The Senior Living Construction Environment: Updates & Predictions
Updated: May 27, 2022
Lisa McCracken, Director of Senior Living Research & Development for Ziegler, Shares Key Findings from the 24th Annual Ziegler LeadingAge National CFO Workshop.
More than 200 financial professionals from the not-forprofit senior living and care sector convened in New Orleans for the 24th Annual Ziegler LeadingAge National CFO Workshop. The conference was the first in-person gathering since 2019 and was a huge success. The conference covered a number of strategic topics of importance to CFOs and finance professionals.
Given the recent and future construction activity in the space, providers are clearly focused on managing a successful project in the midst of the current pressured economic environment. One of the most highly attended sessions of the week was devoted to construction trends.
In the session, Construction Update & Forecast for the Senior Living Sector, presenters Tad Melton with Ziegler, Chris Harrison with leading general contractor Weitz, and Doug McMillan with construction consulting firm zumBrunnen, outlined a number of the key pressures facing today’s construction industry, including:
Increasing costs of materials (steel, lumber)
Rising freight costs (trucking, ocean shipping, diesel pricing)
Construction wage increases hitting a 40-year high
Construction job openings exceeding the number of new hires
Lengthened lead times for materials
Will Pressure Continue Throughout 2022?
The presenters shared that while most material and equipment costs are predicted to continue to increase throughout the remainder of the year, there have been some decreases in costs of select materials.
Specifically, both steel and rebar are down from record highs and are forecasted to continue to trend downward for the rest of 2022. Generally speaking, however, Weitz is predicting a 1%/month increase in most material costs.
Tips for Success
Despite the ongoing pressures, there are some strategies that providers can implement to make their construction projects go smoothly. The presenters went into great depth on these recommended practices, several of which are outlined below.
Experienced Team: The current market conditions necessitate an experienced team. This includes both in-house leadership as well as strong partners who have prior experience with campus projects. There needs to be a dedicated team focused on successful project execution and one that is regularly focused on constant and consistent reconciliation of scope, schedule and budget.
Smart Construction Contracts: There are clear best practices as it relates to structuring a contract, one in which delivers a win-win for the provider and contractor(s). Important elements include insurance provisions, liquidated damages, schedule provisions, requirements for status reporting, documentation, payments, etc. and change order management among other items.
Project Contingencies: There needs to be planning for various project contingencies, ranging from hard costs, soft costs (e.g., design, marketing/sales), and internal contingencies inside of the GMP contract. There are many potential risk factors that can impact the level of contact , and internal contingencies inside of the GMP contract. There are many potential risk factors that can impact the level of contingencies and it is critical to be prepared for various scenarios.
The construction environment is being closely watched by many senior living provider organizations as they look ahead to future projects. Ziegler plans to host a webinar in the coming weeks that will mimic the content and speakers from this session at last week’s CFO Workshop. Stay tuned for registration details in the near future.