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Today’s baby boomers want more. They don’t want to sit around and wait for their next doctor’s appointment or the mailman. They want a vibrant lifestyle that brings them together with other like-minded people who are actively living life to its fullest potential.
Seniors have always been active, but they need a place where they feel safe being themselves and doing what they love without having to worry about driving or getting lost in unfamiliar territory.
Active living for seniors has been proven time and again to help seniors live longer, happier lives by improving overall health. There are plenty of opportunities for new friendships through socialization and fun activities. Senior housing active living 55+ is community-centered services designed around wellness and independence so that you can enjoy every stage of your golden years.
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Timestamps:
[00:00]
Pre-Intro dialogue from Michael Hartman
Introduction [02:26]
I last had you on the show in October of 2020 (pre-COVID). And since then, how have we seen the senior housing markets changed? [04:17]
Do you have a better or worse outlook on the future than you did back then? [06:02]
What do you think, like on a scale of 1 to 10, how hopeful were you about the future of the sector then? And how hopeful are you now? [07:22]
Has your perspective changed since October 2020 (pre-COVID), or has anything about your prediction become clearer? [11:36]
How much of a recovery do you think senior housing assets will make in 2021? And what milestones may have to be pushed out in 2022? [14:31]
Given all the changes to the workplace and the market from COVID everyone’s jobs seem to be shifting. Has your day-to-day work at Capital Senior Housing changed since October? [16:56]
I mentioned in the intro, you work on Capitol Senior Housing’s Active Living Platform. Can you tell us more about what an Active Living Platform is and what demographics it caters to? [21:21]
To the average person over 55 might still seem like a young age, maybe 10 years left in the workforce, for example. Why do you set the lower age bracket so low for these communities? [24:39]
What considerations do you take into account when developing assets for this 55+ demographic group that you might not see in other senior living communities? [31:54]
Do you still believe senior housing is still a good investment? Do you see this to be true even during COVID? [34:43]
How does affordability come into play when deciding where to invest? [37:04]
We, as an industry need to create housing that seniors can afford. A large portion of the seniors will not be able to afford the product that’s private pay and higher-end care. This means there’s going to be a need to develop affordable options. What is your thought, your role in this shift? [39:59]
Do you see Smart Hubs as the future of senior care or at least integrated into senior care? [42:09]
Why do you personally find it rewarding to serve the aging population? [44:21]
Do you have any other thoughts that you would like to share?
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Bio:
Principal – Active Living
Michael Hartman is responsible for CSH’s Active Living platform, which focuses on investing in assets catering to residents who are Over 55. This opportunity includes acquiring and renovating existing assets, as well as developing new assets that are uniquely tailored to this community. Michael brings more than two decades of commercial real estate principal and advisory expertise to his role with CSH.
Michael’s first interview (Oct. 18, 2020, Season 1, Episode 50).
Transcript:
Michael:
The idea with active adult is giving the power of choice back to the resident. And it allows that resident to slowly and gradually choose the things that they need and spend the money on the things that they need as they need them. Maybe it’s maybe they need help shopping. The beauty is that we have the phone Instacart, Amazon. Maybe they need help going to the doctor or go to the grocery store. We have Uber. There’s Task Rabbit, which is an app that helps you get your apartment cleaned or hang a picture or whatever it is. And there are there, there are ways rather than having it all paid in, the average independent living rent in America is $4,000. The average active adult rent in America is probably $2,000. So it’s a 50% savings. You’re not getting anything bundled in with that. But the beauty of active living and why I’m passionate about it is the addressable market, which is a fancy way of saying the number of people in America that can afford $2,000 is a lot more than the number of people in America that can afford $4,000.
Hanh:
Michael Hartman joins me today on the podcast. Michael is the principal of Active Living for Capital Senior Housing or CSH. He’s responsible for CSH’s Active Living Platform. He works to acquire and renovate existing assets, as well as developing uniquely tailored new assets. With more than two decades of experience in the commercial real estate. So, I’m eager to hear more about his experience and thoughts on the senior housing market. So Michael, thank you so much for coming back to Boomer Living for round two.
Michael:
Thank you so much for having me.
Hanh:
Great. So, I last had you on the show in October of 2020. And since then, how have we seen the senior housing markets changed?
