Tana Gall has returned to Seattle-based Merrill Gardens as president, a role in which she served from 2013 to 2015. With the November announcement of her appointment also came the news that Merrill Gardens would be acquiring Blue Harbor Senior Living, in Portland, OR, where Gall was CEO for the past three years. The acquisition almost doubles the size of Merrill Gardens. As Gall prepared to take the reins from the retiring David Eskenazy, she answered a few questions for McKnight’s Senior Living.

What is your first priority as president of Merrill Gardens?

The first thing is just making sure the teams are doing well. It’s a big change for all of us, and I just want to make sure everyone knows I am excited about our teams and where we are going. We have lot of work in front of us as we start adding communities to the platform, but we are all in this together, and it’s going to be an exciting time for the company.

What are the main ways that Merrill Gardens and Blue Harbor are different, and the main ways that they are similar, culturally and otherwise? What are the biggest challenges and opportunities associated with integrating the two organizations?

The biggest differences are in the histories of the companies. Blue Harbor is a relatively new company that grew through acquisition. As a true third-party operator, the company has a very diverse portfolio, both in terms of physical property and geography. The teams there have had to really focus on finding efficiencies and commonality throughout the portfolio while still allowing flexibility to accentuate the unique attributes of each community.

Merrill Gardens has a track record of long, sustained success. The company is a true leader in the industry and has developed and continues to evolve its platform over the years to meet the changing wants and needs of seniors and, just as importantly, the team members who make it all possible. I have always been impressed with the consistency in Merrill Gardens’ approach to the business while always finding ways to innovate. 

I also think there are some real similarities culturally. Both companies realize the importance of finding and retaining great team members. Merrill Gardens is a true family company. The RD Merrill family and Bill Pettit started the company 26 years ago with a sense of family as a guiding principle and have never lost that focus. 

At Blue Harbor, we have built our team in the home office and in our communities around the concept of being a family. We focus on going the extra mile for the residents we serve and each other, like one would expect from family.

The biggest challenge is also the biggest opportunity. It comes down to how we merge the two organizations — the people, the technology and the day-to-day tasks — without missing a beat. We have a lot of great people at both companies. At the end of the day, I anticipate our platform will be bigger and stronger than ever. 

Can you talk about the new Merrill brand that will be produced for the Blue Harbor communities, and the reasoning behind the effort? Which needs will be catered to by each brand?

I am really excited about the opportunity to create the new brand. Really, it’s more than a brand; it’s a new product offering that will become an exciting brand in our industry. The goal is to really focus on a more moderately priced senior living product. It’s a market that is underserved and one that we have been talking about for years. Now we have the opportunity to really figure it out. We want to offer a product that can serve a larger audience of seniors, something that offers flexibility and affordability without sacrificing quality care and service.

You’ve worked in senior living for more than two decades. What are the major ways in which the industry has changed in that time?

That’s a good question. There are few major areas of change. First, it’s become a more sophisticated industry. New investors to the space over the past 10 years have brought more focus and higher expectations. It’s definitely forced operators to really sharpen their skillsets.

The industry has broadened. When I started, there were not many people providing care specific to dementia and memory care residents. This has evolved and become such an important part of the senior housing spectrum. The active adult industry has also exploded in the past few years. There are just more options for people overall now.

The resident has changed, too. We talk a lot about how today’s independent living resident is not the same resident we used to serve in assisted living 10 to 15 years ago. We have seen the average age for residents moving to senior living creep up over the years as seniors wait longer to make the move.

Our team members have changed, too. On the positive side, senior housing is something that is finally being taught at major universities. We have young professionals who are looking to get into senior housing now. They see this as a great, growing industry. On the other side, however, we are struggling to find and retain great team members, especially at the community level. With so much development over the past few years, there are so many options for employees, and we have to really create an environment where team members feel valued and see growth opportunity, to help control turnover and best serve residents.

What changes do you believe might be necessary as the industry moves forward?

