The dynamic between operators and capital providers was at the forefront of many discussions throughout the 2023 National Investment Center for Seniors Housing & Care (NIC) Spring conference in San Diego. With two sessions devoted to the topic as well as a family feud-style game where audience members predicted the most popular collaboration strategies, there were ample opportunities for both sides to offer their perspectives.
At NIC Spring 2023, the discussions were largely framed by two complementary questions: what should operators look for in a capital source, and what are capital sources looking for in operators? The answers had a post-pandemic theme: there is increased focus from both sides on value-based care based on a mission-driven purpose, in turn positioning an organization for the long-term.
During a session focused on what capital sources can do to better support the operations of their partners, Benchmark Senior Living Chief Financial Officer Jerry Liang noted that just as his organization’s mission drives operations, it also drives his relationships. “Benchmark has created a powerful mission of transforming lives through human connections, and we’re looking for capital partners that connect with that,” Liang said.
Jack Callison, CEO of Sunrise Senior Living, took it one step further, suggesting that purpose unites all the elements at play—operator/workforce, capital/investors, and residents/patients, creating a “flywheel” of perpetuating benefits. Purpose is the foundation that enhances margin, allowing investment in communities and keeping the cycle going. Operators are increasingly looking to “drive margins with a mission-minded core,” Callison suggested. He argued that it is essential that capital/investors are aligned with that mission and demonstrate it by understanding all facets of the business and helping beyond normal parameters.
From the capital perspective, mission-driven operations are increasingly appealing as they are more likely to attract residents and deliver sustainable margin. As one panelist put it, although capitalism may sound mission agnostic, the smartest capital providers, and the ones that see the best returns, are those most attuned to the quality of care at the communities they finance.
Looking for the Magic
In terms of what a lender is looking for in a partner, it all comes back to high-quality operations. For example, multiple lenders noted how important site visits are in diagnosing an organization and its culture. Lenders appreciate it when a walk down the hall during a site visit is repeatedly interrupted as the executive director (ED) addresses everyone by name and answers their questions. That engagement indicates a strong culture and operations, a “magic you can feel as soon as you walk in the building,” as one lender put it. Engaged, transparent, approachable leadership sets the tone for strong operations and allows staff to concoct that magic that will allow their community to thrive.
In assessing an operator, lenders will ask about a community’s various systems, how they communicate with each other, what data is derived from them, and what steps are taken as a result. Organizations that have good answers to those questions and able to provide reliable information in an efficient manner and are most always the ones with the strongest balance sheets, according to NIC panelists. In many cases operators are dealing with older properties, which can make integrating tech more challenging, but innovative organizations will find ways to overcome limitations of the physical plant to deliver for residents.
Honesty and Transparency
Given the issues that inevitably arise, both sides benefit from approaching routine touchpoints, such as monthly financial calls, with honesty and transparency. Ideally such calls will be an opportunity to understand the story behind the numbers, and not just a quick rundown of financials. For example, a discussion of rent income could lead to a plan to alter the unit mix to accommodate shifting demand. By addressing questions beyond typical capital metrics, lenders can help operators identify and overcome challenges that might otherwise prove costly. Transactional relationships where both parties go through the motions to get an ordinary result are outdated, NIC Spring 2023 panelists agreed, as operators and capital sources need to be aligned to stand any chance of success in an unpredictable market.