Operators Still Face Some Headwinds Going Into The New Year, Expert Panel Reveals

When it comes to operational performance, a bifurcation has emerged within the seniors housing industry, observes Tom Grape, CEO of Waltham, Massachusetts-based Benchmark Senior Living. Established, well-capitalized operators with strong teams in place are hitting their marks while many smaller, less established ones are struggling financially.

Grape’s insights came during a Dec. 12 webinar titled “2025 Seniors Housing Outlook: Investment, Valuations & Capital.” Seniors Housing Business hosted the hour-long online event, which was sponsored by CBRE.

Benchmark, Grape’s company, ranked No. 31 on the American Seniors Housing Association (ASHA) list of the 50 largest U.S. seniors housing operators as of June 1, with 6,373 units across 67 properties throughout the Northeast. The company focuses primarily on assisted living and memory care. 

“We’ve seen a lot of new startup operators in the last number of years. It’s hard to be a startup, particularly when you’re in a tough market like we went through with the pandemic,” said Grape. 

Some of the smaller players may survive, he believes, but he anticipates many won’t. “The companies that are more established and with good teams are going to be able to benefit from some of the challenges that are going to be coming to market, or that already have come to market.”

JP LoMonaco, executive vice president of Valuation & Advisory Services, moderated the panel. Other panelists included Chris Hollister, co-founder, CEO and chair of Pegasus Senior Living; Richard Hutchinson, CEO of Discovery Senior Living; Clint Malin, co-president and chief investment officer of LTC Properties; and Aron Will, vice chairman and co-head of National Senior Housing with CBRE.

The panel touched on a variety of topics including the availability and pricing of capital, transaction activity, cap rates and supply and demand, as well as development opportunities.

Underwriting talent

Malin pointed out that an operator’s bench strength is a key element and one that took on heightened importance during the pandemic. Malin’s organization, LTC, is a healthcare REIT that has roughly 30 different operating partners across 200 properties in 25 states. Approximately 55 percent of LTC’s portfolio is comprised of senior living communities, and the remaining 45 percent are skilled nursing facilities. 

“One thing we do from an underwriting standpoint is really try to understand the organizations. What is the talent within the organizations, and how are they encouraging development of personnel within the operating companies?”

Without the right personnel, it’s difficult to grow and scale operations, Malin emphasized. “Find that talent, develop it and keep them engaged — and highlight that talent to capital providers.” 

When capital providers see an operating team working well together and growing professionally in their individual roles, it gives them greater confidence in the overall operation, said Malin.

‘Sophisticated capital’ drives change

Discovery Senior Living, headquartered in Bonita Springs, Florida, ranked as the second largest operator of U.S. seniors housing as of June 1, with 34,729 units across 336 properties in 41 states, according to ASHA. About 50 percent of the portfolio is concentrated in independent living while the other half is focused on assisted living and memory care.

Hutchinson said the “sophisticated capital” entering the seniors housing space is placing greater demands on operators. The once highly fragmented industry is now entering a consolidation phase, which he believes is both natural and inevitable. “Everyone thinks about [consolidation] in terms of real estate, but in operations it’s the same animal,” said Hutchinson. 

That’s not to suggest small operators can’t be successful, he emphasized, but they need to find their niche.

Some of the operators that are new to seniors housing ran into financial trouble partly because they scaled their businesses too quickly during a period of great transition, said Hutchinson. “I can tell you that we scale pretty quickly ourselves, but the ‘overnight success’ has been 30 years in the making,” he said, referring to Discovery. 

Hutchinson tells operators who seek his advice on scaling to consider how much stress they’re willing to put on their businesses and how many resources they’re able and willing to deploy. He warned that “once you get out over your skis and you get beyond your stress band in an organization, it’s a death spiral.” 

Above all, an operator wants to avoid being in a situation where its credibility begins to diminish with capital partners, because at that point, it won’t be able to win new management contracts. “This industry is about the size of a dime, right? Everybody knows everybody,” noted Hutchinson.

Development remains a math problem

Hollister of Dallas-based Pegasus Senior Living — which currently operates 44 communities in 13 states, including 13 in Texas — doesn’t see development on the horizon in the near term because the numbers currently don’t pencil out. Pegasus focuses mostly on the assisted living and memory care segments of the business.

“I don’t know how to go build as long as NOI (net operating income) per unit is $2,000, and it’s going to cost $400,000 to build a 100-unit project. That doesn’t make sense to me. So, I don’t know how to develop in our core market in Texas until the NOI per unit gets to $2,500 to $3,000. [The NOI] is just not there because that means the [rental] rates need to be $8,000 or $9,000, and they’re not. It’s very simple math.”

On a positive note, Hollister described a lot of the fall prevention technology introduced to the sector as exciting. He’s also enthused about the potential impact of artificial intelligence (AI) on operations, particularly if it leads to a longer length of stay for residents. 

Hollister cautioned operators new to the assisted living and memory care segments of the business about the rise in the acuity of residents that’s occurred over time. The higher the acuity, the greater the level of medical complexity or care needs a resident may have. 

“You lose an executive director, you have a problem,” said Hollister. “And [if] you’re getting three, four, five or six outs (residents leaving a facility), a month, your NOI can be cut in half in six months.”

Dodging a bullet?

Even before the COVID-19 pandemic, the industry was dealing with a labor shortage issue and pockets of overbuilding. When the pandemic hit full force in 2020, occupancies tanked for a short time before gradually rebounding, only to be followed by a sharp rise in interest rates, which put additional stress on the entire sector. 

But amid the tumult came a pleasant surprise.

“I thought the lenders were more patient than I’ve ever seen in 30 years. I thought for sure there was going to be a bloodbath of foreclosures, receiverships, all of those bad things to happen on the debt side on the real estate,” Hutchinson explained.

Now, many owners of once financially troubled properties can mark a recovery on their books, along with improving prospects over the next 12 months. 

To view the full webinar, click here.

— Matt Valley

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