Craig Hanson – Table of Experts – Kansas City Business Journal

August 24, 2018 – The Kansas City Business Journal

See the print article here. Read the original online article here

Panelist: Craig Hanson, President – Weigand-Omega Management — Craig Hanson is a navigational leader turning visions into reality through strategy and culture development. Focusing on innovation and value creation, he cultivates thriving culture-centered workplace environments. He is blessed to lead three companies as president of Weigand-Omega Management, a family-run firm founded in 1976 specializing in apartment, office, retail and hospitality management; as CEO of Omega Senior Living managing assisted living, memory care, independent living, and skilled nursing/rehab communities; and as chairman of the board for VitalCore Health Strategies.

Stacie Prosser of the Kansas City Business Journal: Most of you worked with Tutera Senior Living & Health Care to develop Mission Chateau Senior Living Community, the newest, luxury retirement community in Prairie Village, Kan. The rental-based senior living community spans 18.4 gated acres and was designed to meet the diverse lifestyle and health care needs of seniors.

You describe Mission Chateau as providing the country club-style living your consumers want in their final family homes. Joe, can you talk about how the project was conceived and how it came to fruition?

Joseph C. Tutera of Tutera Group: It took six years to develop, so this could be a really long discussion! Basically, we were looking to develop a lifestyle community in the neighborhoods of the residents that it serves. As with any real estate transaction, one of the key elements was location. There had always been theories in senior living that it was better to build in a rural or suburban environment — a setting that was more remote.

But that didn’t provide the lifestyle people wanted. The residences need to be in the heart of the communities — in locations that have familiar activities, not only for the family but also the residents who live there.

So infill locations are perfect. America’s demographics are changing. The areas that were populated with families in the 1970s and 1980s are transitioning into areas populated with empty nesters. Prairie Village was in the center of that demographic, and we had an opportunity to create an appropriate environment there where we could provide a continuum of care.

To create a better product that serves a broader market and provides specialized care and services to the community, you need a significant investment in a single location with a large enough piece of property to provide all those resources in one spot. Then, you have to do it in a manner that is responsible and responsive to the community’s needs and the neighbors around that area.

Prosser: Your company has a long history of developing these types of projects. Is this a trend that you’re seeing across the country or are you setting the trend?

Tutera: In the past 30 years, we’ve probably worked on 400 different properties many of which have been troubled facilities; bankruptcies and receiverships for lenders and trustees on clinically and financially distressed properties. We found that most of the properties were failing to meet the needs of the residents and the community. Quite frequently, the properties fail because they’re not able to provide the right services in the right marketplace — those are the hardest to fix.

There isn’t a one-size-fits-all kind of solution. The infill part is important because it gives you that location. The next hardest part is determining the right product. From our experience, the desired product in senior living has villas, independent living, assisted living, memory care and skilled nursing or long-term care all in one location. That gives you the most flexibility.

That product’s been out there for a long time. But there have been a lot of barriers to entry for it, predominantly because the scale and the size make it harder to put everything in one location.

The second factor has been the economics. Most of those products ended up being faith-based, buy-in, endowment-type properties. They required families in the marketplace to make a substantial upfront investment. You could always go rent individual components, such as memory care or assisted living, in separate locations. But if you wanted to get all of those services in one location, typically it required a large, upfront endowment followed by a maintenance fee.

That capital model was typically structured through not-for-profit, faith-based models, because it took capital campaigns to make the financing work. What we’re seeing now, and what we’re trying to develop, is a fee-for-service structure that is all rental-based and has no upfront fee, which gives the consumer flexibility.

After the housing crisis, downsizing to a smaller home was not considered the long-term, stable investment it once was. The rental-based model drives a better service, and if the service isn’t there, you can leave. It gives you that try-it-before-you-buy-it type of option.

Shirley Allenbrand of Allenbrand & Associates Designs: Tutera Group and NSPJ Architects are trendsetters. I grew up in this industry. I started at 14 as a dishwasher. Actually, Joe’s father was one of my employers.

