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Feasibility for Seniors’ Housing

Since 1991, Stackpole & Associates has conducted feasibility studies for senior living projects, including assisted living, independent living, active adult, nursing homes and CCRCs throughout the United States.

Market research such as assisted living feasibility studies, for example, employ a wide range of methods. A market study will determine if the demand matches the available supply of a particular type of housing or service. Is the available supply adequate for the demand for that type of housing unit or that service?

This demand and supply ratio becomes an important market characteristic to determine if a proposed project should go forward.

In this type of market study, demographics are at the heart of demand, and the available supply is carefully inventoried and reviewed. If the assisted living demand from the age, income and asset qualified individuals in the marketplace area is greater than the supply, for example, the market study would move forward to a feasibility study.

IS THE PROJECT FEASIBLE?

In a market feasibility study, the proposed project is evaluated from the economic perspective. Will the anticipated rents (or other charges) support the operating costs and provide suitable margins? This type of feasibility analysis is often done from several perspectives to carefully determine whether the income from the proposed project will support the operating costs as well as the capitalized costs of construction and lease-up.

In independent living, assisted living as well as CCRCs, the available information about market rents and charges, as well as how quickly units have historically been absorbed in the marketplace, are important factors in determining overall market feasibility. How quickly new units have been absorbed in a marketplace area is of particular interest, and a good feasibility study will include past and predicted absorption rates.

For assisted living, independent living and CCRCs, as well as nursing homes, conducting thorough market feasibility studies helps determine likelihood of success, as well as the best way to configure the proposed project in terms of number of units, services to be provided, how best to promote, advertise and sell services to prospective customers and consumers.

MARKETING FOR SUCCESS

Marketing and sales issues are examined several ways, including focus groups, on-line, telephone and in-person surveys, conjoint research (“trade-off design” or “multi-dimensional scaling”) and interviews with opinion leaders and referral sources in the marketplace area.

In the aftermath of the COVID-19 pandemic, many of the assumptions about consumer attitudes and behaviors need to be re-examined.

MISSING THE MARK ON FEASIBILITY STUDIES

Factors of age, acceptance & health should not be overlooked.

Successful congregate seniors housing is developed at the intersections of age, acceptance and health of the consumers. A thoughtful understanding of these three factors is at the heart of market analysis & feasibility studies.

While a good market analysis and feasibility study does not ensure good occupancy, poor research may lead to years of very expensive, negative consequences.

DEMOGRAPHICS ARE LIKE GRAVITY

Occupancy in seniors housing is driven by the demographics of age. The size of the aged cohorts is critical, since increasing age is positively correlated with acceptance of congregate seniors housing as a solution.

The average age of relocation to an independent living community is 84, and to an assisted living residence is 86. Too often, however, demographic data presented in market analysis focuses on the 65+ or 75+ cohorts.

A  feasibility study based on the wrong target age segments will be built on erroneous assumptions.

The “birth dearth” or demographic dip of live births in the US from 1925 to 1945 is now playing out as a decrease in age qualified consumers / customers in many marketplace areas.

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Only recently have commentators begun to suggest demographics as a way of explaining poor occupancy and penetration rates in seniors’ housing.

If occupancy or lease-ups have not met expectations, a careful review of the demographic data may explain the problem.

ACCEPTANCE: AIMING AT THE RIGHT TARGET

Targeting the correct demographic age group is critical to success.

Because of the rapid increase in live births after World War II, from 1946 through 1964, great interest has been focused on these leading-edge Baby Boomers. Ken Dychtwald in his 1988 landmark book “The Age Wave” helped rivet public media and business attention on the potential of this market.

Baby Boomers are far from a monolithic market, and the oldest among them are only 75 years of age. While some of these leading-edge Baby Boomer consumers may be inclined to relocate to independent living, acceptance appears to be low except for selected marketplace areas in retirement destinations like Florida, Arizona, Texas and the Carolinas.

Unlike the 85-and-older cohort among whom chronic disease, mobility and cognitive impairments prompt awareness of, and appetite for lifestyle change, many of the young-old, leading-edge Boomers resist the perceived surrender implied by a “retirement community”.

Penetration rates vary from 5 to over 20 percent from one location to another, as well as by ethnicity, socioeconomic status and health.

