CREATIVE CONVERSION – Creative Being the Key

Many different structures can be good conversion options, as long as the “footprint” and overall design configuration can compete with current state-of-the-art independent living and assisted living communities.  Schools, hotels/motels and apartments/condos are examples of structures that have been successfully converted (under the right conditions).

Schools

Many elementary schools in mature neighborhoods are now “demographically obsolete.”  The residents are aging. So the demand for large numbers of elementary classrooms has long since passed.  From a strategic standpoint, adaptive reuse of these facilities frequently triggers less neighborhood opposition to planning and zoning approval requests than one hears when proposing a start-up senior housing development on a vacant piece of land adjacent to existing neighbors.

 

Some physical characteristics that make schools good candidates for conversion include:

  1. Public spaces are adaptable:
  • Cafeteria converts into a dining room
  • Kitchen can be expanded/used as the commercial kitchen
  1. The configuration of classrooms and hallways can generally be converted to double loaded corridors for independent living units:
  • Load-bearing walls and columns are frequently easy to deal with in the adaptive reuse process.
  1. Many schools have a flexible “building shell.” That means the basic exterior shell stays in place, while a number of substantial changes can be made inside the building with relative ease.
  2. In many cases, the auditorium can be left largely in place and be converted into a “senior village mall or public meeting room (movie theaters, etc.).”

Each situation has unique opportunities as well as challenges.

Hotels and Motels

A number of hotels and motels across the United States have faced depressed occupancy or are geographically obsolete.  Some markets may be permanently overbuilt.  Many of these buildings make excellent adaptive reuse candidates, while others are beyond repair. In the right location, a hotel/motel makes an excellent conversion candidate.  Many are located in traditional, well-established neighborhoods representing excellent in-fill locations in both suburban and urban areas.  Some have both legitimate and nostalgic historical significance.

In terms of design, a number of unsuccessful attempts have been made to convert austere budget motels that do not have appropriate interior hallways, suitably configured sleeping rooms, or adequate public spaces. These attempts are clearly situation-driven, and miss the mark in the senior living marketplace. Conventional hotels with interior, double-loaded corridors and moderate-sized sleeping rooms might make a good conversion to assisted living, but it is highly unlikely they could properly serve the independent living market, which typically requires larger living areas and full-function kitchens (with complex plumbing requirements).  An exception would be a suite hotel, which I’ll discuss later.

Apartments and Condominiums

Condominium and apartment buildings can also make solid adaptive reuse buildings. As with hotels, these structures typically have living units with double loaded interior hallways. A typical shortcoming is likely to be inadequate common/public spaces, the absence of elevators and narrow, tunnel-like hallways.  The public and circulation space requirements can represent 30 to 35 percent of the total area under roof for a well conceived, purpose-built independent living community.

The portion of the total area devoted to common space in a typical apartment or condo is frequently only 15 percent or less.  However, there are ways to compensate:

  • Sometimes an added building appropriately connected to the apartment complex can satisfy the new common space requirements.
  • The space between a footprint with two parallel wings of living units offers the opportunity to provide room to add a “commons building.” This new space would include a dining room, commercial kitchen, and space for other services in the center of the footprint, which provides another connection to the two wings of the building.
  • Alternatively, those structures with only modest common space can be considered for limited service senior apartments.

Apartments and condos can make good conversion candidates for independent living because they typically have the following characteristics:

  • Separate sleeping rooms
  • Full-function kitchens
  • Adequate living areas
  • Interior double loaded hallways (in many geographical areas)
  • Frequently located in a residential neighborhood setting

Smaller condos and apartments, however, are better suited for assisted living since assisted living requires less space than independent living.

Specific Conversion Considerations

Living units that enter into the interior double loaded hallways, and communities that have adequate common space and public areas, are key requirements when evaluating the overall suitability of a potential adaptive reuse structure.  Obviously, the building’s exterior elevations, roof lines and “external look” are also very important.  Some characteristics to look for include:

 

  • What is the first impression and “curb appeal” of the building’s exterior?
  • Does it look residential versus institutional?
  • Are there patios and balconies?
  • Are there aesthetically pleasing “breaks” in the contour of the vertical surfaces?
  • Are there interesting roof lines?

