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Early success led to rapid construction through the 1990s, with several chains launching initial public offerings. Wall Street investors were attracted by the growing sector, which promised to explode as baby boomers retired.
“We had people who didn’t understand the business getting into it,” said Pat Sprigg, who spent three decades as chief executive of a nonprofit facility in North Carolina. “They understood there were boomers on the horizon and their approach was: ‘Let’s just warehouse them. Let’s do the brass-and-glass game and attract people into these beautiful places, and then neglect to train staff and neglect to pay them a fair wage.’”
Questions to ask before choosing an assisted living facility
The financiers included private-equity firms — investors who manage giant pools of money on behalf of even larger investors such as pension funds and endowments. These firms typically try to boost the value of assets and sell them after five to 10 years, providing returns to themselves and their outside investors.
Some senior homes were also bought by real estate investment trusts, or REITs, an investment class created by Congress in the 1960s to give stock market investors the ability to buy and sell shares in real estate. REITs pay no corporate income tax and distribute dividends to shareholders. Nearly half of Americans — around 45 percent of U.S. households — are invested in some type of commercial real estate REIT through retirement funds or pensions, according to industry group Nareit.
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Congress gave these businesses a boost in 2008 with a new law allowing senior-housing REITs to share in the profits from operations, rather than act as passive landlords. This corporate structure, also common in hotels, incentivizes REIT investors to replace management teams that fail to generate expected profits.
“They hold the hammer,” said David Kingsley, a researcher with the nonprofit Center for Health Information & Policy.
Welltower, the biggest owner of senior homes in the country, distributes more than $1 billion in dividends to shareholders annually, including mutual fund giants Vanguard and BlackRock and the pension fund of Norway. Other senior-housing investors have collectively generated hundreds of millions of dollars for public pension plans in Arizona, Indiana, Maryland, North Carolina, Texas and other states, investor filings show.
Kramer said the industry has never strayed from its mission of providing quality care, but that also requires a careful focus on costs and profit margins. “If you don’t have a margin, you can’t pursue a mission,” he said. “If you don’t have a mission, you’re also not going to produce a margin.”
Balfour rode the early wave of enthusiasm for assisted living. Its founder, Michael Schonbrun, envisioned a “Four Seasons experience,” building a series of Colorado facilities that reflect local culture. There’s an equestrian-themed community in the gold rush town of Littleton and a glitzy seniors home developed from a historic train station in downtown Denver.
A former health-care executive, Schonbrun initially funded his business through bank loans and individual investors. But in 2014, he sold all three of Balfour’s buildings to AEW, a Boston-based private-equity firm.
Some senior homes are left hobbled by private-equity ownership, according to interviews and records. Brookdale is the nation’s largest operator of senior-living homes. After it was acquired by private equity in 2000, it sold many of its buildings to investment firms to pay down debt, corporate filings show, which then locked Brookdale into costly long-term leases with the new owners.
Despite collecting more than $1 billion in rent from residents and other fees each of the past 17 years, Brookdale lost money in all of those years except 2020. Its stock price, which peaked at $53 a share in 2006, has dwindled to $5.
Cost cutting
Meanwhile, eight residents filed a lawsuit in 2017 claiming that Brookdale systemically understaffed its facilities to boost profits. More than 80 residents and their relatives described in legal declarations how short staffing led to falls, diaper rashes, urinary tract infections, broken bones and residents waiting hours for their call pendant buttons to be answered, but a federal judge rejected a motion to elevate the case to a class action. The case is set for trial next year.
In 2020, three residents of Brookdale facilities — in Arizona, Delaware and Florida — died after leaving the buildings unsupervised, according to reports by state regulators.
Jackie Dickson, a spokeswoman for Brookdale, denied allegations of understaffing. Despite the “significant negative financial impact” of the pandemic, Brookdale has continued to invest in the growth and development of its workforce, she said. She declined to comment on the three deaths, but said the well-being of residents “always has been our top priority.”
Emily Schillinger, a spokeswoman for the American Investment Council, a private-equity industry group, said that health-care facilities in general face workforce shortages. “When private-equity firms invest in facilities, their focus is delivering high-quality care and improving patient outcomes,” she said.
After AEW acquired Balfour’s buildings, it expanded to several new locations. But it also looked for ways to cut costs, according to a former senior manager.
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While Balfour still advertised food rivaling “Colorado’s best restaurants,” fresh menu items were replaced with fried foods and processed meals, causing problems for some residents who required low-sodium diets, said Mary Shomaker, who moved her father to a different facility. “We tried to get them to see that this was a big mistake,” she said.
AEW spokeswoman Maureen Richardson declined to comment.
Meanwhile, cuts to the nursing staff made it difficult for Balfour to make good on its marketing promise of “24-hour on-site nursing,” said a former executive who supervised nursing.
On Christmas Eve 2018, the day nurse at Balfour’s downtown Denver facility ended her shift at 8 p.m., and the night nurse came on at 10 p.m. During that two-hour gap, a male resident in his 70s with Type 1 diabetes was not given his required insulin injection, state records show. Around 3 a.m., a staff member discovered the mistake and gave him the drug. But the man was dead by 7 a.m. Christmas morning.
Balfour reported these events to state inspectors. The death certificate said the man died from a “probable cardiac event and complications from diabetes mellitus,” state records show. Balfour told authorities it would not have any future gaps in nursing coverage “when there are insulins scheduled.”
A few months later, AEW sold Balfour’s buildings to Welltower for $300 million. AEW’s biggest outside investor in the fund that bought and sold the buildings, the Texas teacher pension fund, made at least $30 million on its investment, according to Rob Maxwell, a spokesman for the pension fund. He declined to comment on its investment strategy.
Low pay, low quality
The investment frenzy over senior housing was on full display at NIC’s fall 2022 industry conference in Washington, D.C., which featured a mock version of the “Deal or No Deal” game show. Investors fired fake money from toy handguns labeled “MAKE IT RAIN” when contestants pitched a senior home concept with promise.
The gathering this October in Chicago was more sober, with experts bemoaning high interest rates and a shortage of low-cost labor.
Welltower chief executive Shankh Mitra acknowledged that wages matter but said businesses also need to make jobs more appealing, for example, by using technology to reduce the time workers spend on administrative tasks. “We have to double down on employee experience,” Mitra said during an onstage interview. “The turnover in our business needs to go down. We can create real career tracks for people.”
