Should retirement communities be owned and run like a McDonald’s? (Part 2)

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 Note: This is Part 2 of two. Read “Should retirement communities be owned and run like a McDonald’s? (Part 1)” here.

The Bad News:

Managers don’t always care as much about customers. To be fair, this is an issue that every company faces. As a business owner or manager, your goal is to make money. Most of the time, you do that by making the customer happy. But, sometimes that goal can be obscured, especially when managers have bonuses or other competing interests at hand.

It’s worse in corporate situations where managers get bonuses based on financial performance. This can sometimes lead to short-term thinking, which is not always in the best interest of the customer.

For example, real estate investors and hedge funds are under enormous pressure to improve their return on investment, and sometimes this means taking more aggressive approaches to investing. Some of these plays will pay off. Others will blow up.

Risk is magnified.  Aggressive growth strategies in a large provider of senior housing can blow up quickly if the market shifts at the wrong time.  What’s worse is that communities that are perfectly healthy and vibrant can be dragged down by disasters in other parts of the country.  For instance, declines in real estate in one part of the country can impact sales at retirement communities in that area.  If these communities are owned by a regional provider, then no one outside of that area is really impacted.  However, a national provider that has trouble in one market might be tempted to pull cash from an otherwise healthy community to help cover the costs.

Parting Thoughts:

None of these benefits or drawbacks are set in stone.  There are plenty of corporations that begin shaving services and customer care as they get bigger.  Also, there are plenty of companies that are huge behemoths and yet still manage to make customers happy every single day.  The success or failure of a national chain of senior housing communities depends largely on the way the company is run, which is why it’s really, really important that these companies hire good managers.

I can’t say for sure if the consolidation trend is good or bad. In fact, it doesn’t matter because it’s going to happen one way or another. It will certainly impact residents’ lives, although not necessarily in bad ways.

My instinct is to rattle my saber and declare war against the invasion of Wall Street. Seniors shouldn’t have to worry about their home being sold at a bankruptcy auction after hotshot managers make silly decisions and invest foolishly. But, then again, that sort of thing happened in the industry prior to Wall Street arriving.

Ultimately, I think the rules of the game will have to be rewritten a bit, and, unfortunately, it will be big corporations wielding the pen.  Competition will continue. Consolidation will continue. There will be bankruptcies, but, by and large, the ramifications will be felt only for managers and debt holders, not seniors themselves. However, the benefits of consolidation mean that seniors might see better amenities and more activities.

Read Should retirement communities be owned and run like a McDonald’s? (Part 1)

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