Capital And Scale, Not Ideas, Are Biggest Barriers To Middle-market Senior Living 

This story is part of your SHN+ subscription

Senior living companies with middle-market models have a wealth of ideas for bringing down the cost of their services. What they lack are capital and scale.

But where there’s a will, there’s a way. Those are the words of Nexus Insights Founder Bob Kramer, a longtime advocate of the need and opportunity to serve middle-income residents. In a nutshell, Kramer sees a growing number of models that operators use to serve customers who can’t afford senior living rates as they are today but don’t qualify for affordable senior housing.

“There are promising models out there,” Kramer told me. “The challenge has been scaling them, and the biggest barrier to scaling is capital.”

During the recent NIC Fall Conference in Chicago, Kramer – who also co-founded NIC in the 1990s and previously served as the group’s CEO — presented the models of three operators, Leisure Care, Episcopal Retirement Services and Mainstay Financial Services, as worth paying attention to for reducing the cost of services for residents and their families while making a decent business margin.

That conflict between middle-market mission and margin is one of the big reasons the sector hasn’t come close to growing fast enough to meet demand. A September 2026 Green Street report found that an “average” community with development costs of about $350,000 per unit would not pencil out in the current cost landscape, let alone one geared toward the middle-market. Instead, senior living developers are flocking to high-end projects that can guarantee the return they need.

Models from the operators on the NIC panel all keep costs lower for residents through limiting services and customization options while being smart about development. And while there is no one-size-fits-all for the middle-market, the ideas these companies have implemented are worth examining.

All of this is underscored by the massive opportunity ahead in serving the middle-market. The latest data shows that millions of older adults will need middle-market services. Serving them doesn’t just meet a great societal need, it unlocks a massive business opportunity for senior living operators, many of which are struggling to grow otherwise.

In this members-only SHN+ Update, I analyze recent data and recent discussions about the middle-market to offer the following takeaways:

• Why middle-market projects still don’t pencil out 

• Inside the modern middle-market model 

Making the middle-market math work

For years, senior living operators have sought to grow offerings for middle-income older adults. In seven years, they haven’t gotten anywhere close to meeting the full wave of demand for those services.

The challenges start long before a community opens to new residents. Owners and operators of middle-market communities often see a community’s cost basis as a make-or-break moment for their ability to serve residents in the middle-income group. Even if a community aims to bring down rates for residents, many developers and investors require a certain return on any project they start. At the same time, investors are buying communities for cheaper than the cost to build them.

Beyond cost bases, the industry also struggles with the cost of labor. Senior living residents, especially those in higher-acuity settings, require care that operators can’t skimp on without hurting quality.

All of this spells trouble for senior living operators trying to keep their resident rates inside the NIC MAP middle-market definition of between about $25,000 to $74,00 in annual income and assets. In response to current market trends, capital providers such as REITs have allocated their dollars toward buying Class A communities with good current operating conditions.

As a result of current market fundamentals, there isn’t as much interest from lenders or equity investors for projects with middle-market rates because they might generate a lower return than other kinds of projects, Kramer said.

But Kramer also believes that investors are increasingly interested in senior living. The sector consistently outperforms other property types on the NCREIF Property Index, giving it a potentially attractive edge.

I don’t believe many investors or developers will chase the middle-market when they can buy or build a Class A community that commands higher rates and good returns.

“The ones that have really strong demographics where you have a high-income, qualified senior population and the ability to drive rents, those are the deals that pencil,” said AEW Capital Management Director Jennifer Wong, who is responsible for sourcing and managing AEW’s healthcare investments, during a NIC panel on development.

“I would love for the middle-market issue to be solved,” she said during the panel.

I do think investors or developers willing to take a risk on lower returns over the long-term can make these projects work. But the devil is in the details, so to speak. That’s where senior living operators come in.

Inside the modern middle-market model

The modern middle-market model is one that aligns a community’s design, pricing and target market while balancing expense control with market demands – all without losing sight of the mission to keep costs lower for residents.

During the middle-market panel at NIC, Kramer highlighted three companies with middle-market models geared toward the future. Episcopal Retirement Services operates in Ohio, where licensing is a requirement to provide care. Instead of providing the care directly, the operator contracts and brings in third party services, which eliminates the need for a costly license and paying for nursing staff and saves on operating expenses.

The operator’s leadership team also focuses on purchasing land “outside of the beltway in a community” and is “laser focused” when developing communities to have more control over expenses, according to President and CEO Laura Lamb, who spoke at the conference. The operator passes savings on to residents in the form of lower rental rates.

The organization develops patio homes with connected villas that have fewer options for customization to keep costs lower. The organization’s leaders also have pared down dining services and encouraged residents to order in, a lesson the operator learned years ago during the outset of the Covid-19 pandemic. Episcopal’s target residents aren’t looking to receivne a higher level of care while residing in the community. By building and maintaining relationships with third party vendors and suppliers, it helps maintain sustainable margins across the nonprofit’s portfolio.

Leaders with Mainstay Financial’s Mainstay Senior Living arm have access to investment, development, construction services through the parent company. This allows the company’s leaders to develop an investment thesis and an operating plan at the same time, allowing for greater control of strategy and execution and resulting in greater savings.

Mainstay keeps rental rates at between $3,600 to $4,600 per month using a combination of unit mixes and multipurpose spaces and bringing in care partners such as physicians, and hospice workers, alongside outside resource groups such as churches, nonprofits and volunteers.

Mainstay operates 18 communities in Florida, and residents of the Sunshine State can subsidize their care and rent with waivers from the state’s Medicaid Managed Care Long-Term Care program.

The company grows in secondary and tertiary markets using new hospital announcements to identify markets with a need for more senior housing.

Leisure Care mixes multiple unit types, from affordable senior housing to luxury living into the same community and eschews memory care and skilled nursing to keep costs low. For example, the company sets aside 40% of the units at one of its Northern California communities for affordable housing. All of these residents attend the same activities and programs, and there are waiting lists on both sides of the equation.

Mainstay is building and maintaining relationships with investors that are comfortable with slower turnarounds on returns and understand the need behind the market, according to Chief Investment Officer Tod Petty.

Leisure Care is also focused on location and development partnerships to make the model work. The company seeks to grow in high-median-income markets that can support the revenue needed to offset lower affordable rates, according to Chief Strategy Officer Bre Grubbs. The company’s leadership team uses density bonuses from the state government, which incentivizes adding at least five affordable housing units during development, to bolster revenue.

The company’s affordable senior housing residents pay a rental rate of between $1,900 and $3,100 per month, compared to the operator’s residents living in higher-end units with rates of $8,000 and $9,000 per month.

“Your market rates have to be high enough that when you add that affordable middle market component in, the economics of the development still work,” Grubbs said during the panel.

Taking stock of the ideas these leaders shared on that panel, it’s clear to me that there are multiple different concepts percolating for meeting middle-market demand while making a good margin. But these efforts still amount to a drop in the bucket relative to the millions of older adults who will want and need these services in the years to come. And they are also just harder to make work than standing up a high-end platform for more affluent residents.

But despite those pressures and sometimes unfavorable financial math, I don’t think this status quo will hold forever. The middle-market opportunity is so great that I believe more investors will mull whether lower returns and a longer runway in the short-term could unlock much greater opportunities down the road. I agree with Kramer that it’s high time for companies to bring more of these kinds of models to market.

The post Capital and Scale, Not Ideas, Are Biggest Barriers to Middle-Market Senior Living  appeared first on Senior Housing News.