adults in need of senior living.