Michael:
First of all, thank you so much for having me and having me back. In, in October of last year, I remember when we were on looking at that curve that we all watched everyday, the sort of case loads and deaths. And we really didn’t know what was coming. I mean, Little did we know, we were on the brink of the third wave and it was the worst wave. That was the January wave. And it just to give some perspective, I just, before this, I was looking, when I did the podcast last time we were, 50,000 cases a day. And by the time January hit, we were 350,000 cases a day. So it got much, much worse. But that sounds dismal. But I do also remember in October feeling like I never said the worst is behind us. We really didn’t know at that point, but everything was shut down in October. All of our communities were really on pause when it comes to new leasing efforts. And while from a perspective of maintaining the COVID case loads and deaths inside the community that did get better mostly because we weren’t allowing new residents in. We were making sure that all of the caregivers were using masks and gloves and there was protocols in place at the time. There was no vaccine, right? So, I would say the number one big thing that’s changed from October to now is we have a successful vaccine, right? And the vaccine rollout, I will tell you, it has been hugely successful, particularly with insight seniors, housing communities. 90% of our residents have been vaccinated. And I think people view seniors housing now as a safe place after, you know, maybe in October and before it was seen as really an unsafe place. That’s probably the biggest change.
Hanh:
So, do you have a better or worse outlook on the future than you did back then?
Michael:
You and I have got to know each other a little bit, and I’m a very sort of positive, hopeful person to begin with. And I had a hopeful outlook then and I have a hopeful outlook today. I guess the big difference that I’ve seen in our communities is that a lot of the healthcare decisions that were made, that are being made today, those are decisions that were postponed for about a year. And so, what that means is that if you go back to just before the pandemic hit, seniors were making decisions based upon, basic health. “Do we sell the house and move in at what, what are our needs right now?” And then, March, April, may last year happened in and everything changed. And so, the deferral of that healthcare decision, now that folks are vaccinated, it’s been a successful rollout. What we’re seeing now more and more is that seniors are ready to make the decision. Um, they’re working with their adult children. They’re working with their, doctors and other people that are helping them with big life decisions. And whereas even 90 days ago, um, 180 days ago when we did the podcast, there was still some uncertainty. I know there’s a little bit of uncertainty still, but I think folks now are at the point where they are prepared to make that decision. They’re factoring COVID and pandemic in, but it’s feeling more and more like the worst is behind us. You hate to say that. Knock on wood, but it feels like the worst is behind us and people trying to get back to some level of normalcy. So, having said that we’re not out of the, uh, out of the woods yet. Um, but I think it’s safe to say like objectively speaking, things are better today than they were in October of last year. I think that’s a safe bet to make.
Hanh:
Yeah, I agree. So, what do you think, like on a scale of one to 10, how hopeful were you about the future of the sector then? And how hopeful are you now?
Michael:
Yeah, if I had to peg a number, back then we had no vaccine. We had a different administration and, without picking sides here what happened was there was just a misunderstanding and the communication wasn’t there about where we really were with the vaccine and when it was going to be rolled out. There also wasn’t really agreement on what the strategy was for the US in terms of how to handle the pandemic. And also the world had its own issues. Now, w we don’t have, it’s not like there’s no issues today. New administration and we have a vaccine. So, the vaccine has been successful. That’s one thing, case loads and deaths are down big. That’s another thing. New administration brings new risks. New administration has taxes. We have stimulus to contend with. Potential inflation. So, all of these things need to be factored in. I still think if you have to put a number behind it, the number today is higher than it was in October. So, if we’re at an eight today, we were at a six in October or something like that, or a nine and a seven, something like that, in terms of hope for the future.
Hanh:
That’s fair. That’s fair. I echo that.
Hanh:
When you were on in October, we also talked about what the next 50 years will look like for the senior housing industry. Has your perspective changed since October, or has anything about your prediction become clearer?
