Hello. My name is Tod Petty and welcome to the Senior Housing Unfiltered podcast. Today is December 16th, 2020. You don’t want to miss this show. Jimmy and I will share the industry shifts coming to senior housing and how it affects our future. Don’t go away. We’ll be right with you.
We have a great show today, Tod. You want to tell us a little bit about it? It’s a little different.
It is. And with your intro music, the new intro music, we have to really perform now for our audience.
Well, we’re really pumped here in the office now.
That’s a great introduction. Well, we absolutely have something really special today. We prepared, in the last couple of weeks, to do a podcast that we’re now going to do in January of the new year called the Leader’s Greatest Gift. And you don’t want to miss this podcast in January because we’re going to talk about what do followers need?
Followers need passionate leaders and followers need committed leaders. And without that combination, that elixir, we’re going to come up short every time. So I’m going to pause that because we’re going to do that next month. And today we’re going to have something different. We’re going to share with them a presentation we did a couple of weeks ago that will change and prepare them for 2021.
Yeah, absolutely, Tod. And we had the pleasure to join Chris Meyer and this Construction Coffee Club sponsored by Cooper Construction. It’s an exclusive breakfast club that we had the pleasure to join. And we shortened up the audio a little bit. We don’t want to bore you guys with too much, but this is very, very good information and we think that you guys are going to benefit from it.
Yes, it’s probably about 15 minutes. We’re going to talk about a money pyramid. We’re going to talk about demographics. We’re going to talk about regulatory changes. We’re going to talk about this pandemic and how all of these combined have accelerated the arrival of a new future in senior housing. We’re going to talk, lastly, about a bifurcation of assisted living memory care model we’re calling luxury resort. And then we’re going to talk about an independent living model to meet the needs of a new generation that’s going to want one last bite at the apple.
Yeah, absolutely. You’re going to hear a lot of good things. So enjoy.
Yeah. We’ll be back with you after the presentation. Stay tuned.
This is a real neat board called the money pyramid. I don’t know if you can see it or not, but I’ll, I’ll try to go over it so you can hear in the back. So the money pyramid has not changed since 1940, and the social security administration has been tracking income since then. And no matter who’s in power, no matter what plans we have, no matter what stimuluses we have, this thing never changes. And it’s really interesting. So, if you can see this, 20% of the population is broke. 60%, will live in a lifetime financial struggle. We do have good news. It’s coming.
That’s 80% of our population. And at the top 20%, 15% make a good living, 4% are prosperous and 1% are rich. This never changes, no matter what happens. It may change in the future, but it hasn’t in the last 40 to 50 years. So, what this shares with us is that we need to be talking to the top 5% to find out what that they’re doing to be prosperous. And that’s hard to find, except I would say this is probably a room full of people that are passionate and committed, or you wouldn’t be here this early this morning at Chris’s great show, wherever he’s at. So the other way of looking at this is that we need to be wary if we can’t get to this 5%, we need to be wary of 95% of the information we’re receiving because the majority is wrong.
And so as you’ve sat over the last year and listened to Zoom and podcasts, I would challenge you to be very discreet about what you’re hearing. Because first of all, we know that a lot of people had nothing to do, so they all decided to have a podcast. We all decided to have a Zoom conference. And I can’t tell you how many people we’ve spoken with that, it’s been beneficial at times, but a lot of it is just regurgitated information. So I’m going to try to share something new with you today. And you can determine where I fall in this pyramid as far as valuable information. So, thank you.
So the senior housing industry. To share just a little bit of background, I’ve been in the industry 20 years and I’ve been involved in 50 projects. So, for the first 15 years, I co-founded Thrive Senior Living here in Atlanta, and we brought 23 buildings out of the ground, all resorts, AL/memory care. This was right after 2008, when everyone said don’t do anything, it’s tanking. And we saw a pathway for technology blended with buildings to offer a new product.
And so we brought those buildings out of the ground and we had very good success in the early days, particularly when not a lot of people had technology in the space. So, we were seeing buildings, $12 million lease-up with 18 months. We had a transaction on them, dispose of them in about 24 months with multipliers of about 2.25. So, we thought it was our great plan when a lot of it was the market at the time.
