Proceed with caution.

Eugene W. Grace is president and Cheryl Kiekow is advertising and communications director for Minneapolis-based Grace Management, which develops, markets, and operates retirement and assisted living communities and communities for the memory impaired.

Eight roadblocks to success in assisted living

NEVER HAS IT BEEN HARDER To DEVELOP AND FILL an assisted living community. With all the consolidation of late, if you're not a Wall Street 18-wheeler with a brand name, a large marketing budget, and the financial wherewithal to ride out a slow fill-up period, you need to be a sporty roadster, able to respond to market changes in a nimble manner.

While potholes abound, the following are some common hazards to avoid on the road to developing affordable, high-quality senior environments:

* Believing there is only one best payor--the private pay resident. There are still more assumptions than known facts about where the money to pay for assisted living comes from. But at least one recent study indicates that there are many sources other than residents' savings or home equity. The National Survey of Assisted Living Residences: Who is the Customer?, a recent study conducted by the National Investment Center for the Seniors Housing and Care Industries, reports that more than a third of residents receive some outside assistance, in the form of Supplemental Security Income (8.9 percent), Medicaid coverage C7.2 percent), payments from private insurance (3.2 percent), state assistance (2.8 percent); Veterans Administration supplements (.5 percent), or payments from Social Security, Medicare, Prisoner of War benefits, workers' compensation, state aid, pensions, and the military, among others (4.4 percent). Meanwhile, federal, county, and state assistance programs are shifting more Medicaid funds from home health and skilled nursing to assisted living.

What's more, the survey indicates that residents receiving financial assistance have longer lengths of stay than private-pay residents, and that residents receiving state assistance stay the longest on average (4.13 years). So ignoring or discouraging any but the private-pay resident is unwise.

* Believing you have the market all to yourself. It is nearly impossible to open a magazine, turn on the television, or tune into your favorite radio station without coming across some mention of our aging society. The din has caught the attention of a great many developers, who are eager for a piece of the action. Beguiled by current low interest rates, multifamily housing developers are expanding into age-restricted apartment complexes offering amenities such as transportation and limited services. The extended-stay hotels that have proliferated in markets such as Dallas, with their small yet complete apartment-size units, elevators, and common areas, are ideal platforms for conversion to age-restricted housing. Hotels, nursing homes, and struggling assisted living communities already in your target market also constitute possible competition.

Before committing to a new development, conduct a feasibility study to determine market need market awareness of assisted living, and competitive senior housing options. Find out all you can about developments planned for the near future. This can't be done from a desk, through the Internet, or from the Yellow Pages. It requires shoe-leather marketing and networking.

Talk to local real estate professionals. Talk to your competition. Tell them you are in town to do a feasibility study. They'll be eager to warn you about all the area's potential pitfalls, to discourage you from entering the market.

Talk to city officials that issue licenses and building permits. And pay facilities a visit. You may find, as one developer recently did, that what one provider listed with a city agency as a nursing home was in fact an assisted living community.

To distinguish yourself from the competition, think multi-level care. Independent and assisted or assisted and Alzheimer's are the most popular combinations. The two-level trend addresses the first question people ask: If my health deteriorates, can I remain here? What's more, many adult decision-makers know that mom already has early stage Alzheimer's, so they're predisposed toward a facility that offers Alzheimer's care.

* Assuming prospects will come from everywhere. Senior housing now has enough marketing history to identify where the majority of your residents will come from. In urban and suburban communities, your sphere of marketing influence remains primarily the five- to ten-mile area surrounding your location. But don't think in terms of a circle; zip codes and geographic boundaries such as a river, a mountain, or railroad tracks are more determinative of a marketplace. In secondary and tertiary markets, this polygon can extend 40 miles. Ask people where they go to church or shop; if they're traveling 20 or 30 miles, that's the market area. Markets have changed with the relocation of a freeway, which becomes a barrier to older people who avoid areas of large traffic flow.

