Seven Factors For Developing A Successful Assisted-Living Residence
High-quality healthcare and service delivery should be top priorities

By Pamela Edwards Klein, Alternative Living Services

The assisted-living industry has become the fastest growing segment in healthcare today. The ability to take care of individuals with unscheduled personal and healthcare needs in innovative settings that have the "flavor" of home has proven to be a powerful combination that both adult children and residents desire. Assisted living is unique in our country because it represents a societal shift that interjected marketplace forces and customer choice in a new long-term healthcare strategy. The phenomenal growth in this industry is a powerful indication that adult children, residents and professionals want a non-institutional option for our country's elderly citizens.

In the last several years, interest and activity in the assisted-living industry have increased significantly, driven by easier access to funds coupled with Wall Street's recognition of assisted living as a legitimate industry. Under pressure from shareholders to make their numbers, many experienced operators have aggressive development schedules for the next several years. Furthermore, new, inexperienced entrants are rushing in, especially in states with favorable regulations and Medicaid reimbursement.

There continues to be a significant level of unmet market, especially for moderately priced assisted-living products. At the same time, the last year has seen growing consolidation within the industry. Increasing competition from both experienced providers and new developers is resulting in market saturation and slower- than-expected lease-up in some regions of the United States. As more operators struggle to meet financial expectations, industry consolidation will likely accelerate.

For the industry to remain strong, assisted-living developers and providers need to listen carefully to what the market needs and wants. In the long run, the winners will be those who plan wisely and focus on high-quality healthcare and service delivery.

Developers contemplating entering the industry are wise to learn from the mistakes of the retirement industry in the 1980s and become educated prior to planning a project. Specifically, developers should pay attention to seven key factors that will strongly impact success or failure.

Building Design

The design of an assisted-living community should reflect market preferences as well as operations. Remember, assisted living is a service industry, not a real-estate venture. The target resident population, the desired services and the staffing requirements should drive the design. The operator should be involved in the design process and, ideally, in the selection of the architect that will execute the plan. Customer preferences are as diverse as the residents themselves. A building design that works well in one area of the country may not translate well to a different market. It is important to understand the unique demands of the market under consideration rather than taking a one-size-fits-all approach.

State Regulations

Take the time to thoroughly investigate and understand state regulations, which will directly impact service delivery and building design and, in turn, project costs. Some states have more than one licensing category that may apply depending on the target resident group or building size. With zoning and permitting taking more than a year in some markets, it is critical to not only understand current regulations, but to be aware of pending legislation that could impact the ability to open and operate in a timely manner.

Market Feasibility

An objective market evaluation is a must for success. As competition increases, a thorough market study is essential to avoid a costly business mistake. Engage the services of an experienced consultant with a good track record. A comprehensive market study should not only provide an analysis of market conditions, but also offer recommendations relative to overall project scope, services, amenities, pricing and market positioning.

Expert Financial Analysis

Financial analysis should be completed by a consultant or individual who has assisted-living industry experience and is knowledgeable of currently accepted benchmarks relative to expected costs and revenues. A clear understanding of the operating budget is critical to financial success since, typically, about 60 percent of revenues go toward resident care and labor expenses.

Homestyle Design

Consider what makes a residence a home. Recognize that even when a project is geared to the very frail individual, the building still needs to appear highly residential. Just as there is no one concept of a home that is right for every individual, there are many ways to approach the design of an assisted-living residence. The building design should take into consideration the target resident group, regulatory requirements and constraints, as well as the architectural and market preferences of the region.

Real-Estate Conversions

Caution is the key here. Realize that there can be drawbacks to conversions of existing buildings, such as hospitals, hotels and nursing homes. Renovation can be as expensive or more costly than new construction. Even if renovation is done economically, the building may never achieve the operational efficiencies that might have been gained from a new construction project.

Operating Focus

Healthcare is the name of the game, not hospitality. Assisted-living residences are caring for increasingly frail residents due to aging in place and "acuity pushdown" from nursing homes and sub-acute centers. Residents and their families are making their decision to move into an assisted-living residence based, not on real-estate amenities, but rather on service offering and perceiving quality of the staff. As residents are moving in with higher acuity levels and more complex medical conditions, assisted-living residences are evolving into a new healthcare setting. To retain residents and allow them to age in place, staffing patterns must remain fluid and adjust to changing healthcare and dependency needs.

The assisted-living industry is rapidly changing but is still an attractive alternative to developers looking for new business opportunities. As the industry matures and moves toward an even greater healthcare focus, it is critical for inexperienced developers to partner with experienced operators to enhance likelihood of success.

Pamela Edwards Klein is vice president of strategic initiatives at Alternative Living Services (ALS), a Brookfield, Wis.-based operator of assisted-living residences. Prior to this, she held the position of vice president of employee service and quality management, and vice president of corporate development at ALS. She chairs the company's professional advisory board comprised of nationally recognized experts in the fields of aging, Alzheimer's, staff training, barrier-free design and healthcare policy. Ms. Klein has more than 17 years experience in the healthcare industry, including the position of principal of her own marketing consulting business prior to joining ALS. She has held positions at the University of Virginia Medical Center, Yale Medical Center and John Hopkins University. Ms. Klein is an active member of the Assisted Living Federation of America and is the co-chair of the Assisted Living Institute developer course.