After working in these communities and owning my own company, I realized the need for the next step. It was a privilege working with Tutera Group and NSPJ because they’ve gone the next step. They’ve realized that the average person who makes a placement decision is usually a woman between 40 and 60 years old. These decision-makers are looking for something different from what we looked for when we were placing our parents.

So to me, being able to see future designs — looking into the future and paying attention to all of the details — is being a trendsetter. We need more companies like Tutera Group and NSPJ.

Prosser: Let’s talk about how development teams work best to deliver the best possible product?

Craig Hanson of Weigand-Omega Management: Working collaboratively and getting the collective experience and expertise of the entire group seem to work best. The industry can’t simply do the same things that they’ve always done and expect different results that innovate new products and services.

The demographics are changing, the needs of the residents are changing, and the needs of the adult woman child who is, generally speaking, the primary decision-maker for the adult residents needing assisted living or memory care are changing. The baby boomers who are aging into this segment of the market don’t have the same needs of residents 15 or 20 years ago. Today’s residents, and their family members, are used to technology being a part of their lives, and they expect certain services and amenities that not only fit but enrich the lifestyle they’ve been accustomed to.

All of these factors have to be considered in the design, build and operations of a senior living community. So getting developers, managers, architects and construction professionals together and even partnering with universities and institutes to incorporate the latest research on memory care are invaluable components towards moving the industry forward.

Memory care, as you know, really is a part of every product line. Incorporating the latest research into everything — the products, the locations, all of the amenities within the apartment, everything from sights to smells to sounds — is important to create a product that is going to succeed and truly enrich the lives of our residents and their families.

Tutera: Craig, that’s a great analogy, and I’ve never heard anybody really put it that way. But in the context of a memory care product, a consumer can walk in and say, “I understand that building is designed specifically for the needs of the memory care resident.” That’s a spectrum of which we can all understand and relate to — why it has certain amenities, why it’s laid out in a certain way and why it has certain functions.

Those same aspects, however, apply to assisted living, independent living and the whole community. What’s going on with respect to the consumers’ needs? What’s going on with respect to the services that are going to be provided in that space? I need to have my physical plant support those for the residents and the staff and the family members who come to visit.

You can go down a rabbit hole for days and weeks trying to come up with the design elements and attributes that you want to put into that property. The architect may kick out 20 different bathroom layouts, each one affecting how the bathroom interacts with the bedroom and the living room. How do you choose? That plan looked great right up until you showed me the second one, and the third one looks better than the first two.

At some point, you have to put a fork in it. Ultimately, the decision is based on the criteria and framework created by the development team. Then the right plan becomes crystal clear.

Timothy Homburg of NSPJ Architects: What permeates that decision for us as designers is creating that feeling of home for the residents. When they walk in, they want it to feel like they have a little bit of ownership, that it is theirs in some way.

In all of the different reiterations of the layouts of the plan, we’re using our combined knowledge base of understanding residential design and the users’ needs so that when they walk into a facility they are comfortable calling this home.

Prosser: How does the design of a project like this differ from a commercial project, such as a multifamily development?

Dale Harris of Barsto Construction: Cost is a major factor. As Joe mentioned earlier, this project took six years to put together, and the price has changed so much during that time. Every time you change something in these plans, the cost changes — either up or down.

It can take several months just to get a project through a city’s review process. That’s why it’s so critical when you’re working with a general contractor that the numbers stay in line. We enjoy working as a team, and we have to be sure that the numbers are correct when they get ready to build, whether that is this year or six years from now.

Homburg: Regulatory oversight is much, much greater for a care facility versus a market-rate apartment. With the standard market-rate apartment, you have to comply basically with two codes: building and accessibility. When you come to any kind of care environment, you have to layer in several different authorities and jurisdictions. Sometimes the layers of codes play well together and sometimes they don’t.