Michael:
I You know, I don’t know that it’s changed. It’s definitely become clear because all of the things that really in the industry you’ve been talking about it maybe for five, 10 years, with respect to if you have technology as a main one. The two things that come to mind are technology and sort of mental health. And by that, I mean the following. We always had, at least for the last 10 years, we’ve had mobile devices. We’ve had access to the internet. There has been the ability to get things on demand. But they hadn’t necessarily been embraced by seniors. And also all of the proof of concept for getting stuff delivered to your house, not just food, really health care and, we’ve all probably done some level of doctor visits on Zoom. That’s now real. That, all of that is now real. It’s never been more real than it is today. I have an 83 year old mother. She does it. It’s not. Once you’ve got a device that’s easy to use it really means that folks are going to embrace it. And that’s a great positive thing through technology. And, technology, it gets trashed a lot for all of the negative parts of sort of Facebook and, but there’s plenty of good things about technology right now. We had technology before COVID and that technology, even though it existed before COVID, it really hadn’t been embraced yet by the seniors and it hadn’t been fully embraced by America. I’m talking about access to your mobile device, being able to get things on demand. And never before have people really been true believers in the delivery of physical products and also, doctor visits, other home health, via the internet. And it’s something that seniors have embraced, including, my 83 year old mother. She’ll use her devices, iPad, computer. And that’s a big part of it is that the technology has certainly been embraced. I think the other thing that’s become very clear, as we all isolated and stayed home and weren’t able to be with family that, our mental health deteriorated as, as a country. And just on a very kind of human level, it highlighted the fact that cohabitation being with others in the same life stage as yourself and being able to have physical contact as greatest technology is. Physical contact and being with your peers and family, as become a cherished thing as anyone knows, once you have been reunited with your family member members and your mental health improves mental health leads to increase in wellbeing, leads to longevity and all those good things. So, those two things really have improved. And as you look forward for the next 50 years, all of the demographics that we talked about last time that hasn’t changed. People’s lives have been impacted by COVID I think safe to say forever, like this is now something that we’re not going to just forget about. We have to prepare ourselves, likelihood that this is going to happen again in some way. And so, will we ever be back to pre COVID normal? No, but there will be a new normal, and that new normal will work its way through the industry. And we’ll be fine. Vaccine big difference from October to now. They were talking about the vaccine and October. But we didn’t really know when it was going to be available. We, I know that the Pfizer trials were going on and we’re following that. It’s hard to, it’s hard to remember exactly what we thought then, but we weren’t sure when it was going to be delivered how widely it was going to be deployed. And now here we are. I know in January, February, everyone in my company got vaccinated. And now we have 90% of our residents vaccinated and people are feeling like the worst is behind us. And so, well, we’re not out of the woods. I think a lot of people are saying to themselves, “Okay, it’s now as I look forward for the next 50 years, it makes sense in the industry to, to factor in COVID or factor in the next pandemic.” But I think there’s a level of trust now that didn’t exist back in October So, perspective hasn’t changed that much, but I think things have become clearer in the last six months.
Hanh:
I echo that very true. So, how much of a recovery do you think senior housing assets will make in 2021? And what milestones may have to be pushed out in 2022?
Michael:
Okay. So, on the, on this one, it’s interesting. I was, I’ve been watching some of the financial news and, I keep CNBC on my TV, behind my, my, uh, desk here. And it turns out that the S&P 500, not just healthcare companies, but all companies in all industries have so far in 2021, beaten expectations by 87%. Let me rephrase that. 87% of the companies in the S&P 500, let’s just say almost all of them have beaten expectations. And so, what that means is that as 2020, as the dark cloud came over 2020, and we didn’t know where this was going to go, everyone’s expectations were radically shifted down. And now as 2021 comes in, we’re now in May. We say, “Okay, things actually aren’t as bad as we thought they were.” And, market, the markets are all about kind of forward-looking setting expectations. And then are we beating them? Are we meeting them or are we coming falling short? So, long answer to the question is that we are exceeding expectations, okay. There’s no question about that, however, expectations were set pretty low after COVID. Now, we are not back to where we were pre COVID on many levels. Industry-wide you know, economy-wide employment, all of these things. I mean, we’re not there yet, but we’re getting back. And where do I think the recovery is in 2021? Just looking at our own company, we were pretty much back from a census standpoint, meaning occupancy. We’re pretty much back now to where we were right before COVID. Our company has some communities that are being leased up. They were just delivered. We have other ones that have been sold. So, it’s not exactly apples to apples, but if you were to just take, we have 11 communities in the New York metropolitan area. We had 11 communities there, a year ago. And that little petri dish. I mean, we forget in the summer of 2020, the New York Metro area of Westchester County, Northern New Jersey, the five boroughs of New York and Connecticut and South Eastern Southwestern, Connecticut. Those areas got hit really hard and we got hit really hard. But now we’re back, we’re filling them back up. And so, I think 2021 is a pivotal year. And nobody can predict these things exactly. But I figure as long as we don’t have new variants or some other, you know, shocks to the system, by 2022, we should be back to something that looks like pre-pandemic levels.
Hanh:
Great. Thank you so much.
Hanh:
Now, given all the changes to the workplace and the market from COVID everyone’s jobs seem to be shifting. Has your day-to-day work at Capital Senior Housing changed since October?
