The Springs Living CEO: Operators Must Embrace that Senior Living is a ‘Problem Business’

If they hope to be successful, operators must understand that senior living is a “problem business.”

That’s according to The Springs Living CEO Fee Stubblefield, who explained that residents frequently come to senior living communities because they are experiencing problems – for this reason, among others, there are “friction points” that are inevitable, and demand a particular mindset from operators.

Part of that mindset is taking a long-term and big-picture view, more like a farmer cultivating a field or orchard and less like an industrialist stamping out widgets.

“You have to play the long game,” Stubblefield said during a recent episode of the SHN Transform podcast. “You can’t control the uncontrollable; you have to ride the waves.”

He referenced the withdrawal of Walmart (NYSE: WMT) from the health care space as an example of a company with unlimited resources but perhaps the wrong mindset or expectations for this type of business.

Stubblefield dives into the nuances of senior living ownership, management and grapples with what it means to create a company that can stand the test of time in “A Culture of Promise,” his recently-published book.

With occupancy and margin improving, The Springs Living is moving forward with ongoing development, with more opportunities on the horizon, Stubblefield said during his appearance on Transform.

So far in 2024, Stubblefield said, the McMinnville, Oregon-based senior living provider had seen occupancy across its portfolio between 93% and 94%, with year-over-year margin growth also reported this year.

“This growth is exactly what we want to see and need to see,” Stubblefield said.

Now in its second year of construction, the company’s latest development, The Springs at The Waterfront, is near completion with residents expected to move in starting in October. Construction will be completed next month and allow The Springs Living staff to familiarize themselves with the new space.

The 12-story community overlooks the Columbia River and includes approximately 250 units, along with being part of an ongoing master planned space by Gramor Development. At nearly $1 million per unit to build, the community is state-of-the-art and built with the needs of future generations of residents in mind.

“It’s a dynamic, irreplaceable location, and we’re excited to see how it’s accepted,” he said. “Ultimately, the success of this building will depend on getting people there initially, but even more so on the quality of the people who work and live there.”

Highlights from Stubblefield’s podcast appearance are included below, edited for length and clarity. Subscribe to the Transform podcast via Apple Podcasts or SoundCloud.

On 2024 for The Springs Living:

Let me start with a quote by Emerson: “The voyage of the best ship is a zigzag line of 100 tacks. See the line from a sufficient distance, and it straightens itself into the average tendency.”

That describes us well. I believe that the average tendency is upward. In our portfolio, we see a bit of a two-step pattern. Our communities have all made progress occupancy-wise. Although we haven’t consistently reached 95% occupancy yet, we are fluctuating in the 93%-94% range, which is great. The best news is that we’re seeing our margins grow. Year over year, if I pulled the numbers today, we’ve seen our margins increase. This growth is exactly what we want to see and need to see.

On 2024 challenges in operations:

There are the usual friction points that we always have and will never completely avoid. This is a business centered around problems.

People come to us because they have problems, and that’s why we exist. We will always face these issues as long as our customers and their families have problems, as long as our employees have problems, and as long as there are market challenges and issues that affect capital, such as rising treasuries and lack of liquidity in the system. These are all problems we must deal with, and you have to embrace this mindset to be successful here. Otherwise, you will end up running from the building.

It’s the second year of construction, going on the third, and we’re right on schedule. We don’t open until October 1, but I can tell you that it’s the second year we’ve had operations in place and [we’ve] hired our executive director to start building relationships with the community. That process is going very well. We’re not in the building yet, but construction is very close to completion. It will be turned over to us in August, and it will take us a month or two to get everything ready for the residents.

I would say this project is a good one to focus on, especially in the post-recovery period, because it is a bellwether. It’s a bellwether, in my opinion, because it’s a high-end community costing roughly a million dollars per unit to build.

We’ve seen some very nice, expensive buildings in markets like New York City, San Francisco, Southern California, and other places. However, we haven’t seen many communities like this. The success of this building will be a good indication of our ability and the potential for success in creating market share versus taking market share. This is not a take-share building; this is a make-share building. People who are going to live in this community probably would not have considered moving in, especially at this stage of their lives.

Well, this building is inherently different because it was built for the next generation. I feel like we’ve aimed for this with every generation. The first community we opened, back when we started in 1996 and opened our doors in 1998, was built with the next generation in mind. Even though it seems like there is so much we’ve learned and many things we could have done better with what we know now, this community is built for the next generation, too.

It has the space and environment to attract people and enhance their quality of life. It includes the necessary staff, space, and resources, and has the infrastructure to support the technology and advancements that are happening. With the declining ratio of caregivers to residents and rising costs, investing in technology and creating desirable living spaces is essential.

This community represents our next iteration of what we want to achieve. Although every community we’ve built has aimed for this standard, each new building incorporates the latest developments. Is this building different? Yes, it’s mid-rise and more expensive. As costs increase each year, the next building will always be more expensive. However, the core consistency remains in how we treat people and how they feel within the building, whether it’s our first or our latest.

So far, the lease-up is right on track, which is great because this is an urban building located in a suburban market. There’s a unique aspect here: the people who will live in this community are typically not coming from another urban environment. We anticipated that there would be a group of people who need to see it in person before deciding.