We also have to make sure the end result is not something completely technical. We don’t want to check all the boxes of satisfying all the codes, like turning ratios and clearances, and then end up with something that is more reminiscent of a hospital care room than a place you want to call home. So that’s really the challenge.

Tutera: If you’ve built 10,000 apartment units, you may have had some hiccups with the first ones you built. But by the time you’ve built number 5,000, you’ve got this thing nailed. There are very few surprises.

In the health care arena, not so much. Number one, the apartment building component has senior and health care specific codes and applications applied to it, so it isn’t cookie-cutter. If it’s in Kansas or Missouri, it’s different. If it’s residential health care, assisted living, memory care, independent living, skilled nursing — there’s an alphabet soup of government agencies that apply the code a little differently.

Then you take the fact that the building that you’re building is about 65 to 70 percent residential and 30 to 35 percent commercial. So from a contractor’s perspective, I’ve got 65 percent of the building I could apply all of my apartment trades to. But I’ve got 35 percent of this building that’s an office building that has a commercial kitchen in it, a whole bunch of steel, fire regulations and many other regulations that are different. So I can’t necessarily apply the cost metrics I would apply to apartments. It makes it very difficult.

Prosser: Shirley, how does somebody become expert in navigating all of that?

Allenbrand: I helped write the regulations for assisted living back in the day, and I’ve been very involved in building and working with regulations. Having partners like Tutera Group and NSPJ who understand the regulations definitely affects how well your team works and the overall costs.

I came into a project recently in which they hired a designer who had no experience, and the designer ordered furniture in fabrics that weren’t rated. So they had all of this furniture coming into the community that they couldn’t use.

I’ve worked with architectural firms that didn’t actually look at the dimensions of the room, so the furniture they ordered didn’t actually fit. I’ve seen projects nearing the 50-percent completion date when they discovered the bathrooms weren’t big enough. Those are the big hiccups that can happen.

Tutera: It happens more than you would think.

Allenbrand: It happens a lot. Try going back and tearing down walls and redoing those bathrooms mid-project.

Tutera: The fix that Shirley’s talking about is a nightmare, too, because you’re open; it’s a business that you’re running. So by the time you have regulators inspecting the property to get to that certificate of occupancy, you’ve got staff hired, and residents are waiting to move in. Then to say, “Oops, I need another eight to 12 weeks for furniture”—that’s a big problem.

Homburg: You’re at the discretion of the inspector, and it’s not like a single-family or multifamily project in which, when you get your occupancy certificate, you’re pretty much done. You’ve been open for a year, and they’re finding new things. It can be very expensive to remedy things that are already in place. There’s going to be a disruption to facilities and a disruption to residents.

Allenbrand: That’s when the contractor is so important. Having a budget, a realistic budget, and a realistic timeframe from the contractor are key, because the developer is the one who’s paying the price. If your opening is delayed six to eight months, they’re not only losing revenue from people moving in, but also paying to hold those furnishings. Usually at the end of the day, if somebody’s gone way over budget, it affects the furniture. I’ve seen projects where you go in and look at their building and there are hardly any furnishings.

Harris: I read this week that 30 percent of the cost of doing one of these senior projects today is strictly due to regulations on everything from the insurance to the bathrooms. So when you look at a total package and they just keep changing the regulations and giving you more, that really affects the bottom line. The developers, architects, designers and management team look to us to figure out how to make these projects work.

Hanson: The definition of senior living has really expanded over the past five to 10 years as developers, owners and operators have tried to find their niche in the evolving senior living market. Companies have tried to do light independent living facilities, where they mix in some services, and then companies building strictly memory care facilities, and there are several combinations of different product lines.

That’s when a good team really comes into play. Because as Joe mentioned, at the end of the day, it becomes an operational business on an ongoing basis. And the operational component is key to its long-term success.

Prosser: What value can a third-party manager add to that process?

