This article is part of your SHN+ subscription
Affordability in senior living remains a key challenge for senior living operators, and for those who navigate the affordable housing and middle-market space, doing so requires a lean and efficient operating playbook.
The affordable space within senior living includes a range of models, from Medicaid waivers for assisted living to tax-credit programs provided by states.
It’s no secret that more affordable senior housing projects carry narrow margins and a smaller investment return compared to the risks associated with pursuing the development of income-restricted housing. But the pool of potential customers in the low- and mid-income space is large and widening, meaning that there is plenty of demand for companies that can reach those prospective residents.
Senior living operators such as Innovation Senior Living, Priority Life Care and Silver Birch have taken steps to maintain and grow affordable senior housing options.
To succeed in this key area of affordable senior housing, operators must maintain stringent expense control measures, provide cross-training for staff, and be familiar with the risks of undertaking this type of senior living growth.
Building a more affordable model for assisted living
Senior living operators that thrive in middle-market and affordable settings are able to execute in two key areas: Maintaining operations with staff able to fill multiple roles and having the technical know-how to adapt to things like Medicaid waivers.
However, much of whether or not an operator can succeed in the middle market is often geographically dependent on their footprint. Some states have Medicaid waiver programs more favorable to senior living operations, including Florida, Illinois, and Indiana; while other states, such as Georgia, do not.
“It’s almost like militant expense control — that’s really the middle market,” said Innovation Senior Living CEO Pilar Carvajal. “You have to be really strict about your expenses because that’s the only way you’re going to make a margin.”
Innovation Senior Living runs a four-property middle-market assisted living portfolio in Florida, along with managing memory care communities. The operator focuses on finding residents able to pay rental rates through Medicaid subsidies, with an average monthly cost for care services around $3,000, Carvajal said.
With rising insurance costs nationally, Carvajal noted that providing care and housing for older adults becomes “all the more difficult,” while the operator drills down on operational efficiencies to mitigate rising costs. Central to this effort is creating universal worker roles where staff are cross-trained in multiple roles, contrasted with finding volunteers to assist in small capacities across each community.
“Our demographics continue to grow older, and yet the industry isn’t moving quickly enough to address the enormous numbers of people who could benefit from a middle-market assisted living offering,” Carvajal said.
Layered within this growing demand for middle-market and affordable assisted living is the fact that older adults are entering senior living communities with a higher number of chronic health conditions and greater care needs—something that’s both costly and a strain on a provider’s operational structure.
To cut through those kinds of challenges, Carvajal said operators must get creative in finding third-party partnerships with other organizations, from companies assisting in care delivery to those offering back-end solutions like tech platforms to improve operations for staff.
“We have to have that technology and that data in place to be able to prove the theory that we are doing good for our residents,” Carvajal said. “What’s going to be a big part of the middle-market solution is going to be technology integration.”
Going forward, Carvajal said now could be a prime time for well-capitalized operators to acquire distressed communities and seek to create an affordable senior housing portfolio, repositioning them to serve the growing demographic of older adults unable to afford traditional private-pay senior living options.
“Thinking creatively about where we can create congregate settings, where people can live together and serve them more effectively, is absolutely on the table for the middle market,” Carvajal said.
In recent years, some private-pay senior living operators like Fort Wayne, Indiana-based Priority Life Care have built a small-but-growing affordable assisted living portfolio of communities supported by Medicaid waivers. The unwillingness of some private equity and lending partners to stomach risks associated with governmental concerns is a barrier to more affordable and middle-market growth, according to Priority Life Care CEO Sevy Petras.
“Those low-income housing tax credit deals for assisted living only work in states that offer a robust Medicaid waiver,” Petras said. “If it is predominantly Medicaid waiver, they’re going to really discount the value based on the insecurity of what they feel the payer sources are.”
To make affordable communities stable and viable for long-term success, Petras said it’s dependent on operators evaluating a property’s sale price and ensuring the community can support a higher basis with greater unit counts. Then comes building out robust programming for residents and benefits for staff.
With favorable demographic trends supporting more older adults considering a move into a senior living community, Petras said middle-market and affordable operators could target a specific group of older adults unable to afford a luxury product but specifically seeking out a no-frills, sensible living situation.
“We can really customize a living situation from active adult to memory care based on the way that they want to receive their care and be surrounded by like-minded people,” Petras added.
A ‘political issue’ hinders faster affordable housing growth
With a patchwork quilt of states with favorable Medicaid waiver programs, expanding to new states can seem like an impossible task, as flashpoints around Medicare and Medicaid remain a “political issue,” Carvajal said. Despite the uneven nature of Medicaid waiver programs, people continue to age, and more older adults will need care offered by senior living providers.
“There will come a moment where states are going to have to wrestle with the idea that if they do not fully fund the Medicaid program, they’ll end up having people going to nursing homes prematurely, which costs the state even more,” Carvajal said.
One operator currently looking to expand across those steep battle lines is Silver Birch, the largest owner and operator of affordable assisted living communities in Indiana. The company is preparing to develop 8 to 10 assisted living communities in Ohio. The organization has lobbied healthcare and state legislative members to increase the Medicaid reimbursement rate in the state.
“Right now we’re working with the different departments in the state of Ohio to line up the process and the financial piece of it,” said Silver Birch CEO Jo Ellen Bleavins. “So going in and investing that kind of money in the state is no small feat.”
The Ohio Medicaid waiver rate was recently increased, something Bleavins said was “significant” to help future projects pan out in a new market for the organization. In dealing with state officials, Bleavins said communication regarding the status of older adults seeking waivers plays a big part in the timing of expanding to a new state.
“They are working on what’s the most effective way to move people through that process and at volume,” Bleavins said. “It’s slower than we would like.”
Financing and strong partnerships to grow affordable housing structures
With demographics trending positively for organizations looking to grow affordable senior housing options, operators must have strong capital relationships to help projects become a reality.
Take the relationship between Evergreen Real Estate Group and Gardant Management Solutions, in which Evergreen serves as the affordable housing developer and capital provider of over 13,000 units in 14 states through low-income housing tax credits and Medicaid reimbursement.
States with Medicaid programs that have adequate assisted living reimbursement rates are the “secret sauce in financing affordable assisted living developments,” according to Jared Isenthal, who serves as Evergreen’s vice president of development and the company’s assisted living lead. After building a broad affordable assisted living portfolio in Illinois and Indiana, Isenthal said Ohio could soon be ripe for affordable senior housing growth.
“We’re addressing the affordability issue in assisted living by offering residents an option they otherwise couldn’t afford,” Isenthal said. “Our development challenges include overcoming the stigma associated with building capital A Affordable housing. It’s important to educating local stakeholders on the need gap that we are filling.”
Evergreen deals are financed through 4% Low-Income Housing Tax Credits and Tax-Exempt bonds, and supported by new-market studies to determine the viability of growing in a new market, Isenthal said.
“We believe that stakeholders who have been involved in these in the past will continue to be excited about them,” Isenthal added. “We’re really in the infancy period for affordable assisted living.”
In order to grow the sector, Isenthal said Evergreen and other organizations operating in the affordable assisted living space must continue to expand in favorable states to help spur change in states with less favorable Medicaid waiver environments. In the near term, Isenthal said he believes the Midwest and Northeast could be ripe for future affordable assisted living growth.
“We’ve got to deploy to states that we’re confident in, and not until they’re stabilized and show success can we continue to move on to new states,” Isenthal said.