BEWARE THE DEMOGRAPHIC DIP

The most widespread error among market analysis and feasibility studies is the failure to adjust for the decline in live births which occurred between 1925 in 1945, the “Demographic Dip.” Because of the Great Depression and the Dustbowl, the rate of live births in the US dropped significantly starting in 1925, reaching a low point in 1935 and 1936.

The impact of the Demographic Dip on seniors housing translates into a drop in the number of potential clients over age 85 today, and there is about a ten-year lag before the leading edge of the baby boomers reaches this key age where demand for services is likely to increase

Longevity increases have compensated somewhat for the Demographic Dip. While live births declined from 1925 to 1935, people born during that period are enjoying longer lifespans. Average life expectancy for this cohort increased about six years (a 10 percent increase). These increases in survival are not enough to compensate for the dramatic decline of over 750,000 live births in the target 85-and-older age cohort (a 25 percent decrease).

DEMOGRAPHICS ARE LOCAL

Local circumstances often result in significant differences between and among marketplace areas.

For example, some areas were more affected by the Great Depression and/or the Dustbowl than others. Dramatic decreases can sometimes be measured, while in other locations the declines are hardly noticeable.

Mobility and migration also play an important role in local demographics. Over the past 30 years there has been migration of older adults from the north to the south (Florida, Arizona and Texas, for example) with corresponding losses of population from the source marketplace areas.

As a result of the pandemic, these migratory patterns are changing; densely populated cities such as New York are experiencing population loss while Florida and Georgia have increasing populations. These more recent changes are localized, requiring careful consideration during the post-pandemic timeframe.

SUPPLY SURGES

The entire supply of age-qualified congregate seniors housing and care must be inventoried in an effective market analysis and feasibility study. Potential competitors include skilled care, board & care, rehabilitation centers, as well as independent living and assisted living.

An accurate picture of the local demand / supply dynamic requires this rigorous inventory. There has been an increasing supply of purpose-built seniors housing, even during the pandemic.

While inventory was increasing steadily from 2011, demographics were headed in the opposite direction, as demand based on demographics decreased.

As an individual’s health declines over time and the burden of chronic disease grows, acceptance of congregate seniors housing as a solution increases significantly. Among the 65- to 74-year-old cohort, 6 percent report relocating for health reasons; among the 75+ cohort, this proportion swells to 26%.

Estimating demand for seniors housing requires a carefully stratified analysis of the aged cohorts, applying epidemiological metrics to each age tier. This is particularly important when measuring anticipated or existing demand for services of those with cognitive impairments.

Alzheimer’s disease and related disorders, as well as cognitive impairments which are not dementias (CIND), have well known epidemiology. The popular media, encouraged by special interest groups, have published hyperbolic exaggerations about these disorders.  A thoughtful analysis can reveal the true underlying “market” to add valuable, predictive accuracy to the market analysis.

WHAT’S NEXT?

In ~2032, the leading-edge Baby Boomers will enter the time of their lives when congregate seniors’ housing  becomes more top-of-mind. It is unlikely that their preferences will be similar to those of the Silent Generation who are now entering seniors housing. The coronavirus pandemic has had an  impact on seniors’ housing and care.

Because a disproportionate number of COVID-19 related deaths occurred to those in nursing homes, consumers’ attitudes have been deeply affected.  Nursing homes were the target of the negative  media coverage, while assisted living and independent living seem to escape much of the critical glare. These impacts and the attitudes affected must be carefully analyzed in terms of consumer preferences.

The intersection of age, acceptance and health is at the heart of good market analysis & feasibility study.

Too many operations struggle with occupancy challenges because expectations weren’t correctly laid out, and while a good market analysis and feasibility study does not ensure good occupancy,  poor ones have led to very expensive, negative outcomes. Contact Stackpole & Associates at www.StackpoleAssociates.com or send an email to contactus@stackpoleassociates.com for a rigorous market analysis and feasibility study.

Irving Stackpole

consulting solutions

With decades of experience, Irving Stackpole is the President of Stackpole & Associates, Inc., a marketing, research, and sales training firm. Founded in 1991, Stackpole & Associates applies scientific marketing principles to develop practical solutions to clients’ challenges. Stackpole & Associates works collaboratively with clients to create innovative and practical solutions to the challenges facing organizations in the rapidly changing long-term care markets.

“We measurably improve relationships among providers, consumers and intermediaries in seniors’ housing and care.”

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Stackpole & Associates is a marketing, research & strategy consulting firm focused on healthcare and seniors’ services markets. Irving can be reached directly at istackpole@stackpoleassociates.com.

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