Week 30: Market Rate vs. In-Place Rate | The Other 5%

How Much Revenue Is Hiding In Rate Compression?

----------------------------

Senior living operators spend a tremendous amount of time thinking about revenue.

Occupancy. Move-ins. Rate increases. Discounting. Care revenue. Collections.

Yet one of the most important revenue questions can be surprisingly difficult to answer:

What is every resident paying today compared with what we would charge for that same unit today?

Most operators technically have the information. It lives somewhere in the rent roll.

The problem is that having data and being able to use data are two very different things.

For many operators, the monthly rent roll is still a PDF or spreadsheet containing twelve or fifteen columns of resident information. It works perfectly well as a record of what happened.

It is much less useful as a revenue management tool.

If Resident A pays $4,650 and the current market rate for the same unit is $5,100, there is a $450 gap.

One resident isn't the problem.

Hundreds of small gaps across a portfolio can be.

How Rate Compression Happens

There are plenty of legitimate reasons an in-place resident may pay less than today's market rate.

A long-tenured resident may have received smaller increases. Market rates may have grown faster than renewals. A concession may still be embedded in the rate. A resident may have missed an increase because of the operator's renewal policy.

None of those decisions are inherently wrong.

The problem begins when we cannot see their cumulative effect.

Our recent analysis of renewal timing demonstrated one example. Under a single annual increase policy with a 12-month exemption, a resident who misses their first increase can remain one increase behind the alternative anniversary schedule for the rest of their tenancy. In the study portfolio, roughly 45% of tenured residents were one increase behind at a given time.

And that analysis specifically did not include additional compression against today's market rate, making the renewal leakage estimate the more conservative view.

That creates a bigger opportunity.

Turn the Rent Roll Into a Revenue Tool

Imagine an operator with 50 communities receiving 50 rent rolls every month.

The data may technically tell you that one resident is $200 below market and another is $375 below market.

But can leadership easily answer:

Which communities have the greatest rate compression?
What is the monthly dollar gap between in-place and market rates?
How does it vary by unit type or resident tenure?
Which residents have anniversaries approaching in the next 30, 60 or 90 days?
What did the last resident moving into a comparable unit actually agree to pay?

Those are revenue-management questions.

And answering them changes the conversation.

Not Every Gap Should Be Closed

This is important.

If a resident pays $4,500 and market rate is $5,000, that does not mean the operator should automatically increase the resident by $500.

Resident tenure matters. Competitive positioning matters. Affordability matters. Retention matters. An aggressive increase that creates a move-out may destroy far more value than it creates.

The objective shouldn't be:

Close every gap.

It should be:

Understand every gap.

Once leadership can see the variance, it can make an informed decision about it.

Without visibility, some portion of pricing strategy becomes accidental.

What Could the Opportunity Look Like?

Consider a simple example.

A 100-unit community has 90 occupied units. Across those residents, the average difference between in-place rent and current market rate is $175.

That's $15,750 of monthly rate variance.

Or $189,000 annualized.

That does not mean $189,000 is immediately collectible.

It means leadership now knows the size of the pricing variance and can understand why it exists.

Scale that across 25, 50 or 100 communities and patterns begin to emerge.

Maybe one region has significantly more compression. Maybe discounts issued two years ago are still affecting today's rates. Maybe a particular unit type has experienced rapid market-rate growth.

Now we aren't simply looking at a rent roll.

We're managing revenue.

Market Rate Isn't the Only Benchmark

There is one more data point worth considering:

What did the last comparable resident actually pay?

If published market rate for a one-bedroom is $5,200 but the last six residents moved in around $4,700 after concessions, $5,200 may not be the most useful benchmark.

Conversely, if new residents consistently accept $5,200 while dozens of in-place residents remain substantially below it, that tells leadership something different.

Current rate. Market rate. Recent achieved rate. Resident tenure. Renewal history. Occupancy.

No single field makes the decision.

Together, they provide context for one.

From Data to Decisions

Most senior living operators don't need another report.

They need the information already contained in their reports to become actionable.

A revenue tool should be able to say:

Here are the residents approaching a pricing decision. Here is what they pay today. Here is today's market rate. Here is the variance. Here is what comparable residents recently agreed to pay.

Then humans make the decision.

Because meaningful revenue can hide inside a rent roll without ever appearing as one giant number.

It shows up as $75 here.
$150 there.
An old concession.
A missed increase.
A long-tenured resident.
A market rate that moved faster than an in-place rate.

Individually, none looks particularly consequential.

Across an entire portfolio, they can tell a very different story.

The data already exists. The opportunity is making it actionable.

—JT

‍