Michael:
It has, actually. One of the things that’s emerged and it’s a good segue into some of the things I want to talk about here in a minute. One of the things emerged is that the story industry-wide for 2020, was the success of 55-plus active living relative to two assisted living memory care and relative to bundled independent living. On the last podcast, I drew the distinction, independent living means you’re paying one rent and that rent includes food, housekeeping, transportation. Active living, it’s one rent, none of that’s included. It’s just a senior and, and because that’s not included the price point’s lower and, we talked to him about that. And people can listen in on that one. But what emerged is that in 2020 assisted living memory care and even independent living, they got really hit hard during the pandemic. You have a sicker, frailer, older community of residents who did unfortunately get sick. Many of them, died. There were problems with the delivery of health care. We, we forget pre pandemic, the caregivers didn’t even wear gloves and masks when they were delivering care. I mean. It was just a different world. So, what folks learned is that as if you were to see a spreadsheet of every community in our company or across the nation, very few of them are 55-plus purpose-built. Many of them are assisted living memory care. 55-plus purpose-built active living, active adult, senior apartments, all the same thing held up much better. And it fared better primarily because the people who lived there were not as sick and not as old and so healthier, younger population. I’m talking now from a investment perspective, not from a health perspective, but we didn’t have a lot of cases and deaths in our 55-plus communities. And we had a lot of misses did living memory care. So, it’s perceived as a safer place to go and certainly a healthier constituent that goes into a 55-plus relative to the others. So, that’s really, that was the story of of 2020 was the predominance and prevalence of, and success of the 55-plus community.
Hanh:
True. True. Now, as I mentioned in the intro, you work on Capitol Senior Housing’s Active Living Platform. So, can you tell us more what an Active Living Platform is and what demographics it caters to?
Michael:
Yes. Thank you. That’s a good a good segue. So, um, I think I also mentioned on the last one you have a spectrum of of healthcare needs. Typically beginning with “I can no longer let’s say drive.”, or “I can no longer just to keep it real simple. I could no longer clean my house. I can no longer cook my own meals.” You and I are probably, roughly the same age. We have parents, parents that are older. Maybe pandemic happens. I know I, I was able to see my mother for the first time in awhile and, things change over a year. And as you get older needs change gradually as opposed to needs changing immediately. And so, the idea here. Is rather than having a senior, have to make a big life decision and to choose an all or none approach. And move into, for example, an independent living facility. An independent living facility has food, housekeeping, transportation. That’s all bundled in. Mom can no longer drive. She can no longer cook for herself. She can no longer vacuum and clean up the apartment, or the house. If that decision, all or none, you would have to pay a lot more money and get into an independent living, maybe a little bit before you really have the needs. The idea with active adult is giving the power of choice back to the resident. And it allows that resident to slowly and gradually choose the things that they need and spend the money on the things that they need as they need them. Maybe it’s maybe they need help shopping. The beauty is that we have the phone Instacart, Amazon. Maybe they need help going to the doctor or go to the grocery store. We have Uber. There’s Task Rabbit, which is an app that helps you get your apartment cleaned or hang a picture or whatever it is. And there are there, there are ways rather than having it all paid in. The average independent living rent in America is $4,000. The average active adult rent in America is probably $2,000. So, it’s a 50% savings. You’re not getting anything bundled in with that. But the beauty of active living and why I’m passionate about it is the addressable market, which is a fancy way of saying the number of people in America that can afford $2,000 is a lot more than the number of people in America that can afford $4,000. And of course it goes without saying that $4,000 independent living, then above that you have assisted living memory care and skilled nursing. There’s a pyramid out there only a certain percentage of Americans can afford four thousand, five thousand, six thousand dollars a month. The idea with active adult is let’s find an affordable, attractive value-driven product. It is an entry level product for folks who are not yet frail enough to need the higher levels of care. And we think it’s a big part of the solution within the industry for the next decades to come.
Hanh:
Entry-level with an emphasis in socialization too, right?
Michael:
Yes. Thank you. Yes. So, what does differentiate it? You’re in a community of like-minded people. You’re at the same stage in your life with others that are going through the same thing, dealing with children and grandchildren and spouses that are passing away. And, the idea is now that everyone has left the home, “Let’s find a way for mom or dad to remain social and to live with other people, so that they can hang out and do activities and hobbies and all of those good things.” And, to be honest with you, a big part of, the S the safety and security and wellbeing of having somebody living in one of our communities is that there’s accountability. They have friends around them and as adult children, I want to know, someone’s checking up on mom and that, they’ve got friends and they’ve got things to do during the day. So, really, 55-plus is a, uh, the idea is on a very superficial level it’s shelter and activities. But really more importantly, as you mentioned, rightly it’s a way of socializing and making sure that they have things to do, and then people to do those things with.
Hanh:
Yeah, no, I liked that part. That philosophy. I’m 55. I’m not ready to move into one, but I appreciate it. I would definitely consider it. So, to the average person over 55 might still seem like a young age, maybe 10 years left in the workforce, for example. So, why do you set the lower age bracket so low for these communities?
