When Stealers Wheel lamented being “stuck in the middle with you” in their 1972 song of the same name, they were assuredly not intending to sing from the perspective of a senior searching for a place of residence. Nevertheless, the lyric could today very aptly be applied to the predicament that many potential seniors housing residents face.
According to the National Investment Center for Seniors Housing & Care (NIC), the number of middle-income seniors in the United States is projected to almost double by 2029, totaling roughly 14 million seniors. NIC also purports that more than half of these individuals will not have the financial means to pay for seniors housing out of pocket. NIC defines middle-income seniors as those with $25,001 to $74,298 in annual income and assets in its executive summary on the topic of the “forgotten middle,” which was published in 2019.
At the same time, many of these same seniors do not qualify for residence in affordable housing units. “These are older adults — lots of older adults — who don’t qualify for affordable housing but also can’t afford the cost of many private-pay options,” explains John Cochrane, president and CEO of HumanGood, a nonprofit that owns and operates affordable senior living communities.
“It’s a complex and diverse group. There’s no one-size-fits-all solution. At the same time, the need for truly affordable housing is still immense; many of our communities have waitlists that stretch for years.”
Now, in the face of the silver tsunami and affordability challenges, the seniors housing industry is being forced to confront the growing need for middle-market properties and units.
Lisa McCracken, head of research & analytics at NIC, says that there have been great strides made in researching and reporting on the so-called “forgotten middle” since NIC first addressed the phenomenon in 2018.
“Awareness is much greater,” she asserts. Nevertheless, McCracken says that “we still are not at a point where we have large scalable, replicable solutions around this space.”
While the industry at large may have yet to produce a blueprint for serving middle-income seniors, there are several owners, operators and developers testing the waters of delivering communities for the underserved middle market.
Rents Rise Beyond Reach
Some might be surprised at the breadth of the forgotten middle and also that a crisis of housing affordability like this could exist for such a swath of the senior population, which is now primarily comprised of the boomer generation.
A 2022 survey of consumer finances by the Federal Reserve Bank of St. Louis that evaluated median net worth by generation confirms that the boomer generation is the wealthiest.
That does not mean, though, that the wealth is evenly distributed. Nor do all individuals and households have equal access to seniors housing options.
Bill Pettit, principal partner at Black Dog Capital Advisors — a Seattle-based firm that provides consulting, development and asset management services — points out that only a small fraction of seniors currently avail themselves of seniors housing options.
“The current model only serves between 12 and 15 percent of U.S. seniors,” he points out. “The rest choose to move in with family or try to make it on their own. Many are forced into that choice because they cannot afford to live for several years at today’s rents.”
As McCracken points out, demographic shifts are also diminishing the availability of family care options, as today’s seniors have fewer adult children than their predecessors, making seniors housing options even more crucial. “Whether you’re a wealthy baby boomer or a middle-income or low-income individual, the unpaid family caregiver to provide support is going to be less likely to be there,” explains McCracken.
Fewer adult children can also translate to less financial support for aging individuals. “We do know that adult children sometimes help with finances and contribute, so the fact that there are fewer children will inevitably have some type of impact on that,” adds McCracken.
According to CareScout.com, the median monthly rental rate for an assisted living community in the U.S. in 2024 was $5,900. The median monthly rate for a private room in a skilled nursing facility was $10,646. (CareScout LLC is a wholly owned subsidiary of Genworth Financial Inc.)
Today’s rents, of course, do not exist in a vacuum. Senior living properties are an inherently expensive venture, both in their development and operation, and developers and owners are increasingly plagued by economic headwinds.
“The buildings are expensive to build, and they require large staff teams to operate,” notes Pettit. “Operating expenses drive how much the operators must charge to deliver the services and to support the capital required to build and maintain these buildings.”
Therefore, providing senior living options for middle-income seniors requires contending with these higher costs without recouping them in the form of elevated rents.
Economic headwinds such as the cost of development and labor are depressing construction rates across the board but have an outsized negative impact on the supply of middle-market seniors housing in particular.
“The pipeline is robust, but we won’t see much in the way of new supply until conditions improve,” says Pettit of senior living development. “The middle-market segment will bear the brunt of the burden since it has the least amount of existing supply.”
“We have a lot of headwinds, and we’ve got low construction,” echoes Pilar Carvajal, founder and CEO of Innovation Senior Living, an owner and operator based in Winter Park, Florida. “Whatever construction is happening is very expensive. So, [the newly built product] continues to have to serve a higher-income individual.”
Innovation exclusively operates middle-market senior living communities. The company seeks opportunities to acquire licensed senior living communities that align with its mission to bring affordable care and senior living options for a wider range of older adults, according to its website.
“With deep market insight and a hands-on approach, we turn underperforming properties into thriving, resident-centered environments. Our team handles all facets of transitioning ownership and license compliance, improving efficiency in newly acquired senior living communities and increasing revenue performance,” the company states.
Currently, Innovation’s portfolio includes five communities, all of which are located in Central Florida. Carvajal says that in addition to eyeing four acquisition opportunities in other regions of the state, Innovation is planning to expand outside of Florida sometime within the next 12 months.
