A change in leadership last July at Charlton-based Masonic Health System of Massachusetts, d.b.a. Overlook, signaled that even the most well-established senior housing development is vulnerable to market forces. Longtime President and CEO David C. Turner submitted his resignation to the board of directors last July; he’d served in that post since 1999.
Tameryn A. Campbell, a 20-year industry veteran who most recently had led the nonprofit, faith-based Presbyterian Retirement Communities Northwest in Seattle, Washington, was selected by MHS’s board of directors to take the helm. As the economy improves, Campbell said, she expects Overlook’s prospects to follow.
Last May, the board of directors launched a strategic review of all operations and established a budgetary process that would support what Campbell termed the “right-sizing” of the organization’s operations. Late last year, MHS sold Overlook in Northampton to Farmington, Conn.-based Athena Healthcare Systems LLC. It is also in the process of laying off a projected 10 percent of its Charlton campus staff.
Athena President and founder Lawrence Santilli said that Athena welcomes residents and the 190 employees of the Northampton site, which it has renamed Highview of Northampton. He said the firm is currently exploring the possibility of adding specialty units to meet the needs of current residents and the Northampton community. The company indicated that staff will be retained.
For the past two most recently completed fiscal years, Overlook, named for its high-ground scenic setting in hilly Charlton, had been facing the dual dynamic of declining occupancy and the increased cost of capital. It was most adversely impacted the failure and subsequent bankruptcy of The Groves in Lincoln, an over-55 community, which it sold in 2012 to a subsidiary of Wellesley, Mass.-based Benchmark Senior Living.
The Worcester Telegram and Gazette reported last year that the nonprofit MHS of Massachusetts had drawn on the Masonic Education and Charity Trust for $15.6 million in fiscal 2012 and $14.5 million in fiscal 2013, to stanch budgetary deficits largely caused by the failure of the Groves at Lincoln. This year, the board decided that it would no longer rely on contributions from the trust to balance its budget.
As Goes Real Estate, So Goes The Senior Care Market
Senior living communities have changed the state and national landscape since the 1980s as offering wider choices for seniors planning for their health-care future. They feature multi-unit living facilities with eye appeal and amenities – often linked to a continuing-care service that provides increasing levels of service as residents’ medical needs increase. Overlook offers a life care model providing residents with a predictable cost of increased health services over time. Some pay with home sale proceeds, others from savings, said Campbell; as with similar facilities, the one-time entry fee is almost always funded by sale of the prospect’s primary home.
When home prices declined, so did senior community occupancies. At The Groves at Lincoln, many prospects canceled contracts they already had. Now, with the real estate market improving, similar communities are experiencing a rebound in occupancy, Campbell told Banker & Tradesman. Additionally, she noted, “The rebound may also be coming from older prospects who delayed moving when home prices fell and who are now concerned about the need to lock in a service and health care package as they age. In this respect, the rebound may be fueled in part by prospects that are somewhat need-driven.”
Senior living communities, particularly continuing care retirement communities such as The Overlook, target relatively younger and healthier elders who have more choices for their future care than candidates for assisted living facilities or nursing homes.
When the market dips, Campbell said, even those in affluent communities such as Lincoln, though not as profoundly affected by housing price declines, may decide to delay home sales and entry into the community until home prices recover, in the expectation that as in any investment, the value would rise over time.
Always A Place At The Table For Nonprofits
In July 2009, when MHS acquired The Overlook at Northampton, the original vision was to replace the existing nursing facility with the small-house model, an innovative alternative to the traditional nursing home in its design, staffing and delivery of care. “The economic downturn made the cost of capital prohibitive,” Campbell said; the MHS board of directors decided to sell the Northampton facility because available resources couldn’t support both that campus’ long-term needs and the other needs of the organization. Even more importantly, the board of directors reaffirmed its core mission and refocused its strategic efforts on its flagship campus in Charlton.
In recent years, real estate investment trusts (REITs) venturing into the senior care market have targeted mostly private-pay facilities, and many serve as landlords to health care systems, rather than as direct care providers. Also, REITs must pay 90 percent of taxable income as dividends to shareholders, and must issue equity and debt. Therefore, they’re particularly sensitive to increases in interest rates.
Will the for-profit REITs advance into territories in which that nonprofit organizations have long prevailed?
Campbell thinks there will always be a place in the market for nonprofit entrance fee retirement communities. “Many of the REITS are interested in rental assisted living and memory care communities,” she said, and with the economy recovering from 2009 levels, she expects many entrance fee communities, including The Overlook, will experience high occupancy levels once again.
She also noted that nonprofits return all gains to the organization to better serve their residents.
Campbell said that as MHS returns its focus to The Overlook at Charlton campus the company is implementing new internal controls intended to reduce unnecessary expenses. It has developed and implemented a new comprehensive marketing plan and strategy to increase occupancy substantially over the next two years. MHS has joined a large group purchasing program, has consolidated its campus-wide food services program and other departments, has launched an employee cost-savings incentive program, and is taking additional measures to eliminate waste, improve efficiencies and effectiveness, without compromising quality, she reports. “We are confident and are already seeing evidence that the steps that are being taken will help us to maintain the high quality of care and services for which MHS is known,” she said.