Michael:
Let me comment on that because you and I are about the same age. And I know it’s a question That might be coming up. So this idea of 55-plus, okay. I’m 53 or 55. So, this idea of 55-plus is, it’s not real. It’s not the target. And very few people still in their fifties that live in 55-plus communities. The average age is 72. Let me explain something. It’s important for folks to understand who are interested in this. It’s a little bit technical, but I’ll explain it anyway. So, in America it is illegal to age discriminate within housing. So, what does that mean? Simple example would be. “We don’t want any old people, living in our apartment building. So, no one over 40 can live in our apartment building.” That’s illegal. It’s age discrimination. It’s really honestly, no different than we don’t want any, people of color are living in our building. You just can’t do it. So, in the same way, there, the seniors said “What if we wanted a community where no one under X years could live in our community?” That would be age discrimination too. So, they created a law it’s called HOPA Housing for Older Persons Act. And what HOPA means is that when I go to get my zoning and permitting for my property, that I’m building, I can have that land designated as for 55 and older only, and it’s a legal reason. And it allows us to build the property that we want to build on that piece of land and that the County or the state can allow us essentially to age discriminate. And 55 was an arbitrary number that they chose. You don’t want it to be, too high up and you don’t want it to be too low. There might be very normally a 65 year old with a 55 year old wife or husband. So, you don’t want to just say “65” and then “I can’t bring my wife with me as I get older?” So, that’s why that 55 was chosen. But the reality is that, and then it stuck and now people just call it 55-plus. The reality is it’s 72 and many of our communities have 80, 90 year olds, yeah. We CSH and the industry, we didn’t choose that 55 as the age. That was chosen for us by this law. And it is, it happens to be the age that was arbitrarily set in the 1990s to allow age discrimination to say, “Look, no one under 55 can live here.” And a there’s a good reason for that, which is older people, while they love their grandchildren and children, but they don’t necessarily love your grandchildren. In other words, it’s fine to have them all there, but if I want to go to the gym or go to the pool, I’d want to know there’s not going to be a ton of noise or whatever. And so, you want to be around other people like you. It’s very, it’s a very natural, normal, human thing to want to be around other people that are in the same stage in life.
Hanh:
Very True.
Hanh:
Now, I also mentioned in the intro that you develop what you call New Assets that are uniquely tailored to this community. So, what considerations do you take into account when developing assets for this demographic group that you might not see in other senior living communities?
Michael:
This is a a constantly moving question. As we improve our prototype, we have two under construction, two in development. We’re always thinking about ways to make a building better. So, as of right now, May, 2021, the idea here is to make the units a little bit smaller than the last version. We want to keep the resident happy inside their unit, but we would rather have them spending more time out in the community. And so, we’ve enlarged the clubhouse a little bit. We’ve added more amenities inside the courtyard. Our basic building is an O shaped building. I wasn’t prepared to do this, but you know.
Hanh:
That’s okay. That’s all right.
Michael:
The courtyard of the building, we want it to be resort style. It’s a four story building. It is it has about 7,000 square feet inside. And this is the look of it. So. This right here is the clubhouse of the building. 7,000 square foot clubhouse is a decent size. You walk in, and different than an assisted living, a memory care assisted living memory care you might have 80 units, 90 units. We have 180 units. So, it’s much, much larger than an assisted living memory care. That’s number one, number two in assisted living memory care has a lot of employees. There’s an entire caregiving staff, nurses, that kind of thing. There’s housekeepers, there’s an entire commercial kitchen with a waiter and chefs and all of that. So, it’s a much easier building. There’s fewer people working there. The clubhoue has a sports bar. It has a fitness center. It has a game room, a theater. There’s a little leasing operation, a post office. And then the idea is let’s get people interacting with each other. And we have what we call a great room right in the middle. And the concept I have, I live in Atlanta, so, I’m a Delta Airlines fan. If you’re ever fortunate enough to go into a Sky Club, other airlines have their their clubs at the airport. It, the feel and vibe is that it’s like some people are having coffee. Some people are getting drinks. Some people are at a big communal table. Some people are in a in a, like a cube doing work. And some of the tabletop are cocktail height, and some of the tabletops are low, but it’s all in one big room. TV’s everywhere. Just lots of activities. And as opposed to having a bunch of smaller rooms, we like to have one large room where everyone can see everyone else. And it is a beautiful thing to see when you walk in and there’s a vibrant clubhouse. There’s mom reading the paper and then there’s dad watching the Golf Channel. And then there’s, dad’s best friend, maybe on the laptop over in a cube and folks walking in and out. And it’s just great. And so, really the clubhouse is a main difference between a conventional multi-family assisted living. And also I would say the size of the unit, has gotten a little bit smaller, but in a good way.