As an industry, we really need to solve for how we serve a wider range of seniors in regard to product type and affordability. Merrill Gardens created an awesome “town center” concept that has proven very successful. It appeals to a senior who wants to live in a more vibrant, walkable area with services and activities just outside the door. It’s a tremendous value but might be out of reach financially for some seniors. With our new brand, we will be able to offer a completely different experience that is attainable for a larger audience.

I also believe that technology advances will be necessary — for residents, team members and our businesses.

What attracted you to senior living in the first place, and what keeps you in the industry?

A former co-worker of mine actually recommended that I take a meeting with Leisure Care. At the time, I was working in public relations for an advertising company. Leisure Care was looking for a public relations / marketing person.

I wasn’t necessarily looking to change jobs, but I quickly fell in love with the people. There is so much satisfaction in working in an industry that does so much good for so many people. I can’t imagine doing anything else.

Everyone in the industry is familiar with the impending “silver wave” or “age wave.” What other trends are you expecting that will affect or shape senior living in the coming years?

I think the biggest trends will revolve around people. We need to continue to attract new employees to our industry. We need big thinkers. I love watching the talented team members we have brought into our companies really challenge what we have done in the past. We need ideas that keep pushing us forward.

We also need to really embrace the team members in our communities who give so much of themselves to care for others. We need to continue to make our communities rewarding for them and ensure that we are giving them the opportunity to grow.

What do you think is the most common misconception about senior living? How can the industry address it?

I think it’s the same misconception we have battled from the beginning, that senior living communities are places you have to move, not places you want to move.

Our biggest competition remains the home. People don’t want to leave home. They think it’s giving up your freedom and independence and admitting defeat.

I think we need to continue to focus on highlighting the great things that happen in our communities. The experiences, the friendships, the living that takes place.

What has been the biggest surprise to you in your career?

I was in my mid-20s when I started working in senior housing. I didn’t know much about aging. I did not grow up with grandparents. I had never been in a retirement community or nursing home. And I made assumptions about old people — that they like to play bingo and watch TV.

What I have learned through years (and was surprised about) is that age is just a number, and people are people. We are who we are, and we want the same things in our 70s that we had in our 30s and 40s. I strive to provide the environment for our residents to never give up those things that have been important to them their entire lives.

What is the best part of your day?

Just working with my team. I love seeing our teams work together to solve big, complicated, important issues. I love to see our team members create relationships with each other and with our residents and families.

I take such great pride in the work our teams do. It’s really amazing, and it never gets old.

A.  Certainly. Here are five key senior living challenges in 2020:

1. Property company versus operating company: Sharpened strategies involving asset management (PropCo) and operations efficiency (OpCo) will be needed in 2020 and beyond.
2. Labor issues: Staff availability, turnover and cost.
3. Minimum wage increases likely will affect expenses.
4. Operations cost creep will reduce profits and cash flow.
5. Not consistently meeting a target stabilized occupancy of at least 90%.

The PropCo-versus-OpCo issue means focusing on the growing challenges of developing or acquiring and operating senior living assets.

To address challenges No. 2 to No. 5, operators must place a major focus on enhancing revenues, controlling operating expenses and sustaining high levels of occupancy.

Simply stated, favorable financial operations and cash flow must be consistently achieved and maintained.

This appeared in print as the “You’ve Got Questions, We’ve Got Answers” column.

• HJ Sims and Presby Inspired Life are partnering to conduct the Rydal Waters expansion project in Abington Township, PA, which will include 84 two-bedroom cottages.

Opened in April, The Langford at College Station is a tribute to Ernest Langford, known as “the father of College Station,” who served as the city’s mayor for 23 years and as the head of Texas A&M’s architecture department.

With interior design by Spellman Brady & Co. of St. Louis, the 215,000-square-foot community’s light-filled spaces feature a combination of rustic flavor and timeless elegance for residents that live in the 72 independent living, 24 assisted living and 18 memory support units. Native Texan Matthew Currie, who serves as regional vice president and executive director of The Langford, is amazed at how well the property captures the spirit and beauty of his home state and honors its namesake’s legacy.

