13 Takeaways from the NIC Fall Conference 2017

The fall conference of the National Investment Center for Seniors Housing & Care Properties (NIC) got underway this week in Chicago, with major topics of discussion ranging from healthcare legislation to tax reform to the increasing use of robotics in seniors care overseas. Here are some takeaways from Wednesday’s conference sessions:

1. Speaking the morning before the details of President Trump’s tax reform plan were revealed, Lawrence H. Summers, the Secretary of the U.S. Treasury under the Clinton Administration, made a bet with Newt Gingrich, the former Speaker of the U.S. House of Representatives, that no tax reform legislation will pass before the end of the year. “The word ‘blueprint’ is interesting,” Summers said referring to Republicans’ tax reform plan. “A blueprint is something that’s laid down in detail. We are not going to see anything like that today. You will see ‘I want to change this provision [and that provision]’ with no detail on how it adds up. The Republicans don’t have numerical solutions.”
2. Gingrich said he was optimistic the president will be able to reduce the corporate tax rate to 20 percent from the current 35 percent. He put the odds of tax reform legislation passing before the end of the year at 80 percent.
3. Touching on the efforts to repeal Obamacare, Summers noted that the Affordable Care Act (ACA) was built on a conservative approach to providing universal health coverage rather than the more socialist models in effect in countries like Great Britain and Canada. As a result, the current debate about reforming healthcare “cannot be about taking [Obamacare] to the right.” Summers conceded he would like to see updates to the legislation—for example, putting measures in place that would prevent healthy people from disregarding the health insurance mandate and opting for the tax penalty instead. “But the basic architecture of mandate plus subsidy plus company protection is the centrist route,” he said.
4. Summers also criticized the Republican leadership for trying to pass healthcare legislation in too much of a hurry, without considering the consequences. “When we’ve got people who want to remake 18 percent of the economy without wanting to wait for an analysis, it’s not going to work,” he said.
5. Gingrich, for his part, put the odds of the current Congress passing some form of healthcare legislation at 50/50.
6. Talking about the stratification of seniors housing residents, Gingrich notes that in the next several decades, up to 30 percent of U.S. seniors might face some challenges paying for stays at seniors care facilities using their existing resources and another 30 percent will likely need financial assistance from the government.
7. Gingrich also argued that in the long-term, the U.S. seniors housing industry can avoid the labor shortage many fear will be brought on by immigration reform by recruiting native-born workers. He also, noted, however, that robotics will become more and more important in performing a lot of the functions currently provided by seniors housing staff, based on trends in Japan and in other developed country. Ultimately, “Waiting around for the U.S. Congress to send [immigrant] workers to you with green cards is a relatively weak human resources policy,” he joked.
8. The trend of robots and other emerging technologies replacing human staff was echoed at a later session by Paul Irving, chairman of the Milken Institute Center for the Future of Aging, a non-profit, non-partisan think tank. That trend will help an aging population stay in their homes longer rather than relocating to seniors care properties, a transition many baby boomers would like to avoid anyway. However, Irving advised the seniors housing industry not to compete with the robots on the technology front. What seniors housing properties can offer instead is the ability to fulfill human needs for “connection, empathy and engagement.” “Social isolation might be the greatest health risk of all to older adults. And you have communities, you have campuses, you can provide purpose. Having that physical space to be is powerful competition,” Irving told the audience. He offered examples of seniors housing properties that allowed residents to spend regular time with children in foster care or placed seniors in the same properties as aspiring musicians as the types of communities that can be successful in tomorrow’s world.
9. Irving also advised against taking a “one size fits all” approach to seniors care. He noted that different seniors have different interests and the current property offerings don’t take into account most of the time, either focusing only on the physical comforts and care or playing up the “active, fun” angle of a retirement community. “Variations need to exist in the future of seniors housing options,” he noted, so that older people contemplating a move to a retirement community will be as excited about it as college students moving into a dorm.
10. Irving also commented on the “branding” of seniors housing properties as such. Research has shown that older people tend to hate the word “senior,” he noted.
11. Both Irving and panelists participating in a discussion of skilled nursing facilities stressed that operational excellence at seniors housing properties is becoming more important than the real estate itself. “There are some headwinds in certain markets, but generally speaking, good operators are doing well,” said Rick Matros, chairman, CEO and president of Sabra Health Care REIT. “We are looking for strong clinical programs and things like that. We’ve bypassed doing deals on an asset when we felt the operator didn’t have the right mentality.”
12. To that end, Matros added that the savviest, most nimble seniors housing operators in today’s world tend to be regional companies who know their local markets and have their best teams on-site at the properties. “You need the ability to be responsive,” to what’s happening at each facility in real time, he noted. Large national companies are often several levels of operation removed from their properties, while smaller mom-and-pop shops rely too much on Medicaid funds, he added.
13. The good news is that skilled nursing facilities investors are currently better protected from market headwinds than the rest of the seniors housing sector. That’s because skilled nursing facilities tend to be very expensive to build and are essentially a sub-type of medical facilities, as opposed to independent living properties, demand for which is more choice-based. “It costs upward of $500,000 per unit to build a skilled nursing facility from the ground-up right now,” said Jaquelyn Kung, principal of Atruya LLC, a consulting and advisory firm that focuses on seniors care properties. “So why build when you can upgrade at a much lower cost?”