A Commentary on the Perils of Large Senior Housing Management Companies

Senior Housing Management Companies provide a valuable and necessary service for ownership groups – particularly for those who have limited experience operating independent, assisted living or memory care environments.  But management companies can be a difficult beast to train as it grows, and make no mistake that those difficulties can come at the expense of ownership groups – and no one is asking the right questions.

Asking Questions

Look at this through the scope of what we know about community level operations.  Do we not encourage consumers (residents and family members) to ask the following types of questions? 

  • How many caregivers do you employee?

  • How many residents do you assign per caregiver?

  • At what point will you add more caregivers to ensure mom is still receiving the care and services she’s receiving today, and for which we are paying?

As someone who has worked for and with these entities, I would suggest to ownership groups these are the same types of questions you – as the consumer – should be asking. 

Over-promising and under delivering can be the Achilles heel for any community in our industry during the sales process – it is the same pitfall in a broader arena when considering the value an owner receives when contracting with someone to manage their property.

  • How many regional staff will be assigned to my community?

  • How many communities is each one of these folks assigned?

  • At what point will you add regional support to ensure my community will continue to receive the attention for which we are paying?

Additional consideration should be focused on how wide is the geography being serviced by a company’s “regions,” “districts” or “divisions.”  How much time is the team assigned to support my property spending on planes, trains and automobiles - traveling not only to and from my community but to other assigned communities.

Every company desires growth – in size, profitability, market share, etc.  With a management company, there must be a careful balance of growth and adding additional resources to manage that growth.  The expense cannot outpace – or even keep pace – with the additional management fees it is collecting to manage additional properties.  Thus, increasing pressure is placed on the management company to have its team do more and more without the addition of resources.    

A large variety of product types, multiple ownership groups and mixing managed, leased and owned communities can place a management company in difficult positons when deciding what priorities and resources to assign to different communities.  Of particular concern is what level of priority a management company will assign to “its own” communities on a regular basis (much less when there is a problem at one of them) versus one that is simply under a management contract. 

An Inside Glimpse

Inside many companies is the awareness and expectation that some ownership groups expect a disproportionate (and sometimes unrealistic) amount of time and energy.  Not in all cases, but in the vast majority of my experience, this is not an opinion but a fact.  And the truth is, if you were paying $6,000 to $10,000 (or 4-6% of your gross revenue) or more for someone to manage your community, wouldn’t you expect value in the form of time and attention? 

The reality is that the larger the management company becomes (assuming profitability is the goal) the less time it has to spend on each individual community.  The strategy then becomes to give owners the “perception” that they are receiving a higher percentage the management company’s time, attention and resources than is the reality. 

Managing owner expectations becomes as important as is actually accomplishing the work.

Over the last 3 decades I have heard no substantive disagreement here.  It is obvious to anyone who has worked with or within these entities that you can never meet all ownership group’s expectations, but as growth occurs priorities shift and resources do thin out.

Of course I have been privileged to know one or two companies that do a tremendous job for owners – particularly when the number of ownership groups being serviced is purposely kept to a manageable number.  However, as additional opportunities for new contracts arise, the temptation to grow the business and profitability at the expense of providing optimal service to an existing ownership group increases.

As this organic dilution occurs, it is obviously not publicized.  Consider the first contract for a management company; the ownership is paying a fixed management fee of $10K, and receives great value for this.  The management company grows to 10 communities – is owner #1 still receiving $10K worth of service or has value been diluted.  Does the management company reduce its monthly fee to owner #1?  Assuming all communities having equal needs, why not? 

I have also witnessed countless incidents where one troubled asset – or group of assets (communities) can easily absorb 80-90% of a management team’s time and resource – and these situations rise and subside like the tide, changing the workloads and resources available to service the other ownership entities.  As an owner would you be alright receiving less time and resource because another owner’s community is “on fire” (let’s assume that was a metaphor). 

A People Problem

At the center of this dilemma are the folks working for the management company.  As a company grows and takes on contracts, its resources become thinned out.  Some ownership groups are more involved and may place more pressure than others.  Remember the squeaky wheel?  Well not all wheels squeak equally and there’s only so much oil to go around. 

The people working for management companies (and there are a lot of great ones) are pressured to stretch, can become tired, fatigued and frustrated by their inability to “keep everyone happy.”  Don’t lose the contact – manage the expectations.

And again, don’t discount the erosion of an individual’s effectiveness by the amount of time they are spending at airports, on airplanes, in driving rental cars.

Ownership entities would be wise to carefully scrutinize what percentage of a management company’s time and resource it is receiving.  And this type of review should be done routinely as a management company grows.

There are some simple, but illuminating metrics that can and should be checked periodically to ensure that an ownership group (the consumer) is receiving the value for which it is paying.

To paraphrase a commercial for an investment firm in which a dad is counseling his son on investing:

“Do you get a refund if you’re not satisfied with performance?”

“No, of course not.”

“Why not?

“That’s not the way it’s done.”

“Why not?”

Hmmm….