Truth be told, I am openly critical of how the REIT financing model works against the interests of residents, team members and, ultimately, the whole industry.

By Steve Moran

I am not expecting to see a Real Estate Investment Trust (REIT) as a Senior Housing Forum sponsoring partner anytime soon. Most likely because I am openly critical of how the REIT financing model works against the interests of residents, team members and, ultimately, the whole industry.

Confirming this belief, there have been a string of statements, pronouncements, and cautions from REITs about underperforming assets. I am also hearing grumbling about REITs mucking-up the lives of operators, demanding more reporting and telling them to “get their act together” as if the operators don’t care that they are struggling.

And yet . . .

  1. No one forced the operators to choose REITs to fund their projects. They did it because they, ultimately, felt the risk was worth it. Mostly because it was an easy way to extract profits or to grow much more rapidly.

  1. When REITs see organizations struggling and coverage ratios sliding, it is completely rational that they to be concerned.

  1. While at the PointClickCare Summit I had a conversation with Chuck Harry, who is the Chief of Research & Analytics for NIC, about REITs vs. Private Equity. He made the point that Private Equity’s typical hold period is often just 5-7 years, while REITs have more traditionally been in the mode of purchase and hold over the longer term. That would suggest to me that Private Equity may ultimately turn out to be more angst producing for senior living operators.

Two Kinds of Relationships

When a REIT and a senior living operator get married, regardless of the specifics of the business relationship there are just two ways for the two organizations to approach the relationship:

  1. Transactionally, which is a we-do-this and you-get-that-in-return kind of relationship. It is simple and easy as long as everything goes as good or better than everyone hopes. Both sides get what they want . . . what they bargained for.

  1. Relationally, where the underlying premise that we are in this together for a common purpose, which in the case of senior living, is to provide an amazing last-few-chapter-living experience for residents. And together, in knowing this is our common goal, we also will make some money. In other words, doing well while doing good.

The Finest Moment . . . I Hope

As we are starting to see public indications that there are individual portfolios of senior living properties that are struggling and, therefore, causing both the REITs and the Operators distress, it is impossible to know what conversations are taking place and what the spirit is behind those conversations. Yet, it feels like (with zero visibility into any discussions) that to date unhappy situations are more like a disapproving parent than a “we are in the situation together.”

The REITs are in an amazing position to perhaps completely transform the world of senior living by becoming a coach or mentor toward these struggling organizations. Going from “You Better Fix This” to “We have found a bunch of resources that will help you get better.”  

It might look like this:

  • Here are some great ways to improve how you are marketing

  • We have this culture consultant who will help your teams love coming to work each day

  • There are these sales techniques that will really help you grow occupancy

  • Here are some cool things you can do to control expenses

I can only hope this is the way it will be as the waters get pretty frothy over the next few years.