“Ernest Langford is the longest-running mayor of College Station and has buildings on campus named for him,” Currie says. “We have met with the Langford family and they said our organization shares their values. The Langfords are stewards of the land, and we are stewards of our residents. We do our best to be cognizant of that.”

Among the tributes are seven wall-mounted plaques that tell the Langford story, while flourishes of Texas A&M’s school colors provide an element of school spirit within the community. Photographs of local scenery by David Langford, Ernest’s grandson, as well as custom glass creations are showcased.

Operated by Methodist Retirement Communities, the genesis of the $40.3 million new construction project started in 2014-15, when the organization conducted focus groups among church members and residents at other Methodist communities to get ideas about what they thought the new community should have. That feedback helped shape the features of The Langford, Currie says.

“They didn’t want long hallways. They wanted a smaller building but larger apartments with connectivity to all the amenities, and we were able to provide that,” he says. Based on RLPS Architects’ design concepts, The Langford has six apartments per floor, whereas other facilities could have 30 within the same space, Currie says.

Focus group input also is responsible for the installation of individual balconies that can seat up to 10 people and an outdoor courtyard for football watching in Aggie-crazy College Station.

Some lenders, such as Mark Meyers of Walker & Dunlop, are downright bullish.

“There has never been a better time to be a beneficiary of the capital stack provided through various means in our industry,” says Meyers, managing director. “The maturation of operators, property types and services, along with the science of identifying optimal sites and developing successful properties, along with the maturation of the seniors housing capital markets, results in a powerful opportunity.”

In this environment, the onus is on operators to demonstrate their mettle for those who hold the purse strings for new projects, whether new greenfield developments or extensive renovations of existing buildings. Showing solid fiscal and occupancy numbers should get the interest of investors, says Anders Pesavento, vice president of capital markets for Ryan Companies US.

“We feel the market is currently strong for finding accretive financing for the right projects,” he says. “Lenders want to know who the sponsor is and, more importantly, who the operator is. We continue to talk with new lenders – both traditional banks and debt funds – that want to get into the space and have capital allocated for senior living projects.”

Likewise, Jeff Sands, managing principal and general counsel for HJ Sims, agrees that senior living projects are still generating interest, although it depends on the purpose.

“Acquisitions and renovations are still attracting money. There has been a decline in debt and equity for new development,” he says. “For those new projects being financed, the key to success is the strength and track record of the owner/operator.”

Because a strong track record is essential to attract investors’ cash, operators need to exert discipline in several areas, Meyers says.

“It demands a keen eye on properly positioning the property in the market, effectively maintaining and renovating each property and offering the right mix of pricing and services for a given market,” he says. “It also requires a keen eye on new competitors entering the market, or ones who are repositioning through renovations or development. Too many operators have wandered far afield from their base of expertise, and they have tried to become experts across too broad a spectrum and too many markets.”

Conner Girdley, director for Lancaster Pollard, asserts that because senior living is an operator-driven business, it makes sense that capital would be available to those with good track records.

“Yet it is more challenging for developers that do not have an operating platform or existing relationship with an operator,” he adds. “Third-party managers have stepped in to provide operational expertise, but finding financing for new developments is more challenging when the manager does not have an ownership stake and may walk away from the project with little consequence.”

Low rates favorable

After a year of hiking interest rates, the Federal Reserve has reversed course, which presents new opportunities in the marketplace, says Scott Thurm, chief credit officer of FHA lending for Greystone.

“With interest rates being so low again, it makes a lot of sense for investors to capture equity to renovate properties or capitalize an expansion of their portfolio,” he says. “As an example for one client that has limited capital to expand their holdings, we are exploring the option for them to first come in as an operator with the potential to buy the assets in the future. And we have helped other clients find equity sources or mezzanine loans to fill gaps or capitalize their equity.”

To be sure, property investors should be taking advantage of the current low rate environment to invest in renovating and modernizing older buildings, or in some cases, building a replacement facility, Thurm says.

