Jill Johnson, president and founder of Johnson Consulting Services, discusses the critical market forcesthat will influence on-going success in an industry over-saturated with competition and complexity, and addresses the question: are we ready for the “Senior Tsunami?” She provides insight on how these key trends influence the industry and the strategic planning implications they may have on occupancy, operations, programming, and site desirability.
Lucas: Welcome to Bridge the Gap, the senior living podcast with Josh and Lucas. A great educational show on tap for today. I want to welcome Jill Johnson. She’s the president and founder of Johnson Consulting Services, which is a management consulting firm specializing in strategy development for senior living providers and you are based out of Minnesota, welcome Jill.
Jill: Old Minnesota, welcome. I’m glad to be here, looking forward to conversation.
Lucas: Yes. Despite the cold, we’re gonna have a hot conversation about all the complexities around senior housing and all of the challenges that the industry faces that are very unique only to senior living and senior housing. What makes you qualified to talk about this? What’s your background that, how have you gotten to this point?
Jill: So I’ve worked in the senior living space and strategy work for over three decades. I come out of the CPA feasibility consulting environment, where I was on one of the teams that was developing some of the original analytical modeling for market feasibility for some of the very first assisted living developments that have ever been created in the country. I’ve also had the privilege and honor of working with clients located from across the United States East to West, North to South lots of small towns, big cities. And in finding what’s unique and special about each of those clients has been, you know, that’s been, for me, the real highlight is seeing how they each serve their own unique community. And I get calls every week from developers who are looking at going into housing and I was on the phone with a guy in Kuwait a couple of weeks ago for an hour. I get calls from all over the world actually. It’s for me, it’s having seen so many different sites. I physically probably been in two to 3000 senior living communities over this many years. A lot of it’s you’re doing direct interviews or the secret shopping calls that I hate doing, but you have to do sometimes. And when you see that many diverse properties, things really start to help you shift and change and understand some of the perspectives about how each provider fits within the market or no longer fits. And so there’s lots of issues that happen as you look in the market. And so I’ve honed that craft over the last three decades.
Lucas: Senior housing has a lot of uniqueness around it, it’s not just a real estate play, right? There’s a lot more to it. What do you think makes senior housing, senior living, investing, and operations so complex as compared to other verticals?
Jill: Honestly, I think it’s actually one of the most complex business enterprises that you can get involved in. I mean you’re of course at its core, you’re dealing with that multifamily housing component, but when you’re dealing with something more complex that has, it begins to add layers of service, it might only be the hospitality services of, meals and some programming and fitness center. But as you move along the continuum and you move into the added services to housing services, or the home health services, and then as you get into the more complex nursing and rehabilitation services, all of a sudden you’re dealing with a different animal, but you also have elements of we’re running a fitness center, we’re running a restaurant, we’re running facilities management for a complex facility. We have a healthcare component, we have a residential management component.
We’re in its core, you’re doing all of these things to create an add to the value of the lives of the people who live with you. In multifamily housing, it’s a place to stay, it’s where you put your books and your TV and your laptop and your cell phone. And in senior housing, you’re dealing with not only the housing component of these older adults who live with you, but you’re often moving into the complexities of family and end of life as you move through that continuum. Hospital providers are great and I’ve worked with a number of world-class hospital enterprises that own senior living and they often don’t understand how different it is because they’re dealing pre frankly with more transactional interactions. Whereas in senior housing, you’re dealing with a relational and a day to day experiential environment with those people who live with you. And then you’re dealing with all of the complexities of the families that they’ve raised or didn’t depending on the person. And how that meshes into this evolving health and the changing health and the changing health of at different rates of the spouses that are involved. And so the layers of complexity on just a day-to-day basis are just so much more different than any other business model that you’ll ever deal with.
