By Jack Cumming
More and more communities are transitioning from not-for-profit ownership to for-profit. For some providers and their residents that may seem like a bad thing. Of course, it can be adverse if resident-centric governance is superseded by mercenary greed. But that doesn’t have to be the case. Many for-profits are principled and could be said to be run on what we might call nonprofit principles.
Nonprofit-to-For-Profit Conversion
The potential for conversions was evident in the September announcement of the sale of a nonprofit in Gainesville, Florida, to a for-profit operator. The announcement to the residents was reported in an article in the local press. That public exposure alone makes it interesting since such changes are often carried out in a way to avoid publicity. As you might expect, the gist of the presentation was to reassure the residents.
According to the report, the community, operating as The Village at Gainesville, is owned by a nonprofit, SantaFe Healthcare. In July, an agreement was reached for SantaFe to sell the Village to Fortress Investment Group, a for-profit enterprise. This will shift the Village from not-for-profit to for-profit operation.
Ziegler estimates that since 2015, over 400 not-for-profit communities that changed ownership have been acquired by for-profits. Fortress is best known for the recent acquisition of the Red Lobster restaurant chain. Fortress is 68% owned by Mubadala Capital, based in Abu Dhabi.
Will Conversion Become a Trend?
Unlike many such cases in which a not-for-profit community is sold to a for-profit, the Village does not appear to have financial challenges. In this case, SantaFe’s board made a strategic decision to divest all operations. When asked how the change to for-profit will affect residents, a Fortress managing director said that the Village’s financial margin was a sign of a well-run community. Fortress plans to keep the same managers in place.
This development may reflect a trend as more and more entities rethink their strategic direction and what is best for their future. Some years ago, for instance, Stamford Hospital in Stamford, Connecticut, sold its not-for-profit CCRC, Edgehill, to for-profit Benchmark Senior Living.
The price in 2011 was $68.7 million, and some residents felt that their financial security in Edgehill was weakened in the process. Nevertheless, now, 13 years later, everything seems to have worked out for all parties. Although the details of the conversion process from not-for-profit to for-profit can be complex, the impact from the residents’ perspective is generally noneventful.
Putting People Before Profit
Many who work or live in nonprofit CCRCs like the absence of pressure to optimize efficiency and to work with the leanest staff possible. Well-managed for-profits can offer residents a strong value proposition and other advantages, including the potential for resident share ownership.
Putting people before profit is good business, whether in a not-for-profit or for-profit world. We saw that with Amazon in its early years. Jeff Bezos put customer value before all else even as Wall Street hollered for profit. The result was that customers flocked to Amazon, and with size came more profit than the narrow thinking of Wall Street could ever have imagined.
Unfortunately, the Hollywood coinage that “greed, for lack of a better word, is good” has caught on with too many executives, and travesties of trust and stewardship have become common in many boardrooms. That doesn’t have to be, and the notion that the purpose of business is profit is a false aphorism. The purpose of business is to meet human needs. Profit is a necessary, but not sufficient, characteristic for business success.
Because nonprofits are associated with charitable purposes, they often enjoy trust and community support. CCRCs, however, because they alleviate “other forms” of strain beyond financial needs — what the IRS has referred (PDF) to as “the distress of old age” — can have tax exemption and charitable status even if they are run as for-profit businesses. Still, that not-for-profit “advantage” leads to financing challenges and may force the business to treat resident contractual payments as though they were equity risk investments.
For-Profit Advantages
With The Village at Gainesville, if and when Fortress completes its ownership offer, it plans a community expansion, which is easier to accomplish with for-profit financing. That can be a huge advantage, and there are other ownership options that can make residence attractive, thus giving for-profits a potential market advantage with solid brand publicity.
Many for-profit senior-serving corporations commit to and practice what we might call “nonprofit principles.” Conversely, some not-for-profits prioritize ownership control and financial strength. The difference is not as sharp as public perception has been led to believe.
Conversions from not-for-profit to for-profit, like that of The Village at Gainesville, may become a wave at some point in the near future, though that possibility is not yet evident. Many formerly mutual insurance companies went through a wave of similar conversions about 25 years ago, with Metropolitan, Prudential, and Equitable all transforming to stock ownership, while some old-line companies like New York Life remain mutual.
There are many advantages to such a transformation, and just as the biggest insurers were once mutuals, many of the biggest senior housing providers are now still not-for-profit. A similar change seems probable, and it has the potential to strengthen the industry. When it will come about is hard to foresee.