“The low rates can also help with affordability and reimbursement rate uncertainty in the future,” he says. “I also think figuring out how to deliver more services to independent living facilities – or even in the home – will be imperative for the future demand that is rapidly becoming a reality.”

Aaron Rulnick, managing principal for HJ Sims, says a strong bond market has helped keep rates at near-historic lows. The situation has been driven by two related factors – cash inflows into the bond funds and limited supply of tax-exempt bonds being issued.

“The lack of balance between supply and demand has shifted with a surge of issuance, which often happens towards the end of the year,” he says. “As the market tries to absorb the flush in issuance, there has been an upward pressure on interest rates. Appetite from commercial banks has also been robust during the year.”

As the spread between short-term and long-term rates narrowed in the early part of the year, many providers shifted towards long-term financing, Rulnick says. 

“Given recent action by the Federal Reserve to reduce interest rates, bank financing has become more attractive,” he says. “Despite this draw towards commercial banks, the increasingly complex bank regulatory environment has challenged their ability to be competitive in new construction financing by placing and increasing equity requirements for project finance.”

Project, mix preferences

Trends in project types and population mix historically have driven new developments, with investors showing interest in particular building models and resident types. With maturation of senior living, the financial community has gotten more savvy and creative with the types of projects they support, Pesavento says.

“Both project types are attractive, but only if you can assume the underwriting is based on realistic assumptions supported by real market data,” he says. “Urban projects are something we are looking at but are mindful of. Type 1 construction, commonly found in high-rise buildings, and Group 1 occupancies require higher rents to support the cost, and not all markets have the right demographics and incomes to support this, so you need to be careful and do your homework.”

Melissa Messina, senior vice president for HJ Sims, says: “Greenfield projects are less of a focus by financiers, though greenfield development still has limited sources of capital. Lenders, underwriters and investors are looking to the market surrounding the project and how deeply those markets are penetrated by existing products.”

Good sites are becoming more difficult to find and developers are having to be more creative, Girdley says, adding, “We have seen an increase in financing requests for mixed use developments, repurposing of existing buildings and developments on university and hospital campuses.”

Population mix has been centered around assisted living and memory care, a decision influenced by the amount of product that is coming into the market, Rulnick says.

“There has been very little development of skilled nursing in recent years as efforts have shifted towards replacement facilities, renovation, downsizing of skilled nursing offerings and repositioning skilled nursing with private units and short-term rehab,” he says.

Fannie, Freddie & HUD

Determining the right type of financing depends on property type, age, investment horizon, investor profile and risk tolerance. Based on those criteria, many operators select government-sponsored enterprise financing, such as Fannie Mae, Freddie Mac or HUD. These agencies have underwritten the bulk of long-term care financing over the past decade.

“After taking some time to re-group this summer following higher than expected loan volume through the first half of the year and regulatory uncertainly, Fannie and Freddie now have a clear mandate from the Federal Housing Finance Agency through the end of 2020,” says Russell Dey, vice president for Walker & Dunlop. 

“The senior housing asset class dovetails well with Fannie and Freddie’s mission. In the permanent financing segment of the market for stabilized assets, Fannie and Freddie continue to offer very competitive loan terms for experienced owners and operators. HUD also remains an important part of the seniors housing and skilled nursing debt capital markets, having closed $3.7 billion in total loans through their latest physical year. With its fully amortizing, 35-year loan terms, HUD arguably offers the most compelling financing option for long term holders of both assisted living and skilled nursing properties.”

HUD predominately is active in the refinancing of existing facilities, most notably for “bridge-to-HUD” transactions, and for the purchase of existing properties, says Anthony Luzzi, president of Sims Mortgage Funding. 

“Approximately 10 percent of HUD’s loan volume from 2016 to 2018 was for new construction projects, substantial rehabilitation of existing structures, or additions or renovations to existing properties with HUD-insured loans,” Luzzi says. “HUD is still clearly a major player in the refinancing space but has been modestly active for development deals.” 

Geography lesson

The Sunbelt has seen the most senior living development activity over the past couple decades, and although states in the South and West continue to be a focus, other regions, such as New England, mid-Atlantic and Midwest, also are seeing significant growth, Sands says.