Josh: Well, I love that you went down this path, Lucas, I appreciate that you went down that path with that question. We could have gone a million different directions with you, Jill, and we might before this is over with, because there’s a wealth of information there, but because you talked about the complexities of real estate and development as compared to other verticals. I know you’ve probably witnessed it, me and Lucas have witnessed it over the last several years. It seems like not a week goes by that I don’t get a call or something, some contact from a major multi-family developer, a hotel developer, a neighborhood residential developer that comes to me having a completely figured out plan of that they’re going to do massive senior living development and so often when you start peeling back the layers, it’s just really obvious that there hasn’t been the education or preparing for this specific vertical. So put yourself with your consultant hat on and talk to our growing amount of audience that are fairly uneducated developers in our space. When you get a call from someone like that, what is kind of like the first one, two, three things that you can ask them to kind of put them on the pathway to success or learning
Jill: First, what I try to understand as you know, most of them don’t use the nomenclature very effectively. So when they say assisted living, they might actually mean independent housing with one meal a day because they don’t know, to them that is assisted living. And so part of it is I’m trying to understand initially, what is the development concept that they’re looking at? And then I start talking to them, well how much due diligence have you already done? You have your site, which is great, but have you looked at what the competitive alternatives are within the marketplace at all different ends of the spectrum? And very, very often they have not. They’ve just got this vision and they focused on their building and their sketches for what they think their floor plans will look like. And it’s all based on their own internal thinking has nothing to do with the marketplace. And I’ve worked with developers like this over the years, and I get calls just like you guys every week from; we have a hotel it’s not doing very well, occupancy is really bad. So, we think we should just convert it to assisted living. And I’m like, okay, that’s fine, well, and good. But there are very few assisted living developments that I’ve ever seen that have a swimming pool now, independent living might have a pool because of the fitness programming, but assisted living generally does not. And you’re talking about a 300 room conversion. That’s a really large assisted living development and so all of a sudden you start to see it in that dialogue. I just had one of those from, from Mississippi the other day. And they don’t know that there’s size, scale and economies and to fill a 300 unit assisted living only site; yeah, good luck right now. So then I talked to him about, well, have you looked at the demographics of the area at all? And in many of the markets and I talk about this in my book market forces is that the demographics are actually very thin around that 85 plus age grouping in most markets across the country right now, yes, there is a senior tsunami. But that tsunami is younger seniors, younger retirees, slightly on the older end of the baby boomer generation. The market that we’re serving right now in most levels of care are those folks that are the silent generation that are at least 85 years old. If you talk with most providers, the age of entry is 85-86, depending on what they offer and so forth. And so as I start talking to developers about that, and depending on their level of knowledge, I’ll say to them, look have you ever considered active adult housing? So age restricted, multifamily housing with no services, you might offer a really beautiful community room and a great fitness center, and I’ll let you have the pool. But you know, have you thought about that at all? So meeting spaces, some common areas where they can hold private gatherings, but these people are living their own lives, independent of the resources that you offer them. It’s a safer and easier play for a developer who doesn’t know anything about this industry. The other part that I get and Josh and Lucas, I’m sure you both hear this too. Oh, I’ll hire someone to run this development for me. I’m like, okay that’s a great theory, if you’re going to hire an individual, how are you going to effectively manage the work effort of that individual? If you’re now getting into a business that you know nothing about, and if you’re going to hire a management company, are you, again as an owner going to be able to effectively assess the quality of the efforts that they have and how they’re positioning your site for you, especially if it’s a brand new site. It’s best to do it well from the get-go and you can have an easier market entry. I’m seeing in almost every market that we work in and have worked in over the last five years, there is enormous market opportunity for active adult housing or age restricted congregate housing of any kind, if it’s well-developed, if it’s attractive to the local marketplace and consistent with the marketplace, I want to talk to that for a sec. And if it is