Although this year’s National Investment Center (NIC) fall conference may have been lacking in handshakes and deals hatched on cocktail napkins, there was no shortage of informative content delivered via the program’s packed schedule of webcasts. Below, we discuss a few of our favorite sessions that encapsulate the pressing concerns and trends that have been accelerated by the COVID-19 crisis.
NIC Talk on COVID-19 Impact Focuses on Telehealth and Infection Control
Those who tuned into the first NIC Talk hoping to hear that the coronavirus was more of a blip on the radar than an industry-changing event were likely disappointed. The panelists were not there to posit that structural changes were unnecessary and the senior living industry could continue to ride out its favorable demographic outlook, noted NIC President Bob Kramer at the outset of “How Will COVID-19 Impact the Future of Aging and Aging Services?” Instead, the discussion would focus on how the pandemic dramatically accelerated changes in how the industry operates, largely in regard to digital/telehealth, home/hospitals boundaries, and infection control policies.
Tim Ferris, MD, suggested that the first macro trend the coronavirus crisis has accelerated is telehealth adoption. Ferris, the CEO of Mass General Physicians Organization, noted that even though telehealth has been around for decades, the industry’s adoption of it has been “remarkably slow.” Initially, that may have been due to clunky technology, but more recently the barriers come in the form of objections from clinicians concerned about quality of care, and patients’ reluctance to pay for virtual consultations. COVID-19 largely destroyed those two barriers, Ferris argued. To back up his claim, Ferris noted that before the pandemic, his facility was delivering telehealth care to three percent of patients. Now, that figure is over fifty percent, with over 6,000 digital visits daily. Although telehealth still has kinks to iron out, adoption is no longer an issue.
For Krista Drobac, executive director at Alliance for Connected Care, the accelerated adoption of telehealth is a long time coming. Drobac has been working on telehealth policy and lobbying for the past seven years and saw incremental progress during that time. She noted that the main barrier was that those in any type of independent living situation have not been able to receive telehealth visits through Medicare. But this spring, following the arrival of the pandemic, that barrier fell, as the typically slow-moving Congress promptly passed bills to allow basically unfettered access to telehealth in the Medicare program. Stressing how big of a positive change this is, Drobac noted that before the pandemic only 13,000 out of 55 million Medicare users accessed telehealth per week. That 13,000 figure skyrocketed to 1 million by the end of April.
The devastating speed at which COVID-19 can spread coupled with the high mortality rate has put infection control front and center, and rightfully so. There is a new reality for all congregate settings, especially in the senior living industry where shielding the elderly from infectious disease is going to be a new booming industry, said Ferris. Pre-coronavirus, Ferris noted, too many in the care industry were mostly using the same infection control procedures they were 30 years ago. That quickly changed, and the new standard will be a combination of enhanced protocols, training and advanced technology.
Second NIC Talk Explores the Senior Living Community of Tomorrow and the Need to Combat Ageism
Bob Kramer kicked off the second installment of NIC Talks with a challenge for those in the industry to lead with disruption. The COVID-19 crisis, he argued, presents an opportunity for “the creative destruction of some traditional operating models,” leaving space for the innovators to flourish. NIC invited a group of leading advocates and pioneers to the panel to discuss why organizations should strive to be a disrupter, not the disrupted. After all, Kramer suggested, “those that are disrupted usually go out of business.”
The most-repeated phrase during the discussion was “seniors won’t buy what we’re selling,” in regard to the pre-COVID senior living community model. From “granny pods,” to an emphasis on social apps that allow seniors to forge new connections, to other approaches that make senior living more empowering for the consumer, things are going to change, the panelists noted.
Daniel J. Cinelli, FAIA, principal at Perkins Eastman, is a firm believer that the traditional senior living model is not appealing to today’s senior citizens. He suggested three possible ways in which the industry could respond to the notion that “seniors won’t buy what we’re selling.” The first was a vertical main street approach, which he described as a joint venture between a senior living community, a retail center and a college. This presents a number of opportunities for active adult renters to live in a setting with walkable shopping, dining and activities. The college allows for intergenerational programming, another trend that has seen positive results and benefits for all ages.
The second example Cinelli offered was what he called “lifepod” homes, also referred to as “granny pods,” which are essentially small homes in the yard of a single-family residence. In this case it is stocked with the latest technology that offers the residents virtual care options and other high-tech amenities. This approach allows the family to leverage their property and proceed with a more gradual withdraw from their main dwelling.