“Seniors in these areas are either aging-in-place or returning to their hometown from retirement areas to be with family,” he says.

Ryan Companies also is very interested in the upper Midwest, Pesavento says.

“From my perspective, assisted living communities have by far adopted the most technology,” says Laura Wasson, owner and executive director of sales for Tech Electronics. “Using the latest technology in their communities appeals to residents and their families and allows them to better market themselves to private-pay insurers. Part of what drives this is the rapidly increasing competition in the assisted living industry.”

Adds Travis Palmquist, vice president and general manager for PointClickCare: “Without question, the senior living market is investing in technology at a much brisker pace. We are seeing many organizations actively pivot from hospitality models to more holistic hospitality, health and wellness models.”

Part of the reason is senior living tech has become affordable and user-friendly.

“The demand for cutting-edge technology is really across the board,” says Mike Webster, CPP, director of senior living, fall management and security solutions for Stanley Healthcare. “‘Cutting-edge’ doesn’t have to mean complex. In fact, one of the advantages of newer technology is that it is often less complex, taking advantage of standards-based technologies that do away with a lot of hard wiring and proprietary devices.”

“The more your facility surrenders its core security functions to an AI, which is vernacular for robot, or artificial intelligence, the more likely it is that lines of personal autonomy will not be respected,” says Patrick Hardy, LL.M., CEM, MEP, CRM, president and CEO of Hytropy, a continuity and disaster planning solutions provider. And in their search for greater resident safety, “well-meaning family members sometimes create policy quagmires. One of the major issues involves so-called ‘granny-cams,’ whose live feeds can create a host of legal issues regarding privacy of residents, staff and guests. Facility policies need to address this issue.”

Other reserved stakeholders are clinicians.

“We have seen clinical teams more resistant to newer technologies primarily because of the liability,” says Fahad Aziz, cofounder and chief technology officer of Caremerge. “They choose to work with platforms that, in most cases, were developed two decades ago, but which they think work for them. The way they see it, change only brings uncertainty.”

Scratching the surface

Still, many believe senior living operators have only scratched the surface of all that technology has to offer today.

“We are just on the cusp of a larger technology demand that is going to arrive with baby boomers,” says Jeremy Spradlin, CEO of CareServ Technologies and Consulting. “Baby boomers are not only going to put additional pressures on senior living communities to use technology to provide better care; they are also going to demand access to technology for their own personal use and comfort. The next generation to arrive in senior living communities is tech-savvy and thus, they are going to expect their community and care-givers to embrace technology.”

It’s understandable if they’re sometimes reticent.

In other cases, communities may find themselves more enamored by testing than adopting new tech.

Getting pilots off the ground is one thing. For many, problems arise when it comes to taking them to the next logical step, which for many means implementing on a broad scale.

Few understand this better than Majd Alwan, Ph.D., senior vice president, technology, for LeadingAge and executive director of LeadingAge Center for Aging Services Technologies.

“I believe it’s important for aging services providers to be involved in technology design and development and to serve as a real-life testing and evaluations to advance the field of aging services and aging services technologies,” Alwan says. “However, they need to be judicious about what they engage with.”

At times, tech adoption in senior living can be stymied by procedural failures. This happens often in tech pilots with vendors.

Jody Holtzman, who spent more than two decades at AARP, most recently as the organization’s senior vice president of thought leadership and market innovation, had seen his share of technology pilots in senior living before transitioning to his current role as senior managing partner for Longevity Venture Advisors LLC.

“Everyone is doing tons of pilots. Every conference we went to was ‘pilot-titis’,” he quipped. “But no one knows what to do when the pilots are over. And I think this is true for long-term care facilities as well. They’re getting confronted with what is no shortage of tools of various kinds. What I don’t hear from them is the synthesis, the takeaways. What did and didn’t work? What will they never do again? If they could identify it, what was the one thing that really contributed to better outcomes, like keeping people out of the hospital or saving money?”