well priced, and a lot of developers, we saw this with a competitive property across the street from one of my clients. They came into the market and it was active adult housing, but they didn’t know what they wanted to do with it. So they started to bundle in a couple things like a little activities programming that was done by staff. And then they had a couple meal program and all of a sudden their price points were about $400 to $500 more than what active adult housing in the market was at and their occupancies are dismal. They’ve been open for like two years now and they were at like 40% occupancy at best in a market that is absolutely swimming with need for active adult housing. But they mismatched it and the price calibration of the market and using the demographic insight is so critical. But for developers who don’t know anything about the industry, that active adult housing is frankly, the easier and faster play to get in if you’re dealing with people who have a higher net worth generally than somebody who’s 85 years old and in their spending. And they are a lot less work, frankly. I mean, it’s easier to deal with somebody who’s an empty-nester housing that’s 65 to 70 and still living their own life and you don’t have to have all those added resources. Certainly they can age in place and there are plenty of home health agencies that you can bring in if they ever, they can bring in if they ever need help, but you’re not responsible for it. You don’t have the liability, you don’t have the obligation and, and you get your units filled in and as they age in place, then if you’ve got extra land, you can decide, should we now add some additional housing? We’ve seen developers that have done that with regard to the hotel conversions, Let’s be honest a hotel is not a beautiful apartment setting, and you can do all that wall knockouts that you want, but it’s still a box. It’s still a rectangle. And so when you’re thinking about who would really want to live there, you might find that your hotel conversion puts you into more of a middle market or a lower middle market offering the kinds of high-end properties. That folks who are getting the big bucks are doing generally aren’t hotel conversions. So helping a developer to calibrate their understanding of their opportunity, just because their hotel isn’t succeeding anymore. It doesn’t mean that it’s marketable as retirement housing. They still have to look at the market feasibility for it.
Josh: Well, the term you just used, I think you said calibrating their opportunity. I think that’s a really important topic. Obviously, a lot of what you said we could sit down and talk for a really long time. I know Lucas, I can even see his brain spinning over there. He’s got a million questions, but this is a really, really important topic. And I think another important topic in there is understanding the demographic, something I haven’t heard too many people talking about, that I think is really important as you mentioned; the silent generation. Which is the actual generation that we’re probably serving right now in the predominant amount of senior housing, but yet a lot of the product that we’re putting out there trying to get stabilized right now is probably not geared toward that group. And it seems like a real misunderstanding of what we’re developing and who we’re developing for. Do you have any thoughts on that?
Jill: Well, if you think about it in the transition, I mean we transitioned from in my career, from the older GI generation, the very first wave of folks who fought in World War II. And then this industry has just finished most of its service to the remainder of that GI generation. And they were fiscally conservative. They were in their expectations, their idea of fitness was to watch Jack Lalaine on TV, do the exercises. And you guys are too young to even probably know who Jack Lalaine is, but he was the fitness guru of the day back in the fifties and early sixties. And the silent generation has really created a lot of the shifts that we’re seeing in the industry. And I think frankly, in some of the best ways that the industry has shifted in enhanced attention paid to fitness and fitness programming, the more physically active they are, the longer they’re able to ambulate the longer they’re able to be physically active and live their own life, the less resources they require from the sites for care and healthcare. And they’ve got attention paid now to nutrition. My gosh, when I was first in the industry, I always stay on client sites when I’m doing work for them, so I can see what their meal service is like. I can really feel what the campus is and get to know some of the residents. And I’ve been to sites where they would just bring in basically some goulash with bread and heavy sugar, canned fruit that even the residents at the table are like, don’t get the fruit, don’t get the fruit, it’s bad for you. And now we see all of these robust meal and menu programs and options that are designed to be more healthy. Well, that impacts cognitive health. The whole aspect of cognitive health is a whole new layer of this industry is and has been, but that’s a generational shift, but there’s one other little problem with the silent generation is they have a very different attitude toward money than their parents had.
