Operations and Labor Challenge: Senior Living Market Study with J.P. LoMonaco
Lucas: Welcome to Bridge the Gap podcast, the senior living podcast. You’ve got Josh and Lucas here. We are at Interface Southeast in Atlanta- the senior housing conference. As we’ve said before, great attendance, a lot of energy and we’re really excited to have J.P. LoMonaco here on our show. Welcome J.P.
J.P.: Thank you, it’s great to be here.
Lucas: So, J.P. you’re a moderator today. I was hoping that you would be the moderator for the panel that Josh was on so that you could kind of rib him a little bit.
Josh: Oh, woah.
Lucas: You know, really dig in. We could have given you some dirt on him and make him blush up there, but that didn’t happen.
With that being said, give us some of your background…you’ve been in the industry awhile and you’ve got a lot of history and context. What led you down this path to develop your entire career and your company in senior living?
J.P.: Well, you know, I’d like to tell you it was a very smart, strategic decision when I was young. But really it wasn’t. I entered the appraisal industry in the early 90s, late 80s early 90s, and right then we were going through a recession. When I entered, it was great (and) there was a lot of work to be done. As we were coming out of the recession, the economy slowed down and there was really much lending work.
So, at that point I met somebody else whose firm specialized in evaluating hospitals. And they said, hey, why don’t you come on board and I did in January of ’96 and then I’ve just been dedicated to the industry ever since then.
Lucas: Incredible. So, your company is called the Valuation and Information Group. You are based out of California, correct?
J.P.: Correct.
Lucas: And so we had some discovery phone calls with you and so you and I actually met at Interface in Chicago where I sat down at a table discussion and you had tons of data on all the big reads, all the big operators in the business and then we were able to have a phone call with Josh and our team here. Josh, what about that level of document and detail, what stood out to you of interest here.
Josh: Yeah, well, so there’s a lot of things. J.P. had an opportunity not only in some phone calls but you know I’m a fan of J.P.’s work and what he does on a daily basis because I have to order those studies on what feels like a daily basis. And you know one of the things that I was wanting to talk today about from J.P. is you have a very unique insight into how the industry is changing by the numbers, market conditions, what you’re seeing changing whether that’s geographically and things like that. I want to selfishly talk about a little bit about what we were talking about that in this new age of looking for creative ways and innovative ways to develop new product for the market, how that’s going to impact the approach to your traditional market study and analytics, how your firm may be positioning itself and the thought process of a product like that.
Maybe you can start, because I know that’s a lot to talk about, maybe you can start and just frame the conversation with your experience in the industry, how your approach to market feasibility study has changed because even in my short, 13-year career it seems like that has changed a lot and weighted averages and averages and scaled has started shifting and things like that.
So, tell us a little bit about your background and how that’s changed.
J.P.: Sure, and I think you bring up a great point in there’s a subtly in the question that you bring up that I think gets overlooked a lot in this industry, so I’ll touch on that.
But kind of rolling back to my start in this industry, really in the mid to late 90s when I really started to do a lot of assisted living. And there was time period of probably about 2 years where we would get a new assignment every week or two weeks and it would be five new assisted living facilities. So, either I’d run out on the road or somebody would run up the road and it was kind of the…Wild West of the time. There was a ton of new assisted living communities, a lot of them were going public at the time and Wall Street at the time viewed assisted living as a growth industry so the multiples were really high, nothing compared to traditional real estate.
But what was interesting there is it was such a young industry at that time that there wasn’t established saturation rates, the economy was good, facilities were filling up…What ended up kind of bringing an end to that boom was kind of the skilled nursing side, they went through some changes of reimbursement, and at the time the investment industry really didn’t understand the difference between assisted living and skilled nursing.
Fast forward after we get through that little hiccup, the assisted living industry is a little more developed, a little bit more established. There’s development occurring much more gradually, much more slowly. So this is the first time that we’re starting to see saturation rates drawn from the market.
And what we like to do is we like to go into markets that are stable and figure out what is the saturation rate there. But the misconception is one saturation rate fits all and that really isn’t case.
Saturation rates are affected by the economic cycle we’re in. For instance, right now, we’re in a really robust economic cycle. Housing values are way up over the last eight years, the stock market is way up, so seniors feel wealthy. Overall, the economy is doing well. They’re much more willing to make a move whether it’s a lifestyle mood or a care-need mood to go into senior housing whereas during the great recession for about three to four years, seniors were not going to move out unless it was completely need driven. They were in a hunker down mentality, they were going to have difficulty selling their homes.
So, you know, the saturation rates during that recession period are going to be very different than what we are experiencing now. So, we’re seeing right now some of the highest saturation rates that we’ve seen in history. And another contributing factor is seniors are more educated about what senior housing has to offer. Adult children are better educated. So, as more people are educated, people are more likely to adopt senior housing into their life at some point.