Offering a bit of a reality check, Laca Wong-Hammond, a managing director, M&A, with decades of experience providing capital to the senior living industry, stressed the importance of building on what is working and not getting carried away with tech. Wong-Hammond attended the virtual panel as an M&A advisor from OREC Securities, an affiliate of Lument.
“These innovations need to be accessible, affordable, and effective,” said Wong-Hammond. “While loading up on technology might seem perfunctory, some seniors might find this intimidating, so I think the more successful models will be ones that anchor a traditional approach with essential and comforting upgrades.”
Examples of this more measured approach could include creating new entry points for those in isolated acute care and increasing the viability of outdoor spaces with shading devices for summer and heaters for winter. Another example includes maximizing all available space by renting it out for training or other purposes.
Louise Aronson, a professor from the University of California San Francisco (UCSF) Division of Geriatrics, focused her portion of the talk on ageism and opportunities to create a better future. She sees the pandemic crisis as an opportunity to combat harmful stereotypes and dated ways of thinking. The COVID-19 crisis, she argued, has served as a stress test for the industry. It is allowing the industry to evaluate what approaches and model do not work and where we need to make changes. Making it relatable to people of a wide age range, she said that if you are not excited about one day entering the seniors housing and care world yourself, then now is the time to change it so you are.
Jo Ann Jenkins, CEO of the American Association of Retired Persons (AARP), reiterated the notion that now is the time toget rid of outdated stereotypes and spark new solutions so more seniors can choose how they want to age. This includes both replacing old models and updating those that are still relevant.
Out of the tragic can come good if the industry can focus on the one message that came through loud and clear during everyone’s remarks: now is the time to thoughtfully disrupt and come up with innovative solutions that give seniors the freedom to choose, earn, learn and thrive, not simply survive.
Finding the Nexus between Strong Cash Flows and Challenged Operations Key to Skilled Valuations
The NIC session “Valuations in Skilled Nursing: How Have Trends Changed and Why?” began with an adage familiar to those in the industry: if you’ve seen one skilled nursing facility, you’ve seen one skilled nursing facility. The refrain, noted by session moderator Zach Bowyer, executive managing director with JLL Valuation Advisory, is perhaps even truer today in the COVID-19 environment, as the crisis has hit the industry in a myriad of ways and not all communities have fared the same. As such, conducting valuations in today’s environment has its unique challenges, but none that cannot be overcome with the proper strategy.
The panel kicked off the session by discussing how valuations have looked since the pandemic hit. Bowyer noted with some surprise that valuations have been “relatively stable,” as the industry is not seeing as many distressed properties as some might expect. Aaron Becker, head of production for seniors housing and healthcare at Lument, pointed out that the main reason we are not seeing a lot of distressed properties is the federal stimulus has been successful in keeping skilled nursing operators afloat. Although expenses such as personal protective equipment (PPE) and hero pay have disrupted monthly financials, the balance sheet strength as a result of stimulus funds has helped offset the negative repercussions.
From a financing side, Becker noted that when the pandemic first hit, the markets were essentially closed due to all the uncertainty. The Federal Reserve (Fed) then acted and helped stabilize the markets heading into the middle of spring, getting things as close to normal as possible in a remarkably quick manner. In a matter of weeks, deals that were on the cusp of closing were able to get across the finish line.
In terms of approaching valuations, Becker noted it is a fluid process that is clearly difficult right now due to questions regarding cash flow and cap rates. The industry faces what Becker referred to as the “challenge of the passage of time,” as the “COVID quarter” is starting to appear on facilities’ trailing 12 months (TTM), disrupting monthly financials.
It is important to be able to identify COVID-related expenses and try to normalize financials as much as possible during valuations, Becker added. Conversely, it is just as important to identify what is not a recurring revenue. The federal stimulus resulted in strong balance sheets for many senior living communities. However, just as unforeseen pandemic expenses are not the norm, neither are cash infusions from stimulus legislation, and finding the “nexus” between the two is essential in conducting thorough valuations in today’s climate, Becker concluded.
Aaron Becker, senior managing director, head of seniors housing and healthcare production, aaron.becker@lument.com
Laca Wong-Hammond, managing director, laca.wong-hammond@lument.com
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