In other words, how appealing does the building look when one first observes it?  Many facilities are functionally adequate, but appear to be far too institutional from a consumer perspective.

Design features such as the ability to meet current fire and life safety codes and other local licensing requirements must be carefully considered.  It is amazing how often experienced operators overlook building codes and requirements that suddenly come into play when previous variances that were grandfathered no longer apply to the new owner.  Some even overlook the troublesome presence of asbestos.

What They See Is What They Pay For

The paramount consideration is your customer.  Consumers really do not care what it took to convert the building, or why some of the obvious tradeoffs or compromises are still highly visible.  If there are competitors nearby, people will comparison shop – and you may get even less credit for your conversion compromises.

To ensure a successful property conversion, correctly answer these five key questions:

  1. Is the site truly irreplaceable in the primary market area?
  2. Is the building really unique, with practical and cost-effective adaptive reuse potential?
  3. Is the total turn-key acquisition and conversion cost moderately less (approximately 20 percent) than the replacement cost of a newly-developed, state-of-the-art independent living or assisted living facility?
  4. Will the consumer understand and give appropriate consideration for the inevitable tradeoffs and compromises in the end product that typically result from adaptive reuse process?
  5. Finally, will the community be truly competitive in terms of product, price, service and value?

Digital Strategy and Content Planning for 2017

Is a Digital Presence Important for the Senior Living & Housing Industry?

Having a digital presence in this day and age is mandatory and it goes beyond just having a website.  You need an ongoing presence that can include a blog, Facebook page, Twitter account and more.

An image of a manager writing something in the air

Studies have shown that as anywhere from 67% to 94% of people research products and service online before purchasing.  This includes not just consumers, but also B2B (Business to Business).  If there is no website, or it is outdated, lacking in information or unprofessional, that potential customer or client will move on.  Yes, it is that important.  In addition to your website, added value comes from blogs, newsletters and other social media content you provide.

Continue reading “Digital Strategy and Content Planning for 2017”

You’ve got questions?…We’ve got answers.

Q: How should a not-for-profit senior living community objectively segment the financials of charitable mission initiatives from the basic senior living business operations?You've got questions?...We've got answers.

A: This is a three-step process.

1) Create an income statement and sheet that includes only your senior living business operation (revenue, operating expenses, profit, debt service, cash flow, etc.). If necessary, show any cash from the business operation that is needed to fund charitable initiatives as a separate financial burden below the operating profit and net cash flow line entries. The expected outcome is the execution of sound business practices while meeting industry benchmarks for financial performance.

Continue reading “You’ve got questions?…We’ve got answers.”

It’s a New Year, New Plan, New Game – Welcome 2017

Happy New Year! The beginning of a new year.  Does that spark excitement in you? A clean slate to create and take advantage of new ideas and opportunities.  Or is it just another day? The current competition in the senior living and housing market can be fierce so if January doesn’t make you take inventory and commit to make a change, you need to get in the game!

Do Not Rest On Your Current Success

Now, this doesn’t mean you must totally revamp your business strategy (unless it is drastically failing).  But each year should bring new ideas and new goals.  Even if business is booming, resisting innovative additions or changes can see that success falter eventually.  Amazon is a great example of implementing new and innovative ideas into an already successful business.  No one can deny that Amazon’s business has been on the upswing for an extended period.  The secret to their success is that they are a step ahead with new ideas as the previous ideas run their course.  The Apple iPhone is another great example.  Same product, a phone, yet it is continually being updated and improved as to avoid letting the competition pass them up and it keeps their customers excited for what is new.

Continue reading “It’s a New Year, New Plan, New Game – Welcome 2017”

Divide and Conquer Then Bring It Back Together: Sharpened Financial Focus

by Jim Moore

How can I develop a more sharpened financial focus on my campus which has multiple living arrangements?

Great question.  The Senior living business is becoming increasingly complex.  The continuum of products and services is growing.  There is a pressing need to optimize the financial viability of each individual product or level of care on your campus.

