A Cautionary Tale for Aspiring Assisted Living Owner/Operators
The affordable senior housing market represents one of the greatest needs and opportunities in our industry—and one of the most unforgiving challenges in the senior living business today. This three-part series examines what happens when real estate expertise collides with operational reality, through the lens of one project’s collapse. Part 1 explores the attraction and the early warning signs that went unheeded.
Part 1 of 3: The Seduction
The phone call came on a Thursday afternoon; it was a referral from a long-time industry colleague. A promising new client, from a real estate investment group, with an impressive portfolio of multifamily properties wanted to expand into the assisted living space. They acquired a 45-year-old property in Los Angeles with plans to transform it into an affordable assisted living community serving a multicultural senior market. The market opportunity was real. The building had potential. Their enthusiasm was obvious.
What they didn’t have was any experience operating a senior living community.
Over the following eighteen months, I watched a project with genuine promise collapse under the weight of a deficient partnership structure and decisions made long before residents ever had a chance to call the community home. The property, which I’ll refer to as Sovereign Place, became a case study in how flawed structural business decisions made at inception and through a renovation process can create operational challenges that no amount of expertise can overcome.
This isn’t a story about incompetent people. It’s a story about well-meaning investors who didn’t know what they didn’t know, and the cascade of consequences that followed.
The Seduction of the Senior Living Market
The ownership group saw what many real estate investors see: a demographic tsunami creating unprecedented demand for senior housing, particularly in the affordable segment. They weren’t wrong. The need is real and growing. What they underestimated was the fundamental difference between owning a building and operating a state regulated, healthcare adjacent service business where people’s lives depend on getting it right.
In multifamily real estate, your primary relationship is with the physical asset. Maintain the property, fill the units, and collect rent. In assisted living, the building is merely the stage upon which an incredibly complex human drama unfolds every single day-medication management, care coordination, regulatory compliance, family dynamics, end-of-life decisions, and the sacred responsibility of caring for someone’s parent or grandparent and if you’re lucky, great grandparent!
The ownership group approached this venture the way they approached every real estate deal: negotiate the best terms, minimize upfront costs, and let the asset appreciate. They structured their partnership around real estate principles-who owns what percentage, how proceeds are distributed, and how decisions are made about the physical property. What they failed to structure was an operating partnership capable of running a business that requires someone responsible to operational decisions, 24/7 staffing, regulatory expertise, and substantial working capital despite being directed to do so by their consultant.
The Fatal Flaw No One Wanted to See
The lease agreement the ownership group negotiated seemed reasonable by commercial real estate standards. At $110,000 per month, they believed they were securing favorable terms for a Los Angeles property. What they didn’t model was how that number translated into operational reality. The other dilemma was that they did not reveal this figure until late in the process.
That rent represented over 37% of projected operating revenue. In a well-managed assisted living community, property costs typically run around 15% of revenue. Struggling facilities see that number climb to 20% or higher. At 37%, Sovereign Place was in what industry analysts may call a “structural loss position”—a financial arrangement where even perfect operational execution cannot achieve viability.
The math was unforgiving. Industry benchmarks show that operating costs in assisted living typically consume 65-75% of revenue. Property costs should account for another 15-18%. That leaves 10-20% for net operating income in a healthy operation. At Sovereign Place, before a single caregiver was hired or a meal was served, over a third of every revenue dollar was already committed to rent.
We explained this. We showed them the models. I walked through comparable properties and industry standards. But the lease was committed to. The ownership structure was set. And there’s a particular psychology that takes hold when people have already committed capital-they convince themselves that the numbers will work out, that their execution will be better, that the market will cooperate.
The numbers don’t care about optimism.
Coming in Part 2: “The Unraveling”
The structural flaws were embedded. The lease was signed. But the true collapse came not from spreadsheets —it came from partnership dysfunction, revenue assumptions built on outdated data, and the moment experienced professionals began walking away. Next, we examine how well-intentioned people watched a promising project disintegrate, one delayed decision at a time.
