Over the past several years, there has been an increase in partnerships and affiliations with third-party managers to run the day-to-day operations of senior care assets on behalf of sponsors who may not have the necessary operational experience and expertise. The ever-growing presence of investors and real estate owners with limited or no operating experience, the ongoing, increased industry complexities, the cost burdens of scalability, and the ever-changing demand for resources all contribute to the choice to align and partner with strong third-party management. While often a very sound and prudent path, it’s paramount that boards, owners, investors, and other sponsors do their homework to ensure they have the “right” third-party management partner. Following is a “Top Ten” list of essential considerations when selecting a third-party management company.
Find a partner who is willing to tell you what you need to hear—not what you want to hear. You want to feel and experience a partner who will manage and operate as if they “own” the asset. You’re looking for a partner, not a simple trade vendor. Whether it’s market, ROI, workforce, etc., you want and need the straight scoop. Seek a partner who will tell you like it is, be candid, ask the tough questions, and give the straight scoop.
Life’s too short. The sponsor and third-party manager will be spending significant time together if the relationship plays out as planned. Be clear and upfront about the importance of relationship building and true cultural alignment. Without this essential foundation, NOTHING else matters, and you’ll soon experience undue stresses and challenges that will hinder your ability to drive necessary and desired outcomes. Make sure you have the right fit, and you will avoid a lot of unnecessary challenges down the road.
There is no greater way to learn about what you can expect from a third-party manager than to learn from others who have worked with them. Ask for references from both current and previous relationships. This industry is complex, and everyone experiences successes and failures. Yes, everyone! That said, you want to find a partner with longevity and more wins and success than failures. Taking the time to complete this homework and due diligence upfront is essential.
Seek clarity and a definitive sense for what your third-party manager will and can provide as part of their service offerings. No two management companies are the same. Is the third-party management company able and equipped to offer a full suite of services? Do they incorporate their full mix of services under one agreement? Be clear and absolute on vetting this key decision point. Ask for a detailed listing of the services that will be provided and be clear upfront on how service voids will be handled.
Equally important to getting feedback from current and past relationships and references is finding a partner that can quantify their successes—both qualitatively and quantitatively. While your third-party management partner will likely conduct some “due diligence” on the sponsor and their asset(s), the sponsor should also do sound, data-driven homework on their perspective management partner. Again, you’re not looking for—nor likely are you to find—perfection. What you want is a partner who can exhibit strong historic trends, demonstrate their abilities, and show a proven track record of response when there have been challenges.
You want a third-party manager who will have a presence and be engaged with site-level leadership and staff. Your manager needs to understand the market in which they will be operating; you can’t get this key foundational knowledge from a distance. The sponsor and manager should establish routine time together to ensure absolute alignment, celebrate successes, and make mutually agreed-upon course corrections if outcomes and results aren’t materializing.
Workforce challenges continue to present themselves at all levels in the industry. While vetting your potential third-party manager, take time to understand the team that will be partnering with you. Ask for bios and backgrounds of key project team members and take time to meet and interview them to ensure alignment and fit. Seek absolute clarity on the team composition and make sure they have a multi-disciplinary approach that aligns with your specific project needs.
As more third-party management firms pop up looking to get into the space, there are likely voids in market specific knowledge and understanding. If you are considering a third-party manager from “outside” your region, make sure they have a proven process for gaining market-specific knowledge and connectivity.
Seek clarity on what value-added services the third-party manager may be able to provide beyond those absolutes laid out within the normal and customary management agreement. Again, not all third-party management companies are equipped to offer much beyond the basics. Needs change, circumstances evolve, unforeseen issues and opportunities arise. You want and need the certainty that your management partner can provide normal and customary management services, but you ideally want a partner who has value-added services you can lean on as the partnership evolves.
Once you’ve addressed the aforementioned key considerations, it’s time to memorialize everything into a clear and concise management agreement. Ensure absolute clarity around responsibilities of third-party manager and that of owner/sponsor, gain clarity around start-up and transition, be clear on potential exit or termination considerations up front, outline reporting expectations, address service voids, and incorporate a mutually beneficial fee approach that ensures accountability of the manager and provides for absolute alignment around outcomes.
Health Dimensions Group has years of experience owning, operating, and providing comprehensive third-party management services for a vast array of partners. We’d welcome the opportunity to share more about our insights and capabilities should you be contemplating a third-party management relationship.
Authored by: Craig Abbott,
Executive Vice President of Growth