[vc_row][vc_column][vc_column_text]The middle market is an often-discussed topic within the Senior Housing industry, and one that is only becoming more debated as the demographic becomes more and more attractive to those on the outside looking in. There is a question you may be asking, then: why has investment in the middle-market product not been higher?
In this article, we will briefly explore the reasons why, which revolve around cost and the potential for a model’s given export potential.
The Middle Market Problem
Currently, there has not been a model developed within the United States that has proven worthy of wide replication. Private-pay models are built for high-income, and government-subsidized models are built for low-income. At both of those income levels, various models have proven to be successful and have many, many examples of replication and inspiration throughout the national Senior Housing market. In addition, the needs of low-income and no-income seniors are understood by many players within the market who feel a moral obligation to serve them. Developers and investors feel a monetary incentive to serve the high-income market.
There is not currently a “winning” model for middle-income markets.
To deliver a residence of quality middle-class customers, costs must be cut in very specific ways that take each individual market area into account. Costs are already very tight even in a private-pay, higher-income setting, and there are some costs that cannot be cut.
Costs that Can’t be Cut
Once a senior needs help with activities of daily living (ADL’s), which are functions like walking, bathing and dressing, there are not many alternatives to professional assistance. Some seniors and their families choose to hire private, home-based caregivers that help a senior for part of the day, but the senior often finds that such help is just as expensive, if not more expensive depending on the care required, than living in an assisted living residence. That is especially true when the costs of owning the senior’s home is taken into account, along with the rest of the expenses covered by Senior Housing.
Care for a person with Alzheimer’s disease transcends social class, but so do the costs. Low, middle or high-income, caring for a person with cognitive decline requires either a robust program or a family willing to make the necessary sacrifices to care for that person in the home. This is another reason a middle-market model is not as forthcoming as we in the industry would prefer.
Construction is also an area where costs can’t be cut much more than they have been. This is already a problem faced by those constructing low-income Senior Housing. Some creative solutions have seen play within select markets, which we will talk about below.
What’s Been Tried?
The Griffin Plaza in Simi Valley, California, built in 2017, is located within a renovated shopping plaza. The services in the plaza itself make up for what the main living space does not provide. The construction used an existing shopping center as the base, and renovations added space for dining rooms, family lounges, a fitness center, salon and library. It includes assisted living and memory care.
Perkins Eastman has been developing a model they call “Centers for Healthy Living (CHL’s),” that provide everything but housing. They make themselves part of other Senior Housing campuses, or they make deals with municipalities. Think of this model as a senior-focused community center. By providing these programs near Senior Housing, they can take on the worries of programming while the housing providers handle everything related to residency.
Alternatives, Not Solutions
You may have noticed that these models both take local offerings into account even more strongly than high-income models do. They provide alternatives to the usual way of building Senior Housing, but they do not solve the problem of developing a model that can be easily replicated.
The Griffin Plaza is a great example of this in the way it uses a previous construction to lower costs without reducing space or cutting corners. The Perkins Eastman CHL model might not even be classified as Seniors Housing, as it nixes the “Housing” component altogether, relying on business from surrounding residences.
Both these models are interesting and deserving of the industry rewards that they both have earned. But they are also indicative of the problems of cost that necessitate creative solutions that will not export seamlessly.[/vc_column_text][/vc_column][/vc_row]