They don’t save as much, they have a much more open attitude towards debt. We’ve looked at markets where people age where households aged 75 and above 30% or more have mortgage debt. Like that just doesn’t have that just never happened in our industry. And so if you’re an entrance fee community that thinks that you’re going to just calibrate your entrance fees to the average real estate value in the market or the real estate sale price, you’re in for a rude awakening. Because now that means those retirees that are going to move into your site have to pull additional money out of their savings, which means they have less interest bearing assets to pay for your monthly fees. So we’re starting to see some financial compression within older adults, even in the more affluent sectors within the industry because of this generational shift. And then you get the baby boomers, they don’t have any attitude about money cause like, oh, just spend it all. So how are they going to pay for all of these beautiful sites that we’re building? And I have some concerns about that and so it’s one of the reasons I think more middle market priced options are being very appealing. People don’t want to give the developer all their money. Back in the day, it wasn’t quite the same, but things were priced better. We’ve worked with clients that have lost track of pricing relative to the market and I had one client very sophisticated. You would all know their name. We got in and looked at the pricing relative to the market. And they were only affordable to 9% of the population now, because what typically happens is the CFO goes, our costs went up by 5% this year in food and utilities went up 4.5%. And while giving wiggle room, let’s raise prices by 5%. So you do that on a compounded basis, over a period of time, but senior incomes are flat. And that difference between the two is what I call the affordability gap. And we see this in market, after market, after market, particularly with established providers that have never gone back in since their original feasibility to see are we even feasible today. And it is pretty frightening when you look at the enhanced competition and all the other resources, they’re not feasible any longer. And so then you have to try and figure out now, what are we going to do? And I think with the generational divide and the generational transitions it’s going to be a really complex thing. People talk about the boomers, they talk about wanting to market to the baby boomers for most of us in the industry, particularly in the sector where there’s any level of service. And that includes one meal a day, you’re dealing with the silent generation and the baby boomers are their kids. If you’re looking to tap into that deep market of baby boomer population, age wise, active adult housing and age restricted housing with those services is really the sweet spot.
Josh: So, I’ve got some questions here because I’m trying to put myself in the seat of a lot of our listeners, which is very diverse. So it might sound a little bit schizophrenic, some of the questions that I’m asking, but I’m thinking about the operators out there. There’s probably the majority of our listeners are operators. And I think the general sentiment I get in having these kinds of informal conversations is kind of like we’re in reactive mode a lot. So there’s these generational things that you’re talking about that they’re getting hit with that are changes, there’s pandemic things hitting them, there’s economic things. So you feel like there’s all these forces that are, we’re just responding, reacting to. Are there any things that you can kind of encourage our listeners that are operators out there that they actually have control over that, that they can bring about some positive change?
Jill: Right now, there isn’t much control. Let’s be honest, I mean I still talk with the CEO, clients of mine and past clients and their strategic time horizon is maybe 24 to 48 hours. They need to know, am I going to have enough people to cover the services that I need to cover today? And am I going to get enough people to show up tomorrow? And honestly, that’s where people’s heads are at right now. And so to try and get them to look at that bigger, longer range picture, they just don’t have the bandwidth at the moment, and they’re tired. I don’t know about the folks that you’re dealing with, but I would suspect they’re like the ones that I knew interacting with, they’re exhausted. They’re fed up because they’ve been let down by team members that, you know, I get the 8:30-9:30 at night, I’m halfway into the fireball bottle of whiskey, client calls where they’re like I can’t trust any of my team.
They’re letting me down now. That’s extreme, but the teams are tired. The teams have been fatigued. They’re trying to manage the Zoom educations of their kids at home. They’re feeling guilty because they’re not supervising. They feel guilty because they might be exposed to the COVID and bring it back home. And all of that distress, there’s been no letup. It’s been almost an entire year of that level of operational pressure. And then you overlay that now with the financial pressures that they’re starting to really feel because who budgeted for PPE. I mean, who budgeted for jugs and gallons of hand sanitizer. And so now all of us, and then the overtime pay and the hazard pay that they had to do. So even operators that have historically done very well, their margins are a lot thinner right now.
