Geoffrey Dohrmann, President of Institutional Real Estate Inc., Weighs In on Affordable Private Pay Senior Housing

Summary: The president of Institutional Real Estate Inc. (IREI) weighed in with his reaction to the previous post on how middle- and low-middle income seniors need financial assistance to pay for housing and care. The affordable private pay problem is a problem for a reason—it has many facets that will require creativity to address. A mindset that considers only a real estate solution is part of the problem. A prescribed-as-needed solution or á la carte pricing is likely to play a role, though these present challenges.

Introduction: Geoff Dohrmann founded IREI in 1987 and knows pretty much everyone in the real estate industry. His company provides pension funds and their advisors with decision-making tools via publications, conferences, and consulting services. IREI has been thinking about senior housing for many years, and its 17th annual survey of plan sponsors identified senior housing as the biggest priority for 2013 investment.

Geoff’s Remarks: “Perhaps the answer to meeting the needs of the middle income or lower income segment is a model that provides assistance when needed on a congregate basis, rather than a full-time, all-or-nothing assisted living or congregate care solution.

“A PRN, or prescribed-when-needed type solution, would mean service is available, but only on an as-needed basis, and paid for only on an as-needed basis. To do this, you’d need to build sufficient critical mass in the facility to support the costs of maintaining the resources so they’d be available. And you’d have to have backup plans in place to handle contingencies in the event that something unplanned produces an unusual spike in demand for services. By services, I mean medical services, feeding services, and aids to daily living services, as well as housekeeping and even concierge services.

“Most middle income payers couldn’t afford to pay for these services on an ongoing basis, but in fact, they are paying for them on an ‘as needed’ basis now. The key is making them available in a central location to reduce the cost of accessing them when needed.

“The fact is that most folks would prefer to age in place in their own homes. But as the boomers age, it simply won’t be possible to continue to deliver these services as the preferred method. It’s too expensive and there won’t be enough home health care providers around to meet the demand.

“Another problem is that, as we age, our health care needs switch from primarily acute (life threatening or non life-threatening short-term illness and accident-related) to chronic (the debilitating long-term, mostly irreversible ailments normally associated with aging).

“It may be that our thinking is skewed by the models we’ve grown accustomed to (i.e., by the more youth-oriented acute care systems designed to care for the health issues of a younger population, as we used to be when we (the boomers) were in our youth and middle ages.)

“Clearly, very old, very frail, very ill people who aren’t able to operate independently need care that is virtually if not actually available around the clock. That happens at the latter stages of life. Many of the boomers still have 20 or 30 years to go before they reach that pre-terminal stage of life.

“Meanwhile, somewhere in between those fully capable of living independently, and those needing a little bit more constant intermittent care, there may be an opportunity.

“There’s another challenge: how do you recruit and train enough people to provide the kind of care that needs to be provided? For the most part, this requires staff who have a strong stomach for handling the outward debilitating effects of aging. And where do you find these people? How do you compensate them so they continue to work in the business? These are big issues for everyone in this business.

“Simply having a real estate-related solution is only part of the solution. We’re really talking about a services business that combines health care delivery with hospitality type services with aids to daily living services. It’s a lot to ask of one service provider, and consequently, few service providers have been able to build these businesses efficiently at scale. This is what has been driving people toward the higher end side of the market—obviously.

“Sometimes, when there’s a hole in a market, there’s a reason. That doesn’t mean a solution can’t be fashioned. But to fashion a solution is going to take some real creative, outside-of-the-box-type of thinking.”

Further Discussion: Thank you, Geoff, for your contribution to the discussion.

What do you think of Geoff’s idea of a prescribed-as-needed solution? Is it possible to have a staffing model that can handle the unexpected swings in demand? What else can be done?

Related Links:

www.irei.com

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