But things began to shift. Everybody ran into the market and said, “Wow, this is a great place to be.” I’m used to $500, $800 a month rents, and now I’m seeing I can get $5,000 rents a month from seniors. And the statistic has not changed. We have 10,000 people turning 65 years and older every single day. And these are the baby boomers, and this is the Woodstock generation. And I would challenge you and say, not only are they not going to want any med management, they’re going to demand for various medications to be supplied in the senior housing industry. And we’re seeing changes in regulations for medical marijuana across the country.
So I shifted in 2017 to the middle market. I went to Florida, partnered and founded Mainstay Senior Living, where we looked at distressed assets, very distressed, REITs were disposing of them, got great deals on them. We had a vertically integrated platform. The gentleman I worked with was brilliant and we invested $4 or $5 million in the buildings. We had a low basis and we were able to charge a rent about $500 to $1,000 less than everyone else. And we filled them up because the middle market in senior housing is about 40 to 60%. There’s debate on the numbers unserved.
So all the products you see on the corners that have come up out of the ground are targeting the top 10% of income. That’s the target. You got to come in at a $4,000 or $5,000 price point, which leaves 60% of the market unserved. So here’s the different models that we’ve seen built over the last 10 years. You have skilled nursing, which is going away. No one wants to go to skilled nursing anymore. You have assisted living and memory care. Those are the beautiful buildings on every corner in Atlanta that are 30% to 50% of full right now. I don’t know who underwrote them, a lot of money invested in them. You have independent living, which is for folks that don’t need care. And then you have 55 active adult.
All these platforms have been built standalone primarily, generally speaking standalone products, to meet a certain demographic group. So this whole thing has changed with COVID-19. And I don’t think you’re going to hear that anywhere else. When you get on your Zoom meetings they’re going to tell you that we’re just waiting for equity to thaw, we’ll get back up and running, we’ll get these buildings full, but a lot has changed.
The things that have changed, one is demographics are changing, going to talk about that. Number two, with the demographics, what clients are demanding, number two, COVID-19 in three regulations. Let’s show them the next board, Jimmy. So, here’s the new model. What I’m going to attempt to do is try to explain a converging, demanding a new product we’re seeing.
The problem we have now is we’ve had no admissions over the last six months in assisted living and memory care because of shutdowns. There’s a 40% attrition rate in senior housing every year. So no matter what products you have, you’re going to lose 40% of your customers because they’re not staying there forever. The average length of stay is probably now about 12 to 18 months, and it’s getting smaller and smaller because people are not going in until they absolutely have to. Which means they’re going in when acuity levels, their need is much higher than before. So if there’s a 40% attrition in a hundred unit building, that means you’re going to lose 40 residents a year. So for the last six months, you’ve lost half of that. So, owners have lost 20% of their clients over the last six months and have not been able to replace them. And it’s putting pressure on their bottom line.
And the second problem you have is that when everybody was moving into the space and marginalizing healthcare and talking about their beautiful bistros, which I do like them, their beautiful fireplaces, they talk about the senior who’s 87 years of age coming down at four o’clock and having a brew at their bistro and talking about the old days. Well, I can tell you, being in the industry as long as I have, that doesn’t happen. When you’re in assisted living, you are over 85. Average age is 87 years of age. You have three or four comorbidities; you go there because you have memory loss. Over the age of 85, one in two have dementia and one in three have Alzheimer’s.
So the reason they go in is because they need care. So it’s all about healthcare, but the development group said, no. It’s about beautiful buildings, large spacious spaces, which I think Melissa’s going to talk about that, they didn’t design the building for healthcare. So now we have a pandemic. No one knows how to quarantine. No one has systems in place to take care of the residents. And there’s a lot of unhappy people because no one cares about the bistro. No one cares about the bar in assisted living. And the regulations are allowing people to stay longer in assisted living because the state does not want them having to pay their beneficiaries in skilled nursing.
So what’s going to happen with this AL memory care model? It’s going to be designed to allow people to stay longer. It’s going to be a post COVID-19 building, so we’ll have temperature checks when people walk into the room, we’ll have air handlers that are moving the air more frequently, we’ll have washers and dryers in the resident’s room. And whoever develops that model can charge more rent after the pandemic than before and fill it up because all the buildings are not equipped right now to do that.
The second thing that’s going to happen is this independent living group here, that’s the 75 year old baby boomer, they’re not going to like the product that’s on the ground right now because they want a cool and a hip place. So they’re the ones, even though we built for the older adults, it’s the 75 to 85 year old that wants the bar. They’re going to be down at four o’clock at the bistro, trying to hook up with somebody.