Divide and Conquer Then Bring It Back Together: Sharpened  Financial FocusConsolidated financials provide the big picture/summary approach, but to determine the true financial sensitivity of your organization you must develop individual cost/profit centers within your continuum.  Simply combining three or four businesses within a community into one overall consolidated income statement of revenues and expenses is not the best practice for the future.  Just using consolidated financials can frequently mask unacceptable subpar performance of one cost center, while penalizing the overall operation.  Each individual major product and service offered should meet reasonable industry financial benchmarks of revenues, expenses including an overhead allocation, net operating income, profit margins and cash flow.

Each cost/profit center should have initial stand-alone income statements before being merged into your consolidated financial statements.  It’s true that you must provide a seamless consolidated continuum of products and services for your residents.  However, each key element of this continuum must first be segmented as a stand-alone cost and profit centers and then (and only then) combined to track the overall campus results on a consolidated basis.

The stand-alone cost/profit center is a concept whose time has arrived.  It is already being implemented by progressive sponsors and owner/operators.  The benefits include sharpened pricing, focused cost controls and potential overhead cost reduction.  Finally, the concept is fast becoming a key element of a state-of-the-art business practice.

Do you have a question or need help with the complexities of multiple cost centers? Contact MDS today to see how we can help.

2017…It’s Closer Than You Think!

As we approach the end of 2016 (sorry, but yes, it is coming at you like a speeding locomotive whether you admit or not!) we hope you are actively evaluating where you are in terms of your 2016 goals.  Are you on track to accomplish everything you set out to accomplish? If not, why not?  Did you set goals that you have since deemed unnecessary, do you need more time or do you need a different strategy? What new goals have developed?

One of the many areas you need to be evaluating is your aging physical plant and capital investment.  Capital investment/improvements on an ongoing basis are crucial to keeping your senior living community in a competitive condition. If you have a newer facility you may be in the planning/budgeting stages but if your community has some years on it, you should be making these improvements to stay viable.  Either way, capital investment is something you need to be thinking about no matter how old or young your community is.

Three Capital Investment Traps

In planning a capital investment strategy, many owners and sponsors frequently commit three tactical errors.  They:

  1. Spend money on the wrong things
  2. Lose sight of their overall strategic objectives
  3. Pay too much for less-than-optimum value

Consider Two Important Time Frames

In developing a new senior living community or improving an existing one, capital expenditure decisions must consider two distinct time frames:

  • Short-Run – The initial (one time) costs of the capital investment
  • Long-Run – The ongoing (perpetual) operating costs of ownership

Cost of Ownership Considerations

To plan effectively, you must carefully weigh the short run capital cost expenditures (immediate capital costs, such as new heating, ventilation, and air conditioning systems) against the long run costs of ownership (ongoing operating costs such as maintenance, utilities, and insurance). Investing less in capital improvements in the short run can sometimes be very expensive over your total ownership period.  These cost considerations become very important if you plan to hold your property for more than five years.  Even if you plan to be a short term property owner, realize that your ultimate sale value can be adversely affected by your earlier “short run” capital investment mentality.  The buyer’s sophisticated due diligence efforts will likely detect flaws in your original capital investment planning.

These four simple steps should help you make important cost of ownership trade-off decisions:

  1. When considering two alternative capital investments evaluate the payback period and calculate the impact on total community value. How many years of operation are required for the operational savings/benefits to result in financial break-even or recovery of each of your alternative initial cash investment options? This can be a simple arithmetic calculation (dividing the initial cost of the capital investment by the estimated annual financial benefit or savings) or a more sophisticated discounted cash flow analysis that takes into consideration the time-value of money invested.  Ideally, your payback period should be between three and five years.  From that point forward, there should be an ongoing positive incremental financial impact.
  2. Estimate the total impact on community value. To determine the increased intrinsic value of your community, you should capitalize the incremental increase in your net operating income resulting from the capital investment1.  The capitalization rate is the cash return (percentage) that reasonable buyers or investors would expect to realize on their cash investment. This would obviously be influenced by their perception of relative risk.  Appendix C briefly describes the capitalization rate concept.
  3. Value engineer your capital investments. This means lowering or controlling capital costs without significantly detracting from the look, operational efficiency, or marketplace acceptance of your community.  The results of this effort should be largely invisible to the consumer marketplace.
  4. Let the “flash value” concept influence capital investment. Flash value is a fairly obscure, but surprisingly simple, way of quantifying, and thereby maximizing, perceived value in the eyes of the consumer.  This concept is defined as follows:

