PROPERTY UPKEEP – in a challenging Environment

“How long can an organization postpone renovation/rehab and not risk losing move-ins?” asks the ALFA[1] Case Study: “When Looks Really Matter”. In response, there is no universal right answer, as each company and its situation are different.  Factors that may influence management’s reaction to occupancy challenges include the type of business (i.e. acute hospital, SNF, ALF, IL, etc.), type of clientele, level of competition, census level / amount of decline, and the organization’s overall financial condition.

As a former CFO, I understand that the company must live within its means and that there are often financing considerations behind decisions and timetables for rehabbing a building.  But, unlike a hospital or nursing home where admissions are driven by need and paid by third parties, independent and assisted living communities have a greater requirement in maintaining their properties to remain competitive and continue to attract private pay clientele.

SHOULD MANAGEMENT CUT OR SPEND?

Traditionally, organizations tend to do nothing extraordinary for a 1–2 % change in census, but cut costs and eliminate expenditures as occupancy drops 5–10 points.  Then when the occupancy decline hits 10 points, management panics and starts spending more money, bringing in outside sales/marketers and doing more advertising, special events, etc.  At 12 – 15 points, they call out the National Guard!

So, why wait for it to become a crisis before responding?  No matter the state of the economy, if the census drops, management should do something POSITIVE for the community instead of cutting costs.  Create value-added services[2] to increase the satisfaction of existing residents and marketability for potential residents.  In the private pay world, you must overcome inertia to obtain a move-in and CUTTING COSTS IS NEVER THE ANSWER!

[In fact it can become a “self-fulfilling prophecy” as the company continues to cut costs, reducing the perceived “value” of the services, thus leading to still lower occupancy.]

RENOVATION CYCLES

Many organizations schedule total renovations for their properties on an 8-12 year cycle.  This process generally includes an updated color scheme with new upholstery/furniture and furnishings in the building core and other common areas.  A conventional approach in difficult times is to delay these major expenditures until a) the census improves or b) the economy turns around.

The problem with this strategy is that the appearance of the building may be a CONTRIBUTING FACTOR to its census challenges, so management must look at each situation individually.  For instance, a well-maintained building with consistent local management might require a rehab for only cosmetic purposes and could likely postpone its renovation without adverse consequences.

On the other hand, a property that clearly shows wear and tear – regardless of age – needs attention NOW!  Executive management must convey support for the marketing efforts of the local management team.  In addition, efforts to instill “pride of ownership” in the local staff will be negatively impacted if it appears that management doesn’t care how the place looks.  This will only make the wear and tear cycle worse in the future.

Yet, in this economy, financial limitations are a reality.  No one expects everything to be fixed at once, but the key is to DO SOMETHING! Additionally, PLANNING, PRIORITIZATION and COMMUNICATION are essential for successfully managing renovations.

So, suspend the traditional cyclical renovation program and focus on extending the life of the existing color schemes with repairs and partial replacements.  At the same time, communicate to all properties and the residents in each of those communities that there is a plan and assure them that their concerns will be addressed in due course.  The key is to do a little something for everyone so that the management and residents of the “good” buildings are recognized and shown appreciation for their efforts in maintaining the property.

You don’t have to spend a lot of money to do this.  We promoted a lot of goodwill in a turnaround situation by throwing away a couple of rickety park benches and spending about $500 to replace them with rockers for the front porch.  In another situation, we simply re-arranged the lobby furniture to create several conversation groupings in a less formal setting.

DOES REAL ESTATE SELL?

Roger Bernier, the President and COO of Chelsea Senior Living states in the ALFA Case Study:  “Our buildings are our single most important marketing tools …” and he makes a compelling argument for maintaining a community in good repair, even in hard economic times.  However, a superior building may not be enough to stimulate new move-ins.

Psychologist Abraham Maslow teaches that physical and security are the basic needs for all individuals and most senior living communities focus on meeting these needs.  But, the real potential is in helping the retired adult achieve social, ego and self-actualization goals, which Maslow identifies as higher level needs.

If management shifts its focus to providing a fulfilling lifestyle for their existing residents and then highlighting these activities and services in their marketing efforts, they will find their clientele to be much more accepting of a little normal wear and tear.

GROUP PURCHASING

Lastly, having worked for both large and small enterprises, I understand the substantial price breaks from group purchasing that Todd Kaestner (Brookdale Senior Living) discusses in the case study.  But, to think outside of the box, the operator may get a better return on their investment by purchasing locally! Yes, I know it will likely cost more, BUT . . . you are only doing partial renovations and any exposure within the local community is good and provides inexpensive advertising.  A local owner-operator to whom you bring business (and even the local trades-people that do the work) can be turned into exceptional referral sources to “spread the word” as they visit your property and observe the level and quality of service you provide.  The fact that the company is putting money back into the community – especially in “tough times” – will produce positive public relations on MAIN STREET……one of  your targeted markets.

Again, these suggestions won’t work for everyone, but hopefully they’ll make you consider new options and maybe come up with even better ways to respond to the economy.


[1] Assisted Living Federation of America

[2] Please contact me via email at art@progressiveretirement.com or phone at 615-414-5217 to learn more about the types of value-added services that can be provided and how Progressive Retirement Lifestyles could help you with today’s challenges.

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2 CommentsLeave a comment

  1. I couldn’t agree more with you. I wish assisted living businesses should take into account that they will not have anyone if they let their buildings show wear and tear, but it is more tolerable if you knew that they are taking care of their residents well through several activities.

    • Elise:
      You may also be interested in the article “Summer Camp for Seniors” posted by Ellen Brandt. Here’s the link: http://bit.ly/XTAaE


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