Senior Housing Financial and Operational Performance

Senior housing is enjoying a healthy median occupancy of 94 percent, according to The State of Seniors Housing 1997, published by the American Seniors Housing Association in collaboration with Coopers & Lybrand. The report, which summarizes fiscal year 1996 data collected from 268 senior-housing communities totaling more than 55,000 congregate/independent-living units, assisted-living units and long-term beds throughout the United States, also concluded the following:

• Ninety-seven percent of assisted-living communities sampled indicated they were licensed to operate in their respective states.
• Median rental fees for continuing-care retirement community-based independent-living units and assisted-living beds are greater than those for freestanding congregate and assisted-living communities.
• Despite varying annual resident turnover rates among the three seniors-housing sample segments, marketing/advertising expenses per occupied unit are remarkably similar for each segment.
• On a "same-store" basis, the assisted-living communities sampled had significantly larger percentage increases in key operating results and enjoyed the highest percentage increase (15.7 percent) in net operating income.
• Median management fees, as a percentage of total revenues, are 6 percent for assisted-living communities, compared to 5 percent for congregate communities and 4.6 percent for CCRCs.

The following graphs reflect the median financial performance indicators.

New Developments

Longwood Place Flourishes

Longwood Place of Reading, Mass., an 86-unit assisted-living community known for its award-winning renovation of Reading's Pearl Street Elementary School, flourished during its first year of operation with 93 percent occupancy. With financing secured through the Massachusetts Housing Finance Agency's Elder Choice Loan Program, 20 percent of Longwood's studio and one-bedroom apartments are designed for individuals with low to moderate incomes. Financially eligible residents pay reduced rents or receive assistance through the state's Medicaid Group Adult Foster Care Program. For more information, call (781) 944-9200.

ProMatura Purchases Cleveland Site

ProMatura Development recently completed the purchase of nearly 11 acres of property in Cleveland, Miss., with plans for construction of a large central building including 30 to 60 apartment residences and development of 25 single-family homes. All apartments and homes will be part of the company's Audobon Place at Cleveland. Prospective residents of Audubon Place can choose from independent or assisted-living apartments. For more information, call (601) 234-0158.

KKE Designs Alzheimer's Facility

Korunsky Krank Erickson Architects Inc. of Minneapolis has been selected to design Good Place Assisted Living in North Richland Hills, Texas. The project includes a 28-unit, Alzheimer's-specific, assisted-living facility constructed on the same campus as their existing 80-unit assisted-living facility. KKE has also been selected by Catholic Residential Services of LaCrosse, Wis., to design a new assisted-living project on the Mississippi River. MeadowWood Assisted Living consists of 45 studio, one- and two-bedroom units. For more information, call (612) 336-9615.

SLR Expands

Senior Living Residences of Boston, providers of affordable assisted living in Massachusetts, has been named management agent for seven new Massachusetts projects. Each new assisted-living residence is based on a service-enriched model and will serve mixed-income populations. The new contracts bring the total number of SLR-managed, assisted-living residences to 12. For more information, visit the SLR Web site at www.seniorlivingresidences.com; phone (617) 268-9140.

Leisure Care Combines Two Communities

Leisure Care Retirement Communities purchased and intends to manage two Mesa, Ariz., retirement communities, Whispering Pines and Hohokum Village. The two communities, currently separated by a brick wall, will be combined to create Pines at the Park, a new 415-room retirement community. Leisure Care Inc., headquartered in Bellevue, Wash., manages 28 retirement communities throughout nine Western states. For more information, call (206) 455-5644.

NGH Begins Construction of New Facilities

NGH Assisted Living/Marriott of Houston, a wholly-owned subsidiary of Marriott Senior Living Services, began construction on eight 66-unit Village Oaks assisted-living communities. The locations of the new communities are Glendale, Ariz.; El Paso and San Antonio, Texas; Fort Wayne, Ind.; and Melbourne, Jacksonville and Orlando, Fla. NGH is also developing projects in Dallas and Chandler, Ariz. The facilities are expected to open throughout the summer and fall of 1998. For more information, call (713) 464-4891.

Country Meadows Plans Expansions

The George M. Leader Family Corp. of Hershey, Pa., is expanding projects on three of its campuses. The corporation currently owns 25 assisted-living facilities on nine Country Meadows campuses across Pennsylvania, housing approximately 2,200 residents. The expansions include the opening of a skilled-nursing facility at Country Meadows of Bethlehem in June 1998; the addition of an independent-living facility to the campus at the Country Meadows in Harrisburg in late fall of 1998; and the addition of a fourth building to the Country Meadows of South Hills near Pittsburgh, also in late fall. For more information, call (717) 533-2474.

Pulliam Announces Facility Plans

Pulliam Investment Co. Inc. of Spartanburg, S.C., has announced plans to develop a series of 60-bed assisted-living facilities in Mooresville, N.C., and Beaufort, North Myrtle Beach and Anderson, S.C. Completion is expected for the first quarter of 1999. Each project represents an initial investment of $3.5 million to $4 million and will result in the creation of approximately 30 new jobs. Phase II will double the size to 120 beds. Since 1986, Pulliam has owned or developed approximately 2,000 beds of senior housing. For more information, call John L. Easterling at (864) 583-6964.

Walker Wins New Contract

Walker Management & Development, a leading senior healthcare and housing consulting company, has been retained to develop a marketing plan for Woodbury Estates, a 64-unit assisted-living development located in Woodbury, Minn. Woodbury Estates is owned and operated by Edgewood Management Inc. of Plymouth, Minn. For more information, call (800) 735-3048; Web www.walkermeth.org.

Click here to purchase reprints

e-mail: alsuccess@vpico.com
Copyright © 2007 by Virgo Publishing.
Please read our legal page before using this site.