If you look at the statistics, most people between 70 and 80 are experiencing either a death of a loved one or a divorce. It’s one of the highest divorce rates in the demographic groups. Yeah. So when that happens, they’re moving for financial reasons. They’re ready to dispose of their asset, manage their wealth because they don’t have a pension, and they’re going to move close to the grandkids. And when they do move, they want to rent. And you can read about this every day. So they’re going to want to go to a place where they can have their own apartment, they can make their own meals if they want to, but they’re going to want a point of sale bar. They’re going to want a zero entry pool, they’re going to want to meet people. They’re going to want entertainment, security, safety. And technology is such now that we can bring it into the building where they don’t have to go to an assisted living.
I’m not going to an assisted living until my memory fails and they’re going to drag me there. And I won’t know it then. So, this new model is great opportunity for an independent model that will deliver that to the customer. And then the after 55 is along the same lines. For those that want a wealth management circumstance, where they sell their asset, can move, and have services provided to them without healthcare with people that don’t have walkers and wheelchairs, there’s opportunity there.
Let’s go back real briefly, and then I’ll end here with the middle market. We know in August 1st 8,000 hotels filed bankruptcy. Those hospitality assets, I don’t know if they’re going to come back, and a lot of REITs are disposing them right now. And they have very good bones to remodel into independent living. We’re seeing them priced well below new construction cost for assisted living.
And we see investors’ appetite for distressed assets repurposed for senior housing versus not a lot of money chasing the old model anymore. The old model that was brand new one year ago, that’s now fairly distressed. And there’s plenty of capital out there. We’re hearing from people every day. Like, “Hey, we only deployed 30% of what we had in our billion-dollar fund and we need to deploy it. What do you have available?” And they’re running toward active 55, they’re running toward independent living, they like the new AL memory care model, but they really like distressed hospitality assets.
Welcome back guys. Hope you enjoyed that clip. Tod, could you please tell us a little bit about why this is so important moving into 2021?
Yes. What I want the audience to take away from the information we shared today, Jimmy, is a couple things. First, the old saying, we all know the definition of insanity is doing the same thing over and over again, and thinking you’re going to get a new result. We can’t keep doing the same thing we’ve done the last 10 years in senior housing and think we’re going to get a different result. We have to change. And I want the audience to be prepared for this change.
The second thing that everyone needs to understand is that money doesn’t go away. It only moves and money is moving now.
Money doesn’t go away; it’s moving and needs to be reinvested. And it needs to be in reinvested in a new model in the future as a result of the demographics and the changes that have occurred. So there’s great hope. There’s a great vision and there’s great opportunity to serve the middle market, to serve the under 85 older adults that want relevancy, want a more affordable product that can bring healthcare into their community. There’s opportunity to create a luxury healthcare model and there’s opportunity, unfortunately, because there’s distressed hospitality, there’s opportunity to buy it, repurpose it at an affordable price, and re-employ everybody that worked there. So this great opportunity, but we have to change. Life is a continual change, and the win belongs to those that are able to make the change as well. One constant we always have is change.
Well, we’re definitely going to have a lot of changes in 2021. And speaking of 2021, Lloyd Jones is going to have some exciting news. We will soon be launching our brand-new websites. Yes. Websites with the plural S. Not only are we revamping our current website for our investment and development division, but we’re also adding dedicated websites for a senior living division and for Lloyd Jones multifamily management. So, visitors can learn more about the solutions we provide in the multifamily and senior housing space.
Yeah. That’s going to be great, too, because we’re combining the Miami office at Brickell Bay, and then also the Ponte Vedra office and the senior housing office, just streaming them all together. We’re going to bring all of our blogs, all of our podcasts, all of our deliverables, all of our free downloads will all be available at the Lloyd Jones Senior Living website. Looking forward to that, and we’ll keep people abreast of that as well.
Yep. We’ll share more with our listeners when the sites launch in early 2021, but we’re looking forward to providing this experience to everyone who visits Lloyd Jones on the web.
Yeah, so thank you everybody for visiting today. We appreciate your loyalty. Our greatest quest is to bring value to you. And remember next month we’ll be doing The Leader’s Greatest Gift of what we can give back to people. So, thank you. This is Tod Petty and Jimmy Carrion, Senior Housing Unfiltered. Have a Merry Christmas and we’ll see you next month. Thank you.