Are the financial gyrations you are asking your customer to perform - to move into your retirement community, assisted living, or nursing home - natural?

Very often when our firm, Love & Company, receives a call from a senior housing developer, the patient has cancer. By this I mean, that the retirement community, assisted living, or nursing care facility is struggling with occupancy and the bank is knocking at the door. Both the client and the bank want to know the same thing, “Can this be saved?” But before we discuss the cure, I’d like to discuss a little bit about how we got here.

One of my first questions if often, “how is your pricing?” To which I am almost always greeted with, “As you can see from our feasibility study, we are right in line with our competitors.”

This response once caused me physical pain. Unfortunately, I’ve gotten so use to it that I no longer flinch. Sadly, if you could see your competitor’s occupancy and cash flow, you would know that they too are going out of business. Yes, it’s true; misery loves company … why else would your project have bench-marked itself to someone else’s proforma rather than the realities of your market?

Can your customer afford your product? Do they perceive that they can afford your product? What is the true strength of your site’s 20 mile radius (and more importantly, your 10 mile radius)? At your current pricing, what is the required penetration rate for each of your units to sell? I have actually seen projects that require a 65% penetration rate for their high end units (in other words, 65% of the age and income/asset qualified prospective buyers would need to buy). This, my friends, is feverish logic.

Worse yet, often as communities get further and further behind, they make poor budget decisions that dramatically effect marketing (cutting their advertising budget and staffing budget).

Of course, price is not the only variable that can get out of whack. The next, most common mistake we see is placing a community where the population won’t support the project. I can’t tell you how many times I have heard, “Oh, but we’re a retirement destination” or, my other personal favorite, “the surrounding area is filling in around us.”

OK, now what?

Sadly, when confronted with reality, most developers (and many banks) initially reject the medicine of lowering prices, “if we lower our pricing, the proforma doesn’t work. And remember, our pricing per square foot is very competitive.”

What they’re really thinking is, “why can’t you just sell our way out of this problem?” and “we’ve already tried special incentives and they didn’t work!”

This is an honest reaction, after all, no one likes to see their investment NOT make money, or even worse lose money.

Meanwhile, the clock is ticking. The community is losing blood on multiple levels:

1. Vacant units are not only not collecting revenue, the carrying costs are getting heavier
2. The community operations (i.e. dining, transportation, medical, etc.) are not realizing any efficiencies because staffing and supplies costs are being carried by a small number of residents
3. The community is not enjoying the full effect of one of its most powerful tools, referrals. One, there aren’t very many residents to give referrals. And two, the resident’s are scared to give a referral for a community they know is one shaky ground (and trust me, they can see what’s going on)

The Doctor’s Advice

Usually, the cure rests in two areas: Marketing and Pricing. With marketing there are usually two variables at play. Most of the communities we have visited are simply not generating enough leads and they’re not converting the leads they have. Usually, we can easily solve the first issue of generating enough leads with an experienced, cost-efficient marketing approach.

Unfortunately, the second issue, conversion rates, is a tad bit more difficult. Many communities have experienced sales people who flourished during the easy 90’s but who are struggling mightily in today’s environment. Sometimes the issue is not their issue (see discussions above). However, sadly, sometimes the issue is that individual sales person is not a closer. What makes these situations difficult is that often that sales person was part of the team from day one. The teams that can’t face reality and don’t make the difficult decisions, go down as a team.

As Love & Company works with clients around the country and as we discuss the state of the industry with peers, a reoccurring theme pops up again and again. It is extremely difficult to secure and retain good sales people. This phenomenon has been particularly acute since the real estate and retirement community industry collapse. There’s a reason real closers are not choosing our industry …. PAY! It is also, our opinion, that the role of sales has been under appreciated (for example, Love & Company places priority of top sales directors and sales people over that of an executive director in startup communities). Getting the right sales person, a true closer, is paramount to your community’s success.

Once you have your lead generation problem fixed and the right sales team in place, you need to give the team the tools to get the job done. Namely, you need to have your pricing aligned with the reality of the current real estate market … which means that seniors in your market can trade the equity in their house for your product (again, the sale price or equity they will trade needs to accurately reflect today’s real estate market). Or, if you run a rental community, that they feel their equity will last their life time.

A Dose of Reality

We’re not saying that reality is always pleasant but we do know this, the sooner the team (management company, developer, and bank) come to grips with the real challenges in front of them, the closer they are from emerging from these difficult times.

Love & Company specializes in marketing senior housing. This experienced team creates realistic feasibility studies and marketing plans designed to protect and maximize investments in this valuable industry. They are experts in accessing troubled properties, retirement communities, assisted living, and nursing care facilities and then providing solutions.

PS  I’ve been amazed at the response our blog, “Death of the Continuing Care Retirement Community” has generated. The changing likes and dislikes of today’s mature market, along with technology, is changing this industry at record speeds. Also, if you’re in New York on May 14th, I hope to see you at the Marketing to Boomers and Beyond event. When you register, make sure you get the Mature Market Experts discount. On the individual registration pull-down bar, select “Individual Registration (10% MME discount) $157.50.” Workshop guests can reserve rooms for the night of May 13 at a discounted $259 rate on the Marriott website: www.nymarriotteastside.com but to receive the discount, you’ll need to CALL reservations and provide them with the  Group Code: BUMBUMA (this code won’t work if you try it online)