Flash Value Index  =    What Consumer Thinks an Item Costs

                                                      Your Actual Cost

Through consumer testing (focus groups, etc.), you can identify a menu of design features and amenities that exhibit a positive “flash value index” of greater than two to one.  This means that the consumer thinks the item is worth at least twice as much as your actual cost.  You should incorporate a number of highly favorable flash value items into your community.  Typical high flash value items in senior housing include high-quality wood molding or millwork, walk-in closets, unusual (but attractive) public spaces, recessed solid-core living unit entry doors, incandescent or new LED lighting vs. traditional, older fluorescent lighting, wall coverings and artwork, interesting roof lines, and “breaks” in exterior elevations.  The list could go on, but the ideal outcome is for a senior prospect and their family to comment, “This place sure seems to offer a lot for the money!”

Call to Action

      Before you move on, remember you can get very creative with your capital investments by taking four basic steps:

  1. Evaluate the investment payback period.
  2. Estimate the total impact on existing operation and long-run community value.
  3. Value engineer for cost investment savings.
  4. Invest in flash value to enhance perceived value.

Finally, address the key question, “Is now the appropriate time to take action?”

"You’ve Got Questions…We’ve Got Answers"

In additional to authoring several books based on his years of experience in Senior Housing, Jim Moore has published countless articles for both mainstream and market specific publications.  Jim answers your questions in regards to strategy and operations every month in McKnights Senior Living

You Asked: Do I Need An Exit Strategy?

Many owner/operators say they don’t intend to sell; they plan to ride out the various business cycles and they’re not about to leave the senior living industry. But having a sound exit strategy doesn’t necessarily mean you’re actually planning to get out. It’s somewhat like thinking about our life expectancy. To stay healthy, should you do anything differently? In early 2016, you can use an exit strategy for several beneficial reasons.

Here is a simple strategy for estimating the approximate value of this exit strategy by determining today’s valuation, using a capitalization rate of 7%. Simply divide your actual annual net operating income (NOI) by 0.07. If your community has annual revenue of $3.6 million and expenses of $2.3 million representing an operating profit margin of 36%, then the NOI from this performance would be $1.3 million. Dividing that annual NOI figure by 0.07 reflects a preliminary value of approximately $18.6 million. Many who went through that simple exercise have changed their attitude about whether to consider an exit strategy.

Whether you actually decide to sell is an important decision. Whether you plan to fold your cards soon or hold them for a long time, having a sound exit strategy can only help.

To find out how Jim and the staff at MDcan help you in regards to developing your exit strategy, contact us today.

Minimum Wage Issue Can Impact Senior Living

There Is A Win-Win Strategic Solution

The potential impact of the emerging minimum wage increase on Senior living is currently unclear.  Right now it may be speculation, but it could become very real in the near future.  Now is the time to anticipate a future impact and develop an appropriate response.  The good news is that regardless of the minimum wage impact on Senior living, there are available practical responses that will have a favorable long run impact for astute owner-operators.

 The minimum wage issue is clearly an ethical dilemma and a real world business challenge.  Two conflicting issues are emerging; a legitimate moral and financial concern for lower paid, entry level employees versus a potentially serious fundamental business impact.

Many feel that modestly increasing the standard of living for lowly paid workers is the right thing to do.  But price and profit sensitive businesses with high concentrations of low-cost workers are concerned.   Industries like fast food would be dealing with several critical variables like higher prices, possibly a lower customer base, or lower profits.  Consideration is also being given to lowering cost by reducing entry level employee counts.  Simply stated, the fast-food industry and other businesses may have to reevaluate and adjust their business model.

There are also concerns that if the baseline minimum wage of $7.25 per hour (the current Federal standard), is increased by approximately $1.50 to at least $8.75 per hour, there could also be pressure to increase the hourly wages of other lower paid entry-level employees in an attempt to sustain the current offset from the increased minimum wage.  New York, California, Oregon, and Connecticut and Massachusetts have already set their minimum wage higher than $8.75 per hour.  Other states already either have an official minimum wage of at least $8.00 per hour or considering similar increases.