I can tell you that all the units facing the river are already gone. However, the other views are still available. Even with 3D technology, virtual tours, and photographs, you really can’t appreciate the building until you see the other views in person. Almost every unit has some access to the river, but the views to the north, east, and west are truly spectacular. This building is in the heart of the action—trains, planes, and automobiles. It’s like going on an Alaska cruise every day you wake up there. Last time I was there, I watched two eagles soaring from the 12th floor right out the window, while sea lions came up the Columbia River from the Pacific, feasting on the smelt running up the river.

It’s a dynamic, irreplaceable location, and we’re excited to see how it’s accepted. Ultimately, the success of this building will depend on getting people there initially, but even more so on the quality of the people who work and live there.

On “A Culture of Promise”:

Listen, we need to understand our promises to all of our stakeholders, and there are really two categories. The first is the aspirational promise, which is about feelings and judgment. It’s about taking care of our parents, grandparents, and other people’s parents. This type of promise is important but often falls short. We’re in the business of solving problems, and even with a great staffing ratio and budget in a new community, issues will still arise.

The other side is our business promise. This is a concrete commitment to all our stakeholders, including residents, staff, and investors. These promises are more tangible and must be achieved if we want the organization to grow. If we don’t meet our business promises, we won’t be able to expand. It’s a balancing act between meeting people’s needs and hitting hard numbers.

The formula for balancing these aspects is what our culture promises to be about. It’s something we’ve always focused on here. I can tell you that it’s a continual adjustment process, and you may never get it exactly right.

On the relationship between capital and operations:

Well, first of all, it’s about truly understanding what business we’re in, making sure operators are effective in their roles, and ensuring that financial people understand the culture of the operations and know how to best support it.

Operators need to adopt a long-term approach, and capital must support that. You can make a P&L work for a given year or quarter in many ways, but doing it year after year and seeing growth and improved quality is crucial.

The people who are investing money understand the business they’re in and are prepared to support it. We’ve discussed this before; it’s more akin to operating and financing agriculture, such as an apple orchard, than to running a widget factory. We don’t just churn out relationships; we cultivate them. This involves doing many challenging yet fundamental tasks, much like farming. You have to weed the garden, know when to plant the seeds, and handle various other tasks. There are many metaphors here, but I’ll leave it to others to figure them out.

In essence, understanding capital involves recognizing the culture and operators they are investing in and ensuring they align with the right operators who truly grasp the concept. One of the chapters in “Culture for Promises” discusses the Quality Growth Curve. I’ll delve deeper into this concept in the next book, but it’s crucial to understand that you can’t grow the physical number of buildings or units unless you’re also growing the quality at or above the physical capacity. It may seem straightforward, but it’s not, and it requires discipline and thought.

Construction, development, and capital experts can finance and build these buildings much faster than we can produce quality results within them. It’s similar to planting an orchard; if it fails, you can’t just fix it in 12 months. You need to reassess and correct the issues in the soil and investment. There are no quick fixes here. You have to get it right from the start.

On resolving and maintaining relationships between operations and capital:

The principles that work in every other business apply here too, but they don’t work in the same way. It’s all about the nuances.

For instance, in Chapter 10, there’s a discussion about understanding our organizational culture. The capitalist culture differs from the operators’ culture, and it’s important to grasp how these two work together. Operators rely on judgment; control is an illusion. If you believe you can manage every interaction among all the employees, residents, their families, and vendors—consider the endless permutations and combinations—you’re mistaken. It’s not feasible to create a manual or write guidelines that will anticipate every situation and fit everything into a rigid framework. We’re in a people business, and it’s a judgment-based business.

“A Culture of Promise” creates an opportunity for clarity, allowing us to view our business through almost 30 years of stories, history, and experience. This isn’t just about the senior living business; it applies to every industry. Additionally, we need to continue pushing towards transparency and research data. We must be vulnerable in this process because understanding what works and what doesn’t is crucial.

On how operators can improve frontline operations:

Well, let me remind you, we have every problem that everyone else does. We deal with the full range of issues; it’s guaranteed to happen. The key, I think, is what we’re talking about: time on the clock.

The time on the clock I’m referring to is about your ability to impact the environment. For instance, if you own the building or have a long-term lease that allows you to make decisions that lead to quality outcomes, that’s crucial. For The Springs, I would say our number one reason for success is transparency.

You have to play the long game and you can’t control the uncontrollable; you have to ride the waves. You can’t control the ways it’s going to happen … , and I think we’re seeing that out in the broader industry.

Look at Walmart’s announcement this week that they’re pulling out of the health care industry, right…It’s that they didn’t potentially know what industry they were getting in and why, [and] if their ‘why’ was just to monetize their store locations and make more money, then they’re trying to kind of stamp things out there.

On embracing change in senior living:

Embracing change is essential to living life. I think we can create environments that provide psychological safety by acknowledging that certain things will happen as expected. This understanding helps foster an environment of trust. We need to accommodate both those who thrive on chaos, like myself—constantly juggling multiple tasks—and those who provide essential consistency, like our core staff, who are crucial to making things happen. Communicating and understanding that life is constantly changing, and not treating it as something that can be neatly boxed in, is important for creating psychological safety.

Our priority is to continue refining our ability to grow in quality. As we do that, you will have opportunities to expand not only through new developments, which we are working on but can’t disclose at the moment, but also through acquisitions. There seems to be a lot of money available for buying assets, but we will only make an acquisition if we believe we can be successful. We’re committed to playing the long game and will wait until the right opportunities arise.

In the meantime, we will focus on strengthening our foundation and improving our quality for the next generation of those who want to be part of this noble and honorable profession.