Hanson: Many third-party managers have multiple product lines under management and can draw on experience from each type to create value. Weigand-Omega Management and Omega Senior Living manage a wide variety of product lines including apartments, senior living, office, retail, hotels and resorts, and self-storage facilities, and having this perspective is a differentiator and creates value for our clients in the design, construction and lease-up phases of development as well as in ongoing operations and creating value.

I grew up in the property management industry, so when we launched Omega Senior Living, I came into the health care component of senior living with a fairly fresh perspective. This is an industry that, as you know, largely didn’t change for a very long time.

I’ve heard people in the industry refer to us as disruptors, to some degree, because I constantly challenge our team to look at a lot of things that the industry has typically done, and ask, “Why would we do that?” or “Why are we doing it that way?” If there’s a good reason behind it, then it makes sense. But a lot of the things that are done in the industry are being perpetuated simply because they’ve always been done that way.

It’s important to question and rethink products and services because what residents want is changing. What families want in their interaction points and how they care for their loved ones while living in one of the communities are also changing.

Tutera: I would put that management piece at the very, very top of the list because it starts with: “I want to do senior living. But what kind of senior living? What’s the client you’re looking to serve?” When a new project fails, usually the reason is you built the wrong product in the wrong market, or you didn’t put the right type of services in that facility.

So you might have had the greatest design, it might be beautiful, but you built 50 percent studio independent living apartments, which was not what that particular marketplace wanted. I think a manager like Craig would look at these things and say: “Let’s first talk about what the product is you’re wanting to build. Then let’s help you scale the property.”

Ultimately, the project’s going to go on to succeed or fail because you built the right product with the right services in the right marketplace, and the party that knows the most about that is typically the manager.

Hanson: Health care-based senior living is an operational business once constructed. Culture, to me, is the single largest predictor of success for operators, and the shortage of good, qualified staff is already a strain in the health care industry.

As the baby boomer demographic retires, there’s a huge amount of talent and experience leaving the employment marketplace, and I think a lot of health care-related companies are going to end up failing because they don’t have the right cultures. Vision, strategy and culture are all key, but in the end, if you don’t have a good culture where associates can thrive, you’re not going to breed success over time.

I’ve seen staggering U.S. statistics stating the current shortage of health care workers is in the hundreds of thousands, with that number quickly growing into the millions by 2025.

Tutera: It’s the single largest threat to the industry, no doubt about it.

Hanson: I agree.

Allenbrand: Statewide, the industry’s being overbuilt right now, often by market-rate developers who don’t know the ins and outs of residential facilities with a health care component.

Hanson: This is true, but in some ways, others getting into the industry can foster innovation and offer other benefits.

Homburg: I think we’re experiencing a true buildup. I read this morning that in 2019, the last age group of the baby boomer demographic will hit 55. And then in 2025, the first major shift of baby boomers will hit age 78, which historically they say is when you start transitioning into that next level of care.

We’re seeing the waves up ahead, and you’ve got people who have taken advantage of the early waves and built this knowledge base of experience. The people who are going to succeed in the next decade are the people who have embraced, understood and mastered it during these first years, and can then put that well-developed product in place in years to come.

Prosser: Why is collaboration important in a project like this?

Harris: From a contractor’s standpoint, it’s probably the most important factor. In fact, we do over 90 percent of our projects on a design-build basis. Design-build simply means that managers, developers, architects and interior designers are working as a team to build this.

It just makes it a lot easier than getting down to the end and figuring out that this is not going to work for many different reasons. My father built a facility in Chillicothe, Mo. years ago that looked like an old military barracks with one long hallway down the middle. If you compare the old-style nursing homes to something like Mission Chateau, there’s a world of difference in cost and construction. This is why you need the complete team working on the project from day one.

Prosser: Let’s talk a little bit about how important it is to have these types of communities in a neighborhood. How do you overcome the reservations that some neighborhoods have with these types of facilities in their community?