Hanh:
So, more emphasis in the different components that would encourage for activities, engagement connecting with your other residents. And encourage families to come, and grandkids to come.
Michael:
Exactly. Exactly. Yeah. Some of them have little wine nooks. There’s some private, we have a couple that have private. It’s not really a dining area, but yeah, it’s an area with a table that if you wanted to have, let’s say 10 people to have a little dinner party, you could do that inside the club house, maybe 12 people. Yeah.
Hanh:
Great. Boy, I tell you if you’re blessed enough to be in a community like that, even though the rooms might be small, but the goal is not to be in your room because you are in an active living, right? Active apartment. So, everything that you’re doing is centered around encouraging people to be out of the room and engaged. So, that’s great. That’s great. All right.
Michael:
Right. It’s a tricky, it’s a tricky thing because especially if someone’s moving from their home, Maybe be 3,000 or 4,000 square foot home. And then it’s all of a sudden, they’re in this tiny apartment. It’s “Where am I going to put my dining room table?” There’s no dining room in your room, so you don’t need the dining room table. It’s a tricky conversation to have with some people. But yes, that is the idea.
Hanh:
Yeah, I think when you say tricky, that’s very true. It all depends on their mindset, whether or not they want to travel light for people that want to bring everything with them, that’s a struggle. But for folks that, “You know what, it’s time. I want to go light. I want to be here and then just pick up and leave to visit or just to travel, visit grandkids, or whatever.” The word “light” comes to mind. If that is what their, shift is, that’s a perfect fit. But I know there’s folks that struggle getting rid of old stuff.
Michael:
That’s a really good, I’m going to, I’m going to use that Hanh. Travel light is a, you know. It’s, it’s so true. And our sales team, the ones responsible for leasing. This is a big thing. People walk into our communities, “Oh, I love it, but I got to sell my house and what am I going to do with all my stuff?” That’s an issue for a lot of people.
Hanh:
Yeah, but there’s benefits of minimalists and traveling light. My kids, I’m almost an empty nester. My youngest, my baby he’s 18. So, he’ll be going off to Michigan. That’s nearby. So, do I want to travel light yet? Not really. I still want to keep a lot. Will I be ready? Yeah, the time will come. It just all depends on the person’s readiness. I’m very attached. Most, I’m very attached to some of the stuff here, so yeah.
Michael:
Yeah. And you and I are still at least a decade away from even thinking about this and probably closer to two decades, to be honest with you.
Hanh:
Yeah, I hope so.
Michael:
Especially, you’re young. You’re healthy. And I am too, and it’s like, we don’t wanna, we don’t want to think about it. We love our houses and all that, but there will come a point where we’re going to have to make some decisions. We’re not there yet. But, I don’t want people, to feel like there’s a lot of stress around the decisions. Trust the people that love you. Rely on industry experts and, ask around. I’m a big fan of, yes, the Internet’s great, but I want to hear from people that I know and trust and love, who might be 10, 20 years older than me. And how did they make their decisions? Just like anything else, you need a new roof? You talk to a friend in the neighborhood who just had a new roof. And how did, how was that experience? It’s the same thing.
Hanh:
Yeah, very true. Very true.
Hanh:
So, senior housing real estate is one of the most resilient sectors to invest in. It’s a need based market, right? Which means it will always be needed regardless of what goes on with the economy, even COVID. So, this sector isn’t as affected by the employment or GNP because people need their long-term medical and health care facilities for the aging population. So, it’s not just when there are economic booms or bust. So, do you still believe senior housing is still good investment and I guess, do you see this to be true even during COVID?