How Might This Affect the Senior Living Industry

There is a heavy concentration of entry level workers at a typical independent living or assisted living community.  Those entry level positions typically include housekeepers, laundry personnel, cooks, servers, and other dietary employees, as well as drivers, security personnel, some maintenance positions, and healthcare workers.

Let’s look at a typical 110 unit assisted living community with 55 Full Time Equivalent Employees (FTEs).  This staffing ratio of 0.5 FTEs per unit is a typical benchmark.  The types of lower wage earner workers mentioned earlier totals 43 FTEs.  Their current entry level wages range from $11.00 per hour (housekeeper, laundry and some health care support, security and maintenance workers) to $11.70 per hour for CNAs.

There could eventually be pressure by workers, labor unions and other interest groups to attempt to sustain the current offset between minimum wage levels and other entry level worker pay.  For example, if the minimum wage is increased by approximately $1.50 per hour, this offset, if also achieved by other workers, will have a significant financial impact on this assisted living community.

A financial sensitivity analysis of this issue revealed the following:

  • Annual Payroll Increase of $149,800 or 10.2%
  • Total Expense Increase of 4.5%
  • Net Operating Profit Margin Decrease of 3.4% (from $1.5 million to $882,450 in net income)

At an 8.0% capitalization rate, the intrinsic value of this community would decrease by approximately $1.9 million.  Granted, the potential minimum wage increase impact on other entry level wages involves speculation at this time, but the change is very likely to occur.

There is a viable win-win solution to this potential financial dilemma.  The solution involves three basic initiatives:  1) Reducing overall operating expenses, 2) Enhancing revenues and 3) Realizing organic growth through increased occupancy and expanded services within the community.  This strategy can be a very significant win-win solution because it addresses both the potential minimum wage financial impact and also improves the community’s long run financial performance.

Explanations Go a Long Way on Resumes

 

 

Explanations Go a Long Way on ResumesLeaving off pertinent information is why so many resumes go in the trash.

It’s difficult to balance out the amount of information presented in a resume. With the shorter attention spans today, it’s important to get to the point. You don’t want to bog the reader down with reams of useless information — but you also need to make sure you include vital information that demonstrates why you are worthy of further consideration. You can’t just cut your resume down for the sake of word count.

Make Sure Your Resume Includes Pertinent Information

While there are many areas this tip could apply to, let’s focus on past employment. As a hiring manager, this is the first area of a candidate’s resume that I look at. I want to see if the candidate has any related work experience, and I want to see how stable their employment history is.

Most hiring managers are looking for long-term employees, and stability is important. Despite that, I receive more resumes today than ever before with tenures of five months here, four months there, and seven months here, with no explanation. Short job tenures are not bad in and of themselves, but without an explanation of some kind, the worst is assumed. I will usually not waste my time doing a simple phone screen — and definitely not an in-person interview — with a candidate that has a history of unexplained short-tenured positions.

Case in Point: A good friend of mine found herself unemployed at the end of 2013 due to staff cuts resulting from her company being bought out. Her unemployment dragged on for about six months, with very little activity.

After looking at her resume, I figured out why. She had a stable work history with three companies up until 2009, averaging eight years of tenure at each business. Then, after 2009, she had six jobs in a couple different industries. It was no wonder she was not getting any calls: It looked as if something had happened to make her very unstable in this period.

My friend had been employed in the building material industry for her entire career. Beginning in mid-2006, the housing slow down led to tough times in that industry. My friend had been laid off or downsized in company buyouts or mergers four times during this period. She was also a single mother and had to take a few part-time jobs to pay her mortgage and put food on the table.

Resume, pertinent information, Senior Living consulting, senior living consultantJust looking at her resume, you could not tell any of this. It looked as if something had gone haywire and hiring managers were reluctant to even call her. Don’t expect that a hiring manager is going to take the time to try and connect the dots on your resume. That’s not their job. It’s up to the candidate to try and fill in any holes in their own resume.

The Proof Is in the Details

My friend went back and filled in all the gaps on her resume by including the reasons why she separated from each company. Within in the first few days of using this updated resume, she began getting interviews and job offers worthy of her experience and talent. Within a month, she was hired by a leading specialty building material supplier.