Each Innovation community offers assisted living, respite care and adult day care services. Two of the communities — the 97-bed Southern Life Assisted Living & Memory Care in Lake Placid and La Casa Assisted Living in Merritt Island — also provide memory care residences. Monthly rental rates at La Casa begin at $2,995.
Prerequisite: Operational Excellence
In the middle market, operational acumen is of the utmost importance, even relative to other subsects of seniors housing.
Carvajal, who also has experience on the affordable side of seniors housing, says that being able to operate within a budget is key to the success of middle-market communities. “It’s all about strict expense control — very defined budgets and having to work within those confines,” she shares. “What I’ve learned on the affordable side has really applied beautifully.”
From 2001 to 2016, Carvajal served as chief operating officer for Mia Senior Living Solutions. Her work included converting public housing developments for aging adults in Florida and developing subsidized housing product for low-income seniors across 23 states.
Jason Childers, chief operating officer of Merrill Gardens Senior Living, agrees that efficiency is crucial. “The goal of conversion [to a middle-market model] is to create operational efficiencies while continuing to provide high-quality services and an engaging lifestyle for residents,” shares Childers.
Merrill Gardens operates a dedicated portfolio of middle-market communities under its Truewood by Merrill brand, with a portfolio of 17 Truewood communities located across 10 states.
According to Carvajal, there are several proven ways to control expenses starting with the use of so-called “universal workers.” These are care providers who also perform tasks beyond their primary duties on an as-needed basis. “It is basically collapsing a lot of roles into one,” explains Carvajal.
Another budget-saving measure Carvajal identifies is the use of volunteers, who she calls the “secret sauce of the middle market.” Volunteers can even be recruited from the friends and families of the residents themselves. “We’ll see family members who are coming into the communities a lot, and we’ll ask them, ‘Would you like to be involved?’”
At Innovation’s communities, volunteers have helped with everything from leading social activities to helping renovate and repaint parts of buildings. Innovation is also creative in taking advantage of the amenities and services offered in the local community.
“We’ll have residents go over to the community center and partake in a summer swimming class,” says Carvajal. “It really is just being creative and looking for opportunities not only for volunteers to help us in the community but also for our residents to go out and benefit from the services that are there today.”
Truewood by Merrill communities similarly employ the use of loved ones as volunteers. “In our activity program, we make it possible for residents, family members and team members to participate in leading activities,” notes Childers.
“We have residents that run art programs. We have servers that perform live music for residents. We have family members that lead current event discussions. This has helped create staffing efficiencies in our activity department.”
Pettit argues that unbundling services and letting senior residents pay for the care that they require and can afford is also key to keeping the product accessible for middle-income seniors.
Truewood communities have adopted this approach, says Childers. “We do not separate independent living and assisted living residents. The apartments are the same, the base rates are the same; the standard services are the same. If a resident needs care services, he or she is assessed for those needs and charged separately for those care services.”
Dana Wollschlager, partner at Plante Moran Living Forward, a senior living development advisor, says that rethinking dining programs is crucial to achieving operational success at middle-market communities.
Wollschlager goes so far to suggest that some middle-market communities could be best operated without a meal program at all. At middle-market communities that retain dining services, Wollschlager says that flexibility is most important and that middle-market operators should not attempt to emulate a traditional program or restaurant experience. “You just can’t offer that in a middle-market product,” she argues.
“The most impactful area of change between our traditional operating model and our Truewood model is our dining program,” reports Childers. “At all four Truewood communities, we reduced dining labor by about 30 percent compared to our traditional model.”
Reckoning and Repositioning
Recently, Wollschlager worked with a client in Maryland on the repositioning of its 25-year-old senior living asset. As the community aged, the owner invested in capital improvements throughout the years. Even so, the property was not in a tenable position. “Its product and services were less desirable, and yet it was still at the top of the market from a pricing standpoint,” recounts Wollschalger.
Wollschlager reports that as the owners came to terms with the position in which they found themselves, Plante Moran considered multiple options for repositioning the property, which originally comprised 200 units of independent living residences.
Ultimately, the owner committed to converting the property to a middle-market community. Changes at the community included injecting much more flexibility into the design of the existing meal program. Additionally, the owner reworked the layout of the building by transforming studio apartments into larger units.
Repositioning existing buildings in this way is one solution to the impossibility of getting most development projects to pencil out, especially for properties catering to a middle-income resident.
“Right now, because of the escalation of the cost of product and labor, it’s hard to get the numbers to work in the middle-market space unless you have an existing building that you can reposition,” asserts Wollschlager.
Need Begets Demand
Despite facing significant challenges, middle-market communities can also offer a kind of security, given how robust the need for them is proving to be. “I would say there is a greater security in that [tenant demand],” confirms Wollschlager.
Ultimately, developing, owning and operating communities for middle-income seniors is also about a purpose and calling.
Carvajal was originally drawn to the middle-market seniors housing space in 2016 because of the need she identified. “I saw the middle-income senior really in need of senior living,” recounts Carvajal.
Where there is a will to overcome the myriad obstacles in the middle-market segment, there is a way, says Carvajal reassuringly. “Although it’s very difficult and there are a lot of headwinds, there are many ways to tackle the middle market. It just takes the desire.”
— Hayden Spiess
This article originally appeared in the August-September issue of Seniors Housing Business magazine.