Michael:
I do. And, and you, you hit on a lot of really important points. They’re all excellent points. And, if you even go one step above senior housing, and let’s just say housing, okay. Unlike office, industrial retail, hotels, all of those things are dependent upon sort of business cycles. And in the case of, in the case of a hotel or hospitality, travel and disposable income and all of that, housing is a basic need. So, before we forget about seniors. Where are you, everybody needs a place to live. There’s almost nothing within real estate that’s more important and less dependent upon the overall health of the economy, than housing, So, housing is less dependent upon the overall health. And then within housing you have, if you start with what would be hit by the cycles, my second house, my beach house, my mountain house, the things that would be like you mentioned, want base versus need-based. And then your primary residence is the most important thing. Now, as we age, there comes a point where your health becomes determinant of where you’re going to live. Let me make that very clear. There’s a study. Harvard did it went by the time you hit 85, most Americans, by the time you had 80, 85, your health care, you’re the state of your health is a, is the major determinant. “Where am I going to live? I don’t want to live in a house in Brooklyn with three-story walk up to because I can’t go to up and down stairs.” So, there comes a point, that’s 85. What happens in America is we’re retiring at 65 or 67. We’ve still got 20 years till that health becomes a determinant of. And the way I look at it as seniors housing bridges this gap in between what you do when you’re younger and you’re raising your family and all those good things. And then really, that, that last third of your life where health does become a potential to determine it. 55-plus, what I do and what I like to think is that straddles in between a conventional way of living and that health need based. And there’s almost no inventory in America. So, here’s a great thing. The demographic wave meaning the demand for active adult is enormous. There’s very little supply. And any finance dork (I.e. (me), who knows who’s looking for an opportunity. What you want is lots of new demand and very little supply. That’s a great recipe for successful investing across any real estate type.
Hanh:
Great. Thank you. I echo that. Now, how does affordability come into play when deciding where to invest?
Michael:
Good question. And the thing I’ve been thinking a lot about, because like I said we come into this world. We get educated. We choose a career and we live our life thinking we’re going to retire. And then we’re going to limp along for a little bit and then die. That’s how young people think. Now, what ends up happening in America is you get to 65, you go to the doctor and you get a physical. And the doctor says, congratulations you are healthy and all of your levels look good. Your heart is good. If you get to 65 and you’re healthy, your life expectancy is 94. So, that means you have a third of your life left. And that typically is ” I haven’t saved for a third of my life. I thought I was going to work and then I had 10 years and I was going to be gone.” So, now all of a sudden it’s a matter of just the basic economics of “My pile of money is this high. How much am I going to be able to spend. And how does it make sense to spend?” So, there’s going to come a point where “I know I need to save because as I get really sick, sicker and older, assisted living is going to be $5,000-$6,000 a month. What is a way for me to conserve my own capital and find something that’s affordable.? That’s appropriate? That allows me to live my life with dignity amongst others who are in my same life stage?” And that’s where active adult comes in. It is usually starting at $1,500 for a small one bed and goes up to $2,500 for a large two bed. For a lot of Americans, social security alone we’ll cover that. And so, it’s a matter of just basic dollars and cents. It is the entry-level seniors housing solution that many, if not, most Americans can actually afford the day that they the day that they retire.
Hanh:
Okay. Oh, I wanted to add a different angle or maybe compliment this is that. So, there’s studies including one from Nick that showed that of the 14.4 million Americans expected to make up the middle market by 2029. So, it’s projected around, let’s say 50% will not be able to afford senior housing, at least the private pay. So, we, as an industry need to create housing that seniors can afford. A large portion of the seniors will not be able to afford the product that’s private pay and higher end care. So, this means there’s going to be a need to develop affordable options. What is your thought, your role in this shift?
Michael:
Yeah. And, and the role that we have is that, you know, construction costs are rising. We as developers have a responsibility in the industry to try and figure out a way to address that exact market. Um, and you know, the, the basics of it are building for the lower cost you can build it, the lower, the rent will be for people to stay there. That’s pretty obvious cause we still need to provide a return to our investors. The other thing is that, those, the larger, the higher levels of care assisted living memory care require the chef, the nurses and all that. The idea here, it comes back to one of the things I originally said, which was rather than bundle everything in and saying, “Look, step onto our cruise ship, as we call it and pay $5,00-6,000 a month.” The idea is to keep things affordable by having people pay only as they need it. And that’s a big part of it is that, “How much can you afford?” Let’s only have you pay for those things. That you need when you need it, as opposed to bundle everything in and maybe you’re healthy enough, yeah. You’re paying for a nurse and you’re paying for health housekeeping and transportation. Maybe you don’t need that right off the bat. So that’s, it’s a combination of building it less expensively and providing the appropriate level of service and not providing more service than you need and forcing you to pay for it.
Hanh:
And also you mentioned options. I think, optionality is important for all ages, right? When we talk about older adults, that’s we, plus there’s many cohorts within older adults. But I think we all like optionalities particularly, the folks that we’re talking about because they’re very Independent. The baby boomers are decision makers. So, I think it’s great to give them those options.
Michael:
That’s right. I agree. And baby boomers are the perfect demographic wedge to be embracing this idea of optionality is another way of giving power to the people. Meaning they get to choose on their terms when they want to do what they want to do. And that is perfect for that generation.
