MDS Strategy of the Month – August 2011
(The following article is excerpted from Jim Moore’s latest book Independent Living and CCRCs; Survival, Success & Profitability Strategies for Not-for-Profit Sponsors and For-Profit Owner/Operators, Chapter 10. )
Developing a New Senior Living Community
Don’t Break Ground Without Correctly Answering Ten Key Questions
When developing new independent living or CCRC projects, many owners and sponsors are tempted to make situation -driven decisions offering what they would like to provide in the hopes that the marketplace will respond favorably. With luck, this method sometimes leads to success.
However, far more often, inadequate planning results in either a seriously distressed project or one with flaws that could have been avoided. The late 1980′s provided the best examples of this. Many for-profit independent living communities offered the wrong products and services or improperly aimed the right ones the the wrong market.
The Ten Planning Questions
A better approach is to study the market and learn what is really needed both now and in the future. Only then can you be certain you are providing the most market-responsive products and services. Once you’ve studied the market, you should be able to answer the following ten important questions from a market-driven perspective rather than from an emotions situation-driven position.
The Top Ten Development Questions to Answer
Let’s cut to the chase and outline those ten very important questions which will be covered in more depth later in this chapter. Consider this a development strategy punch list:
1. What will be the extent of your total continuum of care?
- Independent living only
- Independent living integrated with
- assisted living
- special Alzheimer’s/dementia unit
- nursing
- home health
- Active adult housing
- Offer the full continuum (Refer to Figures 3-1 and 3-2 in Chapter 3)
2. What is your expected resident profile?
- Majority are likely to be single females
- 25% to 35% couples initially for a new community (then this ratio will decline rapidly over the first 5 years of operation)
- Average annual turnover rate
- Assisted living – 41% to 67%
- Independent living – 24% to 40 %
- CCRC – 18% to 22%
- Entry age – approximately 82/83+ for independent living
- Low/moderate acuity (in independent living)
3. Will you deliver assistance in living to independent living residents? How will you execute it? (refer to Chapters 8 and 9)
- Use your assisted living staff
- Use a third-party home health agency
- Decide how extensive home care services will be
4. Will You offer structured assisted living?
- Residential-social model
- Medical model
- Special care – dementia
- Catered living
- Using CCRC health center staff
- A separate home health agency. Will the agency be:
- Owned
- Contracted
- Licensed
5. What will be the specific criteria for residents to move within your continuum?
- Strong, definitive independent living admission and discharge policies?
- Criteria for assisted living admissions
- Criteria for skilled nursing admissions
- Specific policy for providing assistance in living within independent living
6. What will be your overall design philosophy and strategy?
- Number of units
- Unit Size
- Mix of units
- Studios (be careful of obsolescence)
- One bedroom
- Two bedroom
- Three bedroom
- Quality guest rooms/suites
- Hallways
- Straight/conventional
- Recessed unit entry doors
- Neighborhood / cul-de-sac
- Pods/clusters
- Separate vs. connected buildings
- Integrated, yet separated “neighborhoods” (by level of care)
- Number of stories/floors
- High “flash value” strategies (refer to chapter 11)
7. How much staffing will your project require?
8. What will it cost to develop and operate your community?
- Typical all-in development costs (see chapter 23)
- Land
- Construction
- Soft costs
- Financing
- Typical operating costs; total dollars per resident-day (see chapter 24)
- Operating expense ratio (chapters 24, 25 and 26)
- Operating profit margin (chapters 24, 25 and26)
9. How will you price your project (chapters 40 through 43)
- Flat (base) monthly service fee:
- Independent living
- Assisted living
- Alzheimer’s / dementia
- Entry fee plus monthly service fee with entry fee being:
- 100% refundable
- Partially refundable
- Refund amortizes to zero
- 1.5% per month
- 2% per month
- Fee simple ownership
- Condominium
- Co-operative
10. What are your initial fill-up/absorption expectations (for a 150-unit independent living community)?
- Initial in-rush upon opening (from pre-sales): could experience 20-25% occupancy
- Typical fill-up ramp after opening – Net of turnover: Approximately 5 to 7 units per month could be realized with a professional sales and marketing program
- Expected time to stabilized occupancy
- With an initial annual turnover , you’re always effectively in fill-up mode!
Sound complicated? It’s really not that bad when you tackle each question as a separate issue.
The Senior Living Industry is Maturing
As the senior living industry continues to mature, two new trends are emerging:
- The market is gradually becoming more educated and sophisticated with respect to the available continuum of alternative living arrangements and health care options.
- The senior consumer and their families will give you very little consideration or compassion for your mistakes and unacceptable trade-offs.
State-of-the-art senior living can be surprisingly affordable living arrangement for seniors in the later stages of lie. But your project won’t be successful if you fail to properly answer the ten questions in this chapter fully and honestly during your planning phase.
Call to Action
Completely answer the critical ten development questions. Finally, I’ve saved the most important question of all for last:
“Under what conditions would your own mother willingly, and with your support and blessing, move into your community?”
You only get one chance to get it right.
[Please refer to full text for additional information, figures, charts and more in depth details about the above concepts. Book is available from Westridge Publishing @ www.westridgepublishing.com]