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In this "Expert Opinion" interview, Katy Fike and Stephen Johnston, Co-Founders, Aging2.0, discuss technology, aging in place, the future of senior care, forming Aging2.0, and more.....

Katy Fike Read the transcript

 

Katy Fike Ph.D. is the co-founder of Aging2.0, a global innovation network, and a Founding Partner of Generator Ventures, an early-stage fund focused on aging and long-term care. Katy is a PhD gerontologist, strategy consultant, former investment banker, systems engineer, blogger and investor. She is a sought after speaker on topics related to innovation and aging and has been featured in national media including BusinessWeek, Forbes, Tech Crunch, Bloomberg TV and PBS NewsHour. Katy is on the Board of Directors of the American Society on Aging and the Family Caregiver Alliance and earned her PhD in gerontology from the USC Davis School of Gerontology.

 

Contact Information:

Katy Fike
Co-Founder
Aging2.0
562-440-3095
Katy@Aging2.com
 

Stephen JohnstonStephen Johnston MBA is the co-founder of Aging2.0, a global innovation network, and a Founding Partner of Generator Ventures, an early-stage fund focused on aging and long-term care. Stephen is a globally minded social entrepreneur and innovation strategist who has spent his career at the intersection of technology and collaboration. He has worked for multiple Fortune F500 companies and is co-author of Growth Champions (Wiley, 2012), a book about sustainable corporate growth. Stephen serves on the board of Older Adults Technology Services (OATS), a New York-based nonprofit. He has an MA in Economics from Cambridge University and an MBA from Harvard Business School, where he was a Fulbright Scholar.

 

Contact Information:

Stephen Johnston
Co-Founder
Aging2.0
347-843-9367
Stephen@Aging2.com
 

Read the interview transcript:

 

Steve Monroe

I’m at the Aging2.0 Global Innovation Summit in San Francisco and I’m sitting here with the two founders, Katy Fike and Stephen Johnston. So, what made you guys come up with the idea for Aging2.0?

Stephen Johnston
Well, this was a couple of years ago that both independently we thought that there wasn’t nearly enough innovation in the 50-plus market. We came at it from a different journey. My background, I was in the mobile business. I was really involved in mobile healthcare and was involved with an individual and they had dementia. It was really interesting to learn about the needs and challenges of people with dementia, in particular the lack of products and services for the family.

I was looking around, how can innovation, how can the technology, the startups, the mobile industry that’s doing so much in so many other areas not focus on this really important topic of older people and dementia?

So I started blogging and then I met Katy. And Katy, as an innovation consultant, had her own journey and she arrived at the same point herself.

Katy Fike
Yeah, I started in investment banking and then went back to school and got my Ph.D. in gerontology. When I went back to school, I was struck by this world I’d come from, kind of business and technology, wasn’t part of the dialogue in gerontology at the time. And I think we both felt like there’s so much potential to rethink business models, to rethink connection and independence. And so we wanted to spark innovation and get more of these groups talking so they would come in the world faster. Because we have a lot of urgency, we think about what needs to happen and we want to start catalyzing that.

Steve Monroe
Getting more and more urgent by the year.  So, tell me a little bit about the GENerator and what’s involved with that and how that works.

Katy Fike
Sure. So, over the past two years we’ve hosted 50 events in 10 cities and three countries, meeting entrepreneurs from all over the world. And what we found is that they all had very common challenges. They had some challenges around understanding what their needs really were. They had challenges around designing and user interface and marketing. And their biggest challenge was around distribution and how do you go to market. They also needed capital.

We heard this over and over again and finally we said, you know what? Let’s pick the ones we’re most excited about and design a program that can help them overcome those barriers. So we picked 11 startups that we really liked and we brought in a mentor network that could kind of help them overcome those barriers. We worked with them for six months to try to accelerate the progress they could make during that time.

Steve Monroe
And you found them or they found you?

Katy Fike
We found most of them through these events that we would hold. But there was a tipping point. We used to kind of have to go looking and now they started to come to us to say, Hey, we understand you might be able to help us connect in to capital or connect in to the long-term care channels. And so we now get a lot of inbound startups that are interested in plugging into the network.

Steve Monroe
And you’re having this first group graduate this week.

Katy Fike
We are, the final…

Steve Monroe
What happens now?

Stephen Johnston
Tomorrow’s going to be the summit and it’s actually not only—it’s the demo day, but it’s also just Aging2.0 Innovation Summit, so it’s combining the opportunity for them to go out into the world and to talk about what they’ve done the last six months and then also to bring other people together who are investors and the industry experts and other startups to really make a big platform for innovation to talk about what happens. And this is really what we’re trying to do, is spark this conversation of how to increase innovation and how to get the right people who haven’t necessarily been talking together—the startups with the investors, with the industry. And all in the room at the same time. And that’s what tomorrow is going to be all about.