Homburg: With any large format project, whether it is a multifamily project or a senior care facility, you first have to find a big parcel of land. So either you’re taking away something that was historically in the neighborhood, such as a school or church, or you are parceling out and buying up segments of property.

People generally resist change, even if the change is for the better. You have to get them comfortable with the aspect that we’re doing something to enhance the community. People often live in the same communities for decades. They’ve bought their first house there, they raised their kids there, and now they are finally to the point where they need to move on.

That’s their community; that’s the fabric of what they do on a day-to-day basis. So having that familiarity — being able to go down the street to the coffee shop where you meet your friends and to the grocery store where you know that the ketchup is in aisle nine — really makes a difference in how they transition to that final family group.

We have to help the surrounding neighborhoods see that the people we’re going to be serving are their friends and neighbors. In many cases, it might even be a family member. It’s helping to fight the gentrification of the neighborhood so you don’t have these people being completely shipped out to the suburbs to some care facilities. They’re able to stay in the community where they’ve spent their entire lives, and they’re able to be near their grandchildren. Keeping the fabric of the community with this different type of living environment is important.

Tutera: The community is important because you’re building a lifestyle. Part of living in Brookside isn’t just that your house is in Brookside. It’s that Brookside’s in Brookside. That’s where the grocery store is, and that’s where your church is, and that’s where your community center and your restaurants and your shops are. You’re trying to build these spaces within the community that support this lifestyle.

The lifestyle extends beyond the four corners of your property line. So it makes all the sense in the world that if you want to build the lifestyle, then it needs to be in their community.

There’s obviously a blend because it’s somebody else’s community, too. In the end, it takes strong city leadership to help resolve conflicts and decide what is best for the collective community and then to build a consensus. If you don’t have an environment that embraces that, then it will be much more difficult.

Allenbrand: Having a strong management group is also key. Some of your residents are moving to a specific facility because their son or daughter lives in that neighborhood. So having a management group that cares and spends the time to create that as their lifestyle is very important.

Prosser: How do you design facilities so that residents can interact independently with their families and also the community?

Allenbrand: The real pleasure about this job was being able to work with the partners who had the vision to create those environments where residents can socialize, such as watch a ball game, or the community can come together for an activity. It’s important not only to create the space in the residents’ living area, but also to create social areas for larger groups.

Homburg: We create layers of intimacy of our social groups. You want to have a more intimate gathering spot for that network of close friends of two to three people. Maybe it’s inside your unit; maybe it’s a small gathering area inside the facility. And obviously, you’re going to have your larger group activities in the dining hall or in the large communal areas.

But having layers of intimacy helps residents feel that they’re not among the masses. They’re not on the cruise ship with 5,000 other people waiting in the buffet line. I don’t think people want to have that experience. Not feeling like you’re just one of the masses is critical to someone’s experience.

Allenbrand: When this team was planning this building, there was probably a team of 15 people at one point just to talk about the types of activities and events likely to take place, from happy hours to performances for 100 people. They talked about being able to take a room and adjust it so it accommodates several types of uses.

Prosser: Most seniors don’t have lots of expendable income or insurance to cover the cost of senior housing. So how do you design a project to help control those costs?

Tutera: Flexibility is an important element of the design over the life of a project. The residents at Mission Chateau today will be different in 15 years because they will age in place. The needs of those residents change and the needs of their physical space will change.

We have 23 different styles of units, and within those 23 units, you can probably change them into 40 different units. Even if a project is built correctly to today’s market, 20 years from now, the market will likely be different, and the facility needs to be able to adjust.

Our needs change as we age as well. Today, I need an independent living community. Tomorrow, I need assisted living. The next day, my spouse needs memory care. Maybe neither of us needs memory care. Maybe we need short-term rehabilitation. And we have to provide for those changing needs in a residential-type rather than institutional environment.

Homburg: As Dale mentioned earlier, we’re up against the headwinds of escalating construction costs industry wide, even beyond regulations. So as designers we have to find efficiencies. Do you find efficiencies with the economy of scale? Do you make a larger development that doesn’t feel like a larger development and then usurp the efficiencies of several hundred units to make that individual unit cost come down?

All the costs, whether they are from construction or management, inevitably go to the end users. We have to make sure the product type still fits the budget of the people who need it. One of our biggest challenges is finding a product type that remains affordable without becoming institutional.

Tutera: It is like we’ve mentioned at the very beginning on the management side, what is the right product and what are those size and scale aspects? We could take a Mission Chateau and make it half as large and double the rent. Would you get the same lifestyle and would it meet the community’s needs? No. But you can still have the wellness center, concierge desk and five different kitchen options. It just will cost you twice as much.

And you have to be aware of how the cost will affect the lifestyle. For example, you’re not going to find a country club of 50 members because that’s not a country club. Part of that cost factor is the scale. You have to have enough people to drive the activities. Ultimately, the residents make up the lifestyle. It’s their interaction among themselves, supported by the staff, that creates the lifestyle.

When you move into this wonderful community and it’s just you and your neighbor, there’s not a lot of lifestyle there. But if you come back two years later and it’s 70 to 80 percent occupied, there’s a lot of lifestyle. So you have to have an adequate scale to be able to provide all those amenities and services, and yet be able to make it affordable.

Prosser: Dale, does requiring that flexibility change your process at all?

Harris: Flexibility should come in the planning and pre-construction phase. Flexibility cost dollars and time if you wait until the project is already under construction. Most changes are done by the architects and engineers and then approved by the municipalities. Generally, this adds time to the schedule as well as cost to the bottom line.

If you know you need small meeting rooms and one large gathering area, this should be preplanned if possible. Or as Joe said, if we know upfront that we want to be able to adapt 23 different models into 40 configurations, we can put the extra plumbing in now rather than having to tear down walls later. We are very flexible if the owner’s desires change after the construction starts as long as he is aware of the cost.

Outdoor amenities, such as gardening and recreation areas, are a key feature with seniors. Generally, these can be added with very little cost or effect on the schedule.

Hanson: When we started Omega Senior Living, we vowed we were not going to simply park people in front of the TV for activities. We try to enrich lives. People don’t put their loved ones in an assisted living community to slowly pass away. They want them to live life to the fullest extent they can, whatever their current or future capabilities might be.

We want to provide ways for residents to bring a piece of their past identities with them, whether that is through past professions or hobbies like gardening, painting, playing music or leading activities or something.

Tutera: It’s the attention to detail. A lot of these things don’t cost a lot, but they took some brainpower for somebody to think about how to create a space for those opportunities.

Prosser: Shirley, you probably think about that all the time.

Allenbrand: All the time. One of the biggest things I miss about working day-to-day in those senior living communities is hearing the different stories. When I was working in a memory care facility, I remember a gentleman whose memory had deteriorated to the point that he could not remember his family. He used to be an avid golfer. So I asked his son to bring his clubs, and I took him to play golf. When he got on the golf course, it was like he remembered everything. When we left, he was like, “Where are we? Where are we going?” But he had that window of time when he was playing golf when everything was clear.

Hanson: So, something from his past awakened within him and activated a part of his mind that otherwise was somewhat dormant. There are all kinds of little things that can be done that speak so loudly to many different people.

Allenbrand: Designing kitchens so that if somebody was a phenomenal cook, they can go in and create all kinds of things.

Hanson: They could have their grandchildren working in the kitchen with them.

Homburg: Right, and you don’t want to give someone a two-burner cooktop and a 24-inch refrigerator. You want to give people those connections. You hit the nail on the head. They’re bringing that past life, or that connection, into that next stop in their lives. The familiarity of: “I can do everything that I used to be able to do. It’s all here.”

Tutera: It’s a resident’s choice: “I may or may not want to do that, but I didn’t have to leave anything behind, and I still have the choice of doing it.” That is independence, that’s quality, that’s caring service.