Remember also that whatever the size and shape of your market, some 20 to 40 percent of your residents will come from outside of it, perhaps even from out of state, in order to be closer to their adult children. A market that has recently experienced an invasion of new employees 45 to 64 years old will therefore most assuredly increase the market draw for a senior community. The adult child aged 45 to 64 years old who earns $75,000 or more is the biggest decision influencer in assisted living and memory-impaired supportive housing. The National Survey of Assisted Living Residents reported that less than 10 percent of residents made a move without involving anyone else in the decision-making process, and that more than 51.6 percent of residents first heard about their facility from a child or other family member. The most influential person was usually a daughter (33.6 percent) or a son (21.5 percent). Sunrise Assisted Living zeroes in on market areas where there are age-and income-qualified seniors, but if t hey come across a large group of decision influencers, they'll build there as well.

* Assuming the apartment rental model works. Too many multi-family developers think an assisted living community is nothing more than an apartment complex with a dining room. A properly designed senior community combining independent and assisted living requires far more sophistication. Don't underestimate the value of time and money spent on architectural planning for a new community or remodeling an existing one. You can change management, ownership, and lenders, but modifying your design is very costly, if not outright impossible.

Most assisted living communities devote about 40 percent of the building's total space to common areas for dining and social interaction. Space reserved for individual units is considered less important, as one of the goals of assisted living is to discourage isolation. A good design should include adequate space for social and therapeutic activities such as a library, a wellness center, a computer room, and nook areas for resting as residents walk around the community.

Work health care into your design, but don't start with a medical model and cosmetically alter it to look like a home. Instead, create a strategic blend of homeyness and health care services. Today's consumers know what they want--and are demanding that they get it. Studies show that appearance of the residence is one of the top three deciding factors in the decision where to move (after location and services offered).

You must also incorporate flexibility into your building plans. You should be able to convert one-bedroom units into two-bedroom suites--if, for example, public money suddenly becomes available for residents willing to double up. Continued appeal and ultimate success depend on your ability to gauge consumer satisfaction; you must be willing to adapt to the market's desires, developing residences that are truly market-driven rather than design- and pro forma-driven. Future generations' demands for services and amenities will fluctuate--and not always in accordance with your initial objectives.

* Underestimating the appeal of aging in place. A common misconception among developers new to this industry is to assume they can avoid serving the frail elderly. But even if they start out serving seniors with minimal needs, higher acuity levels and turnover rates are down the road. We all age daily. You must make a concerted effort to consistently reevaluate the care needs of your residents--for their own good and for the success of your community. Transfer residents who are no longer able to function independently to assisted living. Move residents requiring more services than assisted living can provide to a nursing facility or an Alzheimer's care residence.

* Believing assisted living communities are far more profitable than skilled nursing facilities. According to a number of national surveys and operating histories, the net operating income projections for assisted living anticipated years ago are not materializing. The rising acuity level of residents has increased operating costs as a result of an increase in staff requests necessary to effectively care for residents. This "cost creep" has forced operators to increase revenues by increasing their prices. But there's a limit to how much more residents can pay. As a result, most operators must absorb some extra costs or face an increasing number of empty units.

* Believing that people actually want to live in an assisted living residence. Assisted living is a need-driven, emotionally-charged market, and the myriad senior living options can be very confusing to the average consumer. A marketing plan must include an extensive educational and community awareness program to attract and retain appropriate residents. The money you spend during pre-opening and your first months of operation will help you establish a reputation for your residence--a necessary prerequisite to getting community networking organizations comfortable with referring clients to your location.

Another reason for premarketing is increased competition. Studies show that a majority of residents consider two or more communities before making a decision--and that some consider as many as five.

* Projecting overly aggressive fill rates. Do this and you risk running out of marketing funds prematurely. What used to take six or seven months is now taking 12 to 18 months. Anticipate the former and you may wind up with egg on your face; go with the latter and you may beat your initial projections. Affecting fill-up are the size of the property, the geographic location, and the opening date. Other factors are public awareness of assisted living, the design of the community, and adaptations based on what local seniors want and need and the amount of money spent on pre-marketing.

Timing is crucial in marketing. Start too early and you'll spend more and get less bang for your buck as prospects drift off, frustrated that you don't have a building to show. Start too late and you'll lose momentum and risk cash flow problems.

These are the danger zones. Now that you know where they are, you're ready for the real challenge: finding your own path.