Hanh:
Now, as you know, Corporate Giant Tech Hubs are into the senior care sector. So, older adults are now able to maintain their independence with convenient products from companies like Amazon and Best Buy and Walmart, that makes seniors take care of themselves at home, perhaps deferring the need for senior housing, whether it’s 55-plus or assisted living, okay. Um, I guess, do you see Smart Hubs the future of senior care or at least integrated into senior care?
Michael:
I don’t know a ton about it, but I’m going to give you my opinion about what I do know. I would say that in the same way, other parts of the economy have shifted and adapted to using more technology to the benefit of their customer. I think seniors will too, and our communities, absolutely. I was in one in Kansas City week before last. And in the roof of that in the roof of every unit was it looked like a smoke detector right in the middle. And I said, “What’s that?” This is a new building that had been built. And they said “That is your wifi, your cable, your access to the building, access to the building, access to your unit. It’s also your thermometer. What’s the word, your thermostat. And it also has a link to a camera on the wall, which you control, but which you could give access to a parent or a child, to check up on you. And we can allow, we can monitor whether you’re coming in and out of the room.” And I just thought this really is the future because, and then not, that’s not even to mention, wearables, like this is my Fitbit, right? And so, now if you integrate something, that’s inside the unit with something that’s inside the clubhouse with something that’s being worn and this, by the way, takes my temperature and has my heart rate. You can see where this is going. Do I think it’s gonna take over and change everything? I don’t know, time will tell. It’s certainly making life easier. And I th you know, technology is a help and a positive, but, it’s not without its downsides, privacy, and all of those things. But yeah, for the most part, I’m giving thumbs up to the idea. And I think it’s just starting. We’re at the beginning of it.
Hanh:
Great. Now, I echo that. That’s great. We had to be prepared. I think it’s overdue. I think COVID has exposed a lot of opportunities for improvement and this is one huge area that we need to leverage. So, that’s great. Why personally find it rewarding to serve the aging population?
Michael:
I think I mentioned last time, I love what I do. I love the challenge. It doesn’t feel like work everyday to me when I get up and I start thinking about, “How can we design and deliver housing to a very specific aging demographic?”. And, like I mentioned before, I have maybe not on this podcast, but certainly I have mentioned in the public. So, there’s 10,000 people turning 65 every day in America. And you do the math on that, and by the way, there’s 10,000, no 10,000 people who fought in world war II that are dying every day. And so, what’s happening is our seniors. We use the term “seniors”. Our seniors are radically changing. The olders are dying and the youngers are coming in. And so, the idea here as a professional in the industry, who’s building and developing and acquiring and renovating is “How do we create a product that better suits the needs of these individuals?” And I find that challenge to be hugely rewarding because when we are able to deliver this and you see the faces of these people, lighten up because of the service that we’ve provided, anyone would feel great about that. And I’ll tell you this vaccine and the effectiveness of it and the rollout of it now that in, in every state, you can, your children and grandchildren can come visit you an assistant, even an assistant in an area that wasn’t true 90 days ago, And so, now that there’s people that haven’t seen their kids and their grandkids in a year or more. And watching them reuniting with their family, it’s a special thing. And I don’t think a lot of people in real estate, my buddy from business school who are working on, office industrial with it, they don’t get that. We call it the second paycheck. They don’t, they may be making a lot of money, but they don’t get to see that they’re doing something positive as well.
Hanh:
Yeah, it is, it’s a, it is a business. But I, I think it’s a caring. It’s a heart type of a business. So, because you get to see folks like you described connecting with their grandchildren, and I think most of all appreciating what they have contributed to society. So, that’s great. Do you have any other thoughts that you would like to share?
Michael:
I’m just blessed and grateful to be invited on. I would just urge, of course anyone to come to our communities. But go to any community. And here’s the thing for people our age, and even seniors who are considering going in. There’s this mindset of “You’re institutionalizing me.”, it’s in their mind at somewhere between prison and, “Mom sending me away to summer camp, but I don’t want to go to summer camp.” It’s really not that. And when you go into these communities and you see what it is that we’re providing It is most likely not what you think. Nah. Nah, a lot of people have this mindset “We’re sending, we’re sending them on to a nursing home. Have you been in one”, Go book a tour and see what this is because there’s been a lot of innovation and they’re the people who work in these. They’re really our heroes providing the care, and I think you’ll change your mind if you haven’t had a chance to be in one and we’d welcome you to come into our communities or any community in your city.
Hanh:
Great. Thank you. Thank you for round two of this conversation.
Michael:
Yes. Thank you for having me.
Hanh:
Absolutely.
[…] Michael’s 2nd appearance on the show. […]