Josh: That’s fascinating. So, now this kind of gets up to the current. What does the market look like over the next five, ten, fifteen years as kind of a new generation of boomers start thinking about housing options, care options and things like that. Where do you think, I mean we’ve talked a little bit about multigenerational concepts and all the innovative things that people are thinking of how senior housing is going to change- how does or does that even change your appropriate from a more traditional senior housing model and when you’re looking at models, how do you approach that market study and that market work in the future?
J.P.: Sure. And it’s a great question and it’s a difficult question to answer because we can’t go to the market and draw out existing saturation rates for those types of projects. So what we do is we start with a project with a basic saturation rate for senior housing and then we apply some very variables or some factors. And in a situation like that, we’ll probably end up giving a range conclusion rather than a pinpoint conclusion because so much of that also is dependent on the ability of the sponsor- the management team- to articulate to the market what the benefits are to this new type of senior housing. We may do a market study it shows demand, but that doesn’t mean that every operator is gonna be able to succeed in that market.
Josh: That’s fascinating. So, what I’m taking from that is a very close collaborative partnership because it seems like the group like yours and the potential developer or operator, whoever is ordering the feasibility study, there’s gonna have to be quite a narrative and understanding of what you’re trying to achieve which is not a cookie-cutter as you know what we’re dealing with often times today. So, you know, I could talk about this for a long time because I’m passionate about this and I look at these studies all the time.
But today was a pretty awesome panel, you had a really good group of people. Give me some of the key takeaways that were from your panel that you were moderating as you see them that were really important topics that if the industry as whole is not talking about they should be talking about.
J.P.: It was a great panel and it was great to moderate it because it was great to hear their insights.
A couple trends that really struck me as key trends going forward is one is the three operators that were on the panel all agreed that assisted living, the target population for assisted living has changed over the last 10 to 20 years.
The feedback I’m getting from them is that the independent living resident of today was the assisted living resident of 20 years ago. What that means is seniors are getting older and they’re getting more frail. Assisted living today is really taking care of the nursing home patients from 20 years ago for those people to really afford it. And what we’ve seen in the independent living is it’s not really so much more a lifestyle choice anymore but it’s almost a choice of these seniors need some supervision, some oversight.
So, what’s interesting about this panel is several of them are actually turning back the clock and really getting back into that active, adult communities. I asked them what the definition of an active adult is and they said technically it’s 55 plus but really their target market is more than 65 to 75 plus- that senior who really is looking to make a lifestyle choice, doesn’t want to take care of a home anymore, doesn’t want to worry about the garden or the maid or the bills- really just wants to enjoy life.
Josh: You know, I’m seeing that too. I think back to one of our previous guests and keynote here Charles Turner kind of was touching on that that our industry as we have defined it, as we have worked in the senior living (and) senior care predominately driven by assisted living and now memory care, we are such a higher acuity and I think as Charles put it, we can either try to ignore that or we can embrace that and you’re seeing kind of a clear division of operators and developers that are either making an approach to where hey, we’re gonna go down stream and try to stay with that higher-functioning resident and what we were doing as assisted living we’re now going to do independent living or villa products or age restircted housing of some form or you got the other group that’s like hey, let’s embrace this, we’re just caring, we’ve got to adapt, we’ve got to adopt and now we’re where hospitality meets healthcare and we’re going to interface with the healthcare system and become part of that referral.
So, it’s interesting that that was one of the big discussion points here today. So, anything else that you thought was thought-provoking from the panel?
J.P.: Well, just to follow up on your point, there’s room for all of it. It’s not a low acuity, high acuity is the answer. It’s if it’s done right, the seniors are going to want that.
Josh: Yes, thanks for making that point because you’re exactly right. There is no right or wrong answer, all of the people need care, all of the people need housing. And so, honestly, I think that’s one of the biggest opportunities you know because we’ve talked a lot about challenges you know and obstacles, but you know with everyone with those challenges there are some unique opportunity and I think it’s a really exciting space to be in spite of all our challenges and problems that we need to solve and things like that. There’s more opportunity to, whatever model you have, to find a niche and growing aging population. So, it’s pretty exciting.
Lucas, you have a different approach on this. You come from renovation, repositioning communities and things like that. So, what’s your takeaways?
Lucas: Well, I would just say to you guys is we’re seeing that in just the services that we provide So, doing a complicated construction project in an open operating building, those different levels of acuity, we’re monitoring that as well and our approach to that has certainly changed over the years- meaning that we may be working in an independent living community, there could be a resident there is it one day away from going in the memory care. Same thing with assisted and so we have to, our staff included, really be aware of that. It’s a little bit of a different approach.