And so they’re still just kind of trying to navigate the day-to-day and dance through the rain drops. Occupancies have been compressed too, because we haven’t been quite as appealing as an option for folks. A lot of that’s been in part due to the media. There’s been great things that our communities have done during COVID, but that planning cycle, that reactive mode is truthfully where they are, and don’t feel bad for those of you listening, if that’s where you’re at right now, please don’t feel bad. You’re not alone. Most of the people who tell you that they’re doing great planning are, you know, full of you know what, and their first and foremost is survival and caring for those that are under your care. That’s it, that’s your pivot point. The rest of these pieces will be able to work through. Sometimes what I find is staff of the clients that I work with, don’t have people on staff who have the intellectual bandwidth to do the kinds of pieces that we’ve been talking about doing the external secret shopping, doing the competitive market analysis in a real and deep way, and doing the price analytics and things like that. So sometimes you just need to bring somebody in from the outside that can do that legwork for you. That’s why we get called, our clients don’t have the skillset we have, and they don’t need my skill set every day. So that’s where sometimes the outside resources can be really beneficial, but you also need to give yourself some grace. This has been the most intense, unexpected period of time. I have seen in the entire time I’ve been in this industry. It wasn’t like this after September 11th, 2001, it was bad, but not like this after the economic collapse back in 2008, 2009, 2010; this is different. And it’s hitting at layers that we’re only beginning to understand. So if folks are tired and feeling reactive, good for you. The key is to try and keep your horizon short enough. And then we’ll take a look at the learning that you’ve gotten started doing. I do rumination files and so, oh, wow, this was an idea that worked, throw it in the file and don’t think about it again. All of a sudden you’ve got there’s like 25 little slips of paper in that file, then you can pull them out. I think technology is going to be one of the biggest game changers to come out of this experience for the industry. Looking at all of the resources that technology now brings to play telemedicine is creating new opportunities for our residents and they’re in and communicating with families. There’s all sorts of elements that are coming into it. That’s another, that’s a market force that’s having a shift and I’m excited about where that will lead. But I think we just have to finish getting through this cycle of intensity. Yeah. Lucas, I can see you nodding, I mean, this layer of intensity and then give yourself like 24 to 48 hours. Take a little bit more break than that, but the reality is, it’s just breathing through it. And if you need some help, ask for help, hire the help you need, hire guys like Lucas and Josh who can bring in different perspectives for you and allow yourself that grace. I mean, you will never go through anything like this again, in your professional history. What I’m more concerned about is how many people were gonna impact. But, you know, I hope that there is so much learning that comes from all of this and the real benefits of community and interactions. Some of those things got lost in the pandemic. I mean our residents have been basically locked in their apartments. It’s like a minimum security prison. Nobody wants to call it that and I hate even saying that, but the truth is, as we reacted as an industry and pulled everything back to keep everyone safe, some of those things that made housing appealing, made this congregate living environment, something that was desirable. And again, we’re talking about want versus need-based housing. We’ve created some tension, I think with our market and a little bit of mistrust. So we’re going to have to earn that back with the marketplace as we help them better see how we responded to the crisis and how we re enter a more normal living environment for our business.
Lucas: And that’s really good, Jill. So before we end, we were going to talk about a book giveaway. That’s going to be very exciting, that you have a book that you’ve written that we’re going to give out to some of our listeners. I want to do some quick fire last minute hits. Occupancy is a big, big topic. What are three things right now today operators can do to address occupancy issues.