My friend didn’t change anything about her fragmented work history. All she did was add a little explanation. This had the tremendous benefit of helping hiring managers — especially those that lived through the difficult economic times — understand why her resume looked the way it did.

Are You Explanations Satisfactory?

There are many satisfactory explanations for short job tenures — they just need to be noted for busy hiring managers to quickly and easily see them. The shaky economy of the last few years has increased the number of downsizings, closings, and mergers, all of which have resulted in many layoffs.

Similarly, some positions are, by nature, contract- and project-oriented. These roles will result in job changes every six months or so, but not because you are an unsteady or troubled employee.

Furthermore, there are also those younger adults who have been working internships to try and gain experience in various careers. In today’s new economy, there are also those part-time and stopgap positions that employees need to bridge the gap between permanent, full-time positions.

Resumes, Senior Living consulting, senior living consultantJust remember that having multiple short-tenured positions is not the kiss of death — if you take the time to provide a short explanation for your limited tenure, that is. It need be no more than a few words under the job title, such as “contract position,” “internship,” “temporary work,” “layoff,” or whatever the situation was.

Do You Take Advantage of PR or Public Relations Opportunities?

PR or Public relations should be in everyone’s marketing communications tool kit.

As a Senior Living Consultant working with many Senior Living clients over the years, this is one form of community promotion that tends to be over looked the most. So what exactly is PR? PR or public relations, the noun, as defined by Meriam-Webster.com is as follows:

the activity or job of providing information about a particular person or organization to the public so that people will regard that person or organization in a favorable way

OR

the relationship between an organization and the public

What is PR?
PR iDo You Take Advantage of PR or Public Relations Opportunities?s different from advertising in the fact that in advertising you pay for the privilege of controlling the timing, placement, and message associated with it. While with PR, since it is generally free, the control lies in the hands of the writer and media outlet providing you the coverage. I once heard that “Advertising is what you pay for, PR is what you pray for.”

There are many forms of PR. Most of the time the words PR conjure up images of events at opposite ends of the spectrum. Either a publicity stunt where someone is doing something that is outrageous and crazy to call attention to themselves, their company or their mission, or a company spokesperson trying to put a positive spin on a potentially bad situation that has arisen for the company.

Examples
An example of an outrageous PR stunt would be similar to the flash mob dancing troupe a few years ago that held an impromptu performance at Grand Central Station, it ended up netting them 28 million YouTube hits and a lot of media exposure. An example of positive spin on a bad situation would be the aftermath of the BP oil spill in the Gulf of Mexico. There have been subsequent news conferences and advertising campaigns trying to convince the public, that the gulf coast is now better than ever.

The kind of PR I am talking about is somewhere in the middle of these two extremes. The press release, media tours, special events, sponsorships, public service/public interest stories are all form of PR that your company/community can use to build brand awareness. These types of PR also show that your brand is part of the greater community and can generate loyalty in a larger audience.

Put PR To Work For You
One of the great things about PR is that it is happening all around us and while we get the intended message, we don’t realize the company or brand is promoting itself to us. Instead of thumping our chest telling everyone how great our company and/or products are through advertising, PR is a subtle way of getting a company name out by providing useful information and activities to others.

PR is also a way to have others validate you as an expert. The general thinking of readers or viewers is that they surely wouldn’t be quoting you or doing a piece on you or your company/community unless you were an authority, the best and most knowledgeable in your field.

November Public Relations Webinar
As part of MDS’ “Plug-In and Prosper” Webinar Series, the November 18, 2015 webinar will be “Generating Public Relations for Your Community”. The webinar will focus on the meaning and use of public relations and why it’s important. I will discuss PR as part of a well-rounded marketing communication plan, the benefits of PR, and how it can enhance your relationship between your company and the public.

So mark your calendar and join me on Wednesday, November 18 at 1:00 pm (CDT) for this important webinar.

I look forward to having you join me for this complimentary monthly webinar! You can also check out our past webinars on the Moore Diversified Services YouTube channel!

Registration Link

Roy Barker is Director of Special Projects at Moore Diversified Services, a Fort-Worth, Texas-based organization specializing in Senior Living operations analysis, marketing development, and investment advisory services. Roy is an authority in the field of employee turnover analysis and retention strategies.