Steve Monroe
Okay. Now, are you looking for any particular kind of technology? I mean, when you look at these companies that went into this first GENerator, were you specifically targeting things? Because it looks like there’s a huge variety.

Katy Fike
There is. And so we try to make it not about the technology, but about the need. And then you kind of apply the technology that can best address that need.

So we have one who’s doing transportation. He’s using a mobile app to make it easier to request the transportation. And so sometimes it’s kind of behind-the-scenes technology that’s making things run more efficiently. Other times, it’s things like sensors and wearables which we’re seeing in other spaces, but now entrepreneurs are bringing into the aging context and developing specific products for them.

So we have sensors, wearables, you have big data, we have mobile, lots of mobile…

Stephen Johnston
Yeah, there’s a mega-trend around aging in place that just really comes from multiple different angles. There’s so many smart homes and smart sensors, but there’s also a lot of people who are realizing the power of helping people stay connected. And addressing this isolation epidemic. We’re seeing some really interesting new models that are sort of merging traditional healthcare with much more wellness, much more communication and media tools, which is really coming into a whole new category that hasn’t existed before.

Steve Monroe
When you say there’s a need right now, there’s a rush to it, demographics has been talked about for a long time. But when you talk about technology and senior care, are we really talking about next year? Is there going to be huge technology change five years from now, 10 years from now? When will the big tech revolution come?

Katy Fike
I think that’s one of the challenging things about technology, I don’t think we should wait. It’s here and it’s going to continue to evolve and so when we talk to our corporate partners, it’s a lot about finding a platform that’s going to be able to evolve as the technology changes quickly. And so that’s why I think cloud-based platforms and open APIs and things so that you can have a platform and then, when that next widget or that next sensor comes out, it fits into your platform.

That’s a nice thing about the cloud is that you can stay flexible, whereas so many providers used to have their closed-in, self-built system that runs their enterprise software and I think that’s very much changing.

Steve Monroe
How do you feel about the response to this first global summit?

Katy Fike
We are overwhelmed. I keep saying this that it honestly reminds me of how you feel like on your wedding day. Which probably says funny things about me. But that we look at the guest list and we can’t believe that all of these people are coming together to talk about this. It’s one of those days where you hope it goes slowly, because there’s so many things that we’re looking forward to and having these conversations. And I think we’re already excited to do a multi-day…

Stephen Johnston
I know.

Katy Fike
…next time.

Stephen Johnston
I know, I know. We’re telling everybody you have to speak really quickly. One of the exciting things is so many people from around the world, as well. We have people representing India, Singapore, the Netherlands, Belgium, the U.K. and Australia. So it really is a global summit and one of the things that they are bringing is their perspectives. Because the world is very different outside the U.S. and they have very different regulatory environments and healthcare systems and business models. And so we’re going to be able to learn from each other tomorrow. I think that’s one of the most exciting things.

Steve Monroe
Well, that’s a good segue into this question: Are you going to take this summit on the road to other major U.S. and non-U.S. cities and try to replicate that? Or is it just this market’s so big that it’s easier to be more successful here?

Stephen Johnston
We have a lot right here to go with as it is. My accent, I’m from the U.K., I’ve been in the U.S. for six years and one of the things that Katy and I have always done since the beginning is to make Aging2.0 a global story. We would say the future is here, it’s just unevenly distributed.

And so we’ve done that already with the Aging2.0 local events. We’ve had 50 events around the world in the U.S., the U.K. and Germany. And we’d love to get on a plane and go to Singapore, go to Japan, go to China and continue that dialogue. But what we’re able to do now with this summit is really take things up a notch and have a really major event that is going to be a flagship. And I think after that it’s going to be much easier to see where the world lies. I think, ask us again in a couple of days and then we’ll be able to give you a better answer.

Steve Monroe
Okay, well, I’m sure it’s going to be a huge success. I went over the attendee list and it’s a great combination—it’s a unique combination of people. That’s what’s different compared to everything else I’ve been to over the last 25 years. So it should be fun and it should be a great learning experience. So, good luck to you all and I’m sure we will be sitting down together in the future.

Katy Fike
Thank you so much for making the trip.

Steve Monroe
Thanks for sitting with me.

Katy Fike
Thanks.
 


 

 

 

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May 20, 2014. 60 Seconds with Steve Monroe. A developer has reached their goal of $1.5 million of equity raised by crowdfunding, something that more people may try in the coming months.

Crowdