• Fri. Apr 16th, 2021

As COVID Reveals Fatal Flaws in Nursing Home Design, Industry Vet Levin Sees Opportunity in Renovations

Of all the systemic flaws that led to the still-unfolding disaster in American nursing homes, the design of the buildings themselves stands among the most plainly visible.

Shared rooms where residents live up to four abreast, with double occupancy still the norm in most facilities. Communal bathrooms where, in addition to suffering the indignity of queuing up in the hallway just to take a shower, residents can easily spread viruses and other infections. Under-utilized common areas that, after meal service, sit empty and unused for most hours of the day — even as residents and their families crave the kind of normalcy that came with meeting up for coffee or a drink in a cafe, or even just their old living rooms.

The need for new skilled nursing infrastructure had been well-known prior to the COVID-19 pandemic, with average physical plant age stretching into the 50s and the infection control limitations clear to both operators and advocates.

But with the operations side of nursing homes constantly crunched for funds, and concerns over how to take a vital health care facility out of commission during a potentially lengthy redesign, momentum toward a real renovation push was nonexistent.

Steven Levin believes that COVID-19 could change all that.

With the novel coronavirus already leaving vast chunks of nursing homes empty, and revealing the fatal flaws in the current crop of facilities, Levin believes the time is right for operators to take the plunge — and he launched a new design and renovation venture, CapEX Solutions LLC, to capitalize on what he describes as a necessary trend.

“They really become part of the community, as opposed to the old, decrepit health care facility where people go to die,” Levin said of renovated properties. “They’ve really got to get rid of that mindset.”

Levin has spent more than 40 years in the skilled nursing and senior living space, most recently forming the development and investment firm Hana2.0 in 2019 with a group of fellow veterans of real estate investment trusts (REITs) AVIV and Omega Healthcare Investors (NYSE: OHI).

With CapEX, Levin hopes to push operators to embrace the need for literal structural change at their nursing homes, from conversion to all private-occupancy rooms to the small touches that can make a health care facility feel more like home.

“I have toured thousands of skilled nursing homes and I always ask to tour the public restroom and the staff break room,” Levin said. “If no attention is paid to the comfort of visitors and prospective customers, along with the amenities for staff, [it’s] a true indicator of the overall mindset of the operator.”

Tell me about your decision to launch your own design and renovation firm.

I’ve been in the sector for close to 40 years now. I started out practicing architecture in the space and then worked for several operators, back with EPOCH Senior Living and Wingate Healthcare. Then I went to AVIV, and the reason I went to AVIV is I worked with Steven Insoft.

With my background for architecture and construction, I joined AVIV prior to them launching the IPO, and the sole purpose was to upgrade and renovate the portfolio. The first thing I did was introduce what I called the brand standards, no different from the hotel industry. I thought it was very important to let [operators] be involved in the day-to-day, and not be distracted with renovations.

If you could put together a pallet of standards — of what a resident room should look like, what a day room should look like, what the dining room, the lobby, the physical therapy, and all the amenities — they basically would just have a [baseline]. We called it good, better, and best, and depending on which market they were in, we always wanted to make sure that the buildings were market-appropriate.

We launched a very aggressive renovation program, and obviously, being the REIT, we were funding it — the operators paid the additional debt service, but it wasn’t like they had to go out and find the money. We were the money.

We renovated several hundred facilities. I was the person involved in creating the Maplewood product.

When we went to Omega, they were set in their ways, and they left a lot of the renovations and upgrades and changes to the operator. We had a different mindset; we wanted to make sure that all the properties that we owned were up to snuff, and had improvements and were able to not only offer quality of care to the residents, but also offer quality of life to the workers — so they would be able to [achieve] retention, and attract the proper health care workers.

I got a little frustrated and said, “You know, I’ve got to do this thing on my own.” I’ve done it before, and I saw such a great demand where I have this strong experience in architecture, construction, and health care — to go out and offer my services as CapEX Solutions, which is really going to be a strategic company providing solutions to people that have old, antiquated nursing homes, for them to be able to make the modifications so that they can compete within the marketplaces, and all of this newer product.

I think you’re going to see a lot of people lose a lot of their residents and occupancy to the newer product. There are advantages of taking some of these older, rural products — or anywhere, even if they’re facilities that are on Main and Main, and located next to major hospital systems — to go in and renovate and provide a great quality of life.

How do you functionally make that happen? Everyone seems to agree that traditional nursing home design needs an upgrade, especially after the baked-in failures we saw during COVID-19, but there hasn’t been a ton of movement over the last several decades.

I’ve run across this over the 30 years of being in the business — operators, it’s not their thing, and they can’t get out of their own way. They don’t even know how to address the situation, that’s one. And two, they all get concerned: What are we going to do with the revenue stream while the construction is going on?

Well, then in that case, that’s why you set up a program where one, you don’t have to close the building; you can do it by rooms, and obviously, it’s going to take a lot longer time, but it does get done.

In this day and age where there’s at least 10% to 20% occupancy declines, it’s going to take time for them to ramp [back] up. So while you’re ramping up, this is such an opportune time to actually go in and renovate buildings, while you have this lower occupancy.

But you’ve really got to leave it to the hands of the experts, because you basically are doing work around the clock — you’re doing work at nighttime, while the people are sleeping. You’re doing half of the corridors at a time, and then you come back and do the other half.

There’s ways to do it. But the key thing is getting to the operators and making them understand that when it comes to health care, that’s their expertise, and that’s what they should make sure that they control. But when it comes to renovations, they’ve really got to hand that off to the experts, and know that somebody can handle it without impacting the day-to-day, or having any kind of a major impact on their revenue stream.

What are the top areas of renovation that you think operators should focus on now?

The key thing is private rooms and private bathrooms, and really deinstitutionalizing the feel and the environment of the older product. I always tell people, when you come in, you look at these spaces — certainly the dining rooms, which is the largest area of the facility — they’re so under-utilized. The only time they use it is when they’re dining.

You’re dining three times a day for a limited time, and then the rest of the day, the space is empty. Those are the spaces that really need to be repurposed and repositioned. So yes, they can be used for a dining room, but when they’re not in the dining room, they can be used as cafes or lounge spaces, meeting places. They can have areas where the family can come in and feel comfortable.

Nobody wants to go into a nursing home. But if the nursing home had an environment where you can go in and, while you’re meeting with a loved one, take them out of the room and bring them to a more of a private, intimate area where there’s coffee and beverages, a newspaper, a TV — you can read a book, you can tell stories or whatever the situation might be — it would just be a far superior environment and a product that could really be marketed as one that meets today’s current standards.

There’s so much under-utilization of the buildings. But private rooms are such a key, and private bathrooms, as well as the showers. Nursing homes need to remove themselves from having people line up in corridors to get their daily showers. Quite frankly — it’s a harsh word, but in this day and age, it’s barbaric. There’s no reason that the integrity of a resident needs to be such that they have to wait in the corridor to get bathed. There’s no reason for it.

How do you strike the balance, though, between maintaining bed counts — a top concern for operators — and setting up those private rooms and more livable spaces?

The key thing is having all the decisions made up front. When I develop these brand-standard packages, they’re really almost like buying a home that’s already furnished. Once the selections are made, and everything is in place, it’s no different than a Starbucks — they do a renovation, the containers show up, everything is there, and then they begin the work within a matter of days. You come back two days later, and: “Oh, my God, when did they do this work?”

It’s very key to have all the decisions made very early on upfront, and never initiate any of the work until all of the supplies, the furnishings, the fixtures are actually on site. More often than not, a contractor comes and a light is missing. It might be that the shower is cracked, the tile didn’t come in — we’re missing five pieces, and the resident can’t go back in the room. But if you have the program done down to a science, where there’s basically no room for error, a very limited amount of beds need to be taken out of service.

So often I’ve seen it: You go into these facilities, and they have multi-bedded rooms. A whole wing is empty, two wings are empty. You say, “What’s going on here?”

“Well, we don’t have the occupancy.”

I know. But you have rooms that are double. You have two people in a room; you have triples and quads. I say, “You could offer everybody a private room.”

They say: “Oh, we had no idea we could do that.”

As someone still relatively new to covering the space, it’s definitely true that more so than a lot of industries, long-term and post-acute care operators can be very set in their ways — but we’ve seen how that attitude can fail seniors over and over.

We have situations where we’ve done all the presentation boards; you put them in the lobby, you bring in family members: This is what we’re going to do.

You address the local hospitals and the physician networks, and you bring the people into the community. You always talk to the hospitals. You talk to the doctors. You ask them what their needs are. They basically take ownership, and they take interest in the renovations, because ultimately it’s their patients that you want to be admitted into the facility

A lot of the operators just don’t want to deal with the headache, because it is a headache. But if it’s done the right way, and you’re dealing with the right people that have the experience, and that can deliver the positive outcomes in a short time, without really impacting the day-to-day, the end result is such a bonus to the overall facility — both from an operational level, and also reputation.

They really become part of the community, as opposed to the old, decrepit health care facility where people go to die. They’ve really got to get rid of that mindset.

There’s a real purpose for these types of communities, but they do have to have a level of hospitality. They do have to have a level of upgrades and cleanliness and infection control, and be pleasant and aesthetically pleasing. It can be done.

At some point, if you don’t pay attention, you’re going to lose the assets. The next person in, once the keys are handed back, nobody wants the facility. And if they do want the facility, the amount of money they’re going to pay, because the amount of money that has to go in from a capital improvements, cap-ex standpoint, it’s going to be a disaster, and they’re going to lose the assets.

You see it now — whether it’s Sabra, Omega, Welltower — the old stuff, they don’t want to deal with it. They’re just getting rid of it.

What’s your take on the common idea that it’s often cheaper just to rebuild and start over again, as opposed to renovating existing stock?

That’s also true. There are times, depending on what the price point is — and what the market is, and construction costs — that it might be cheaper to build new. Right now I’m involved in North Carolina, rebuilding a building that was destroyed in the hurricane. We looked at it, and it was better to build new; it’s going to be less costly to build new — and build, obviously, with today’s standards and private rooms, as opposed to renovating that building.

Also in Florida, we’re taking two nursing homes, two smaller nursing homes, and building a new one. But that’s really not bringing any new beds into the market; it’s a way of maintaining these existing beds in the market, of bringing them new life.

When you look at it, and you start thinking about when you build new, you have to factor in not only construction costs, but land costs, and then also all of the startup costs. When you add that in, it’s cheaper, less expensive to renovate an existing facility — especially if you’re talking about a facility that is going to really attract more Medicaid and typical Medicare residents, you’re always better to renovate.

But if you think you really have the ability to build a facility that’s going to be on the campus across the street, next door to a major hospital system, and you’re really going to be catering to a short-term, what I call a high-volume, revolving-door population, then you might be better off rebuilding — because you’re going attract that high-premium Medicare rate.

This interview has been condensed and edited for clarity.