Jill: First of all, you need to go back and talk with your marketing department. The truth is a lot of marketing departments went into panic mode and shut down mode. They’ve been reacting only to the calls of people who were on their list. If they had people who were hot prospects, they’d have been communicating with them. They haven’t all done a very effective job of continuing to do outreach and rebuilding the fire. I would also look at how can you leverage social media and particularly video to showcase elements of your community; not all the older adults with masks walking around or your staff walking around, but showing and letting people start to feel again, the openness of your community and the visual appeal of your community and take them outside too. Here, we can’t do that in Minnesota right now it’s a little cool, but you know, if there’s an opportunity to showcase the grounds around you or the birds in nature that are even if you only have one birdhouse that counts. And start to show and express through marketing the life that is coming back into the campuses. And I think you will do more. You will have more success occupancy wise with that if you do that, you also need to reach out to your referral sources. Traditionally people in this industry have just hunker down because we shifted our marketing people to delivering meals and mail and the coffee cart. And now we need to get back to the business of the business and look at how we are reconnecting with those people that have been historically a good pipeline for us, and also the people who are prospects or family members and help alleviate some concerns. Maybe you do a zoom call with a couple of family members to talk about as you rethinking mom’s plan about moving in we can begin to start looking at space design. We can begin to talk about what kinds of renovations she’s gonna want in her apartment, even though you think you’re probably not going to have her move until maybe the late end of the summer. We can begin to sign that, talk about that now and make you get your deposit down. And we’ll include that to what we’re doing. I think people have been so passive and they’ve been afraid to talk to anybody because they didn’t know when they would be opening it. And they didn’t know when they could physically tour people. The smart marketers, I’ve got clients that have occupancies that are still well into their nineties age, not age wise, occupancy wise, personalities percentages. And it’s because they didn’t just completely pull back on everything. They shifted their marketing from maybe that face to face direct day tours to other avenues of communication. And they’re, if you a smart marketer will really be able to go back and take a look at all those other ways. I had a call from a marketing director down near the Atlanta area, and she was new to the role in her corporate office and was getting all kinds of pressure on her for occupancy. And this was probably about six months ago. And she’s like, they’re going to fire me. And I started laughing and like, well who are they going to replace you with, they’re not going to fire you and everybody else in your corporate organization is in the same bailiwick. So why don’t you focus on what you still can do? And we went through some of these kinds of ideas and so I’ve been following her on social media, her site on social media, and she’s been implementing all of these things. She’s going to be prepped, primed and ready when the world fully opens up again, to be able to fill those vacant units. And she hasn’t been fired yet by her Corp.
Lucas: That’s amazing. You know what we’re going to have to come back to this conversation another time, there’s so much here to talk about. But before we go, we want to let our listeners know that Jill is going to be doing a book giveaway, and we are going to put all of that detail in the show notes. Josh, incredible conversation. I mean, it’s like drinking from a fire hose today about all this information coming from Jill. I know that our listeners are going to want to learn more and we will make sure that we put that in the show notes and also @btgvoice.com.
Josh: Absolutely, Jill, thank you for being with us. And I have got to get off of here so I can write down everything you were just talking about it so applicable to everything we’re doing. Thank you for sharing your time with our audience and all of our listeners, and we’re going to allow them to connect directly with you. And I can’t wait to be able to give away a book or two from you and I believe that is called ‘Market Forces’.
Jill: Yep. It’s ‘Market Forces: Strategic Trends Impacting Senior Living Providers’. It was written pre COVID, but everything in it still applies and it goes into detail on some of the things that we talked about today. There’s a whole chapter just on the demographics in that birthed earth and it was written for C-level and boards, but it was also written for the lay person who’s been looking at investing in this industry. So I think it’d be a great resource for your audience and really help deepen their insight on what’s really driving revenue and challenges in the industry beyond just COVID.
Josh: Thank you, Jill.
Lucas: Yeah, absolutely. Jill Johnson consulting extraordinaire and the senior housing industry. Thank you so much. Go to BTGvoice.com to learn about all of our shows and learn more about this one in particular and the book giveaway. Thanks for everybody listening to another great episode of Bridge the Gap.