When you’re a construction service company, you think that your expertise which we’ve learned by making mistakes over the years, we’ve learned from that and think well as we learn the business, is it yes we need be great at construction and reconstruction and all of those things but we need to understand the buildings that we’re working in and the challenges that they face with the people that live there.
I think that’s a continuing topic, an issue in the space just that level of acuity and how that plays out an operations model and lifestyle model. The panels from today, that was a big topic.
Josh: J.P., your work, your valuation, your feasibility- correct me if I’m wrong, but from my understanding, your work is approved by most if not all major lenders and so forth like that.
J.P.: Oh yeah, we have a wide variety of clients that reviews our work.
Josh: So, for the new developer, the new operator, we’ve got a very diverse audience, and they’re looking size up the market and they’re looking for innovative ideas, maybe this is a new product type, maybe this is something that’s not your traditional cookie cutter or something that just easily gets funded because it’s known, there’s known saturation rates- what are some of the things that developers and operators should be doing to partner with folks like you, the questions they should be asking, other problems I should be trying to solve and the narrative that they’re trying to create to present their market and their work and their validation and their case for this new product- what advice could you give them because you deal with these lenders and know what they’re looking for.
J.P.: Sure. Whenever you’re breaking new ground, it’s always difficult. Within the space of the senior housing industry, we’ve had people that are very innovative and innovative to a point that it’s caused the product to fail or maybe they had a great idea, but their execution wasn’t good.
So, we’ve seen specialty facilities, some of them succeed and some of them not. Obviously, if it’s going to be a unique, specialized facility, it’s going to get a little more scrutiny.
The projects that we currently see that are unique, that are not down the middle of the path, most of those that are high success are folks that have been in the industry, understand the basics of how the industry works, understand the logistics of how to market a facility, how to operate a facility. And then it’s a little bit of a twist, whether it’s the target market that they are going after or it’s a unique location where they’re partnering with a university and really making a multi-generational type of facility. Those types of projects usually take a little bit more capital. The lender is going to want to see more skin in the game so it really helps to have that big backing behind you.
Josh: I think a big piece of the ingredient that I think what I heard you say is there’s an experience component with getting a team surrounding that developer or that operator that is experienced and has built relationships and successful projects that people can believe in. So, that goes a long way.
J.P.: You know, one of the themes that always comes up at these conferences is the real estate location, location, location; senior housing is management, management, management. And it really is the number one driver. When we do a market study, and it’s maybe an owner of a piece of land, it’s a developer, the first question is do you have an operator, are you working with an operator, do you have a concept of what you want to build and it they tell us now, we don’t, then we understand that this market study is really going to be used, the first step is to use it to attract an operator, to partner up with an operator. Because there’s no point in a developer spending money to get the entitlement, to get the drawing of the plans done until they have an operator because ideally you want the operator to help give input on the type of development, the layout of the project.
Josh: I think that’s a great point and obviously selfishly I agree with that. But I’ll tell you I’m still shocked, I was just approached by two projects this week, that multi multi multi multi million dollar projects that they already have a full design, they already have the feasibility work done, already through the entitlement phase and they’re ready to break ground and they’re just now starting to figure out who’s going to operate this thing.
J.P.: It’s amazing.
Josh: It’s fascinating to me how, you know, they get that and how they’re taking that risk just off of a beautiful design that lays well on that site. So, I still see that and I’m surprised those deals are still getting funded but I do think that’s a shrinking, shrinking opportunity.
So, Lucas, summarize this for us.
Lucas: Well, it’s a lot of great information that I’m on the couch here really just taking it all in -I’m learning as we go. Which is the reason why I love these conferences- there’s so much thought leadership that term gets thrown around but it’s really taking place here. These panels are, these are some of the top people in the industry and so to have the opportunity to listen to J.P. moderate and to ask these important questions and to have these important discussions, it’s a privilege for us here at Bridge the Gap to be able to give this back to our bigger audience.
As we continue to talk is that your Bridge the Gap is emerging as a strong voice for the industry. We want to advocate, we want to educate, inform and influence as we’ve talked about our why’s before so I think this is really great portion of why is to give that back.
So, J.P., thank you so much. I know that you’ve got more meetings and you’ve got travels back to the West Coast and we’re going to stay connected with you and we just really appreciate your time. Thanks J.P., so much.
J.P.: It was my pleasure and I look forward to listening to some more podcasts.
Lucas: Absolutely, we’re going to bring it. Thanks to our listeners who are out there. Please connect with us on our social sites, ask us questions- we’ll make sure to connect JP in the show notes if you have questions about valuation and these assessments. I’m sure they’ll be happy to talk to you. Thanks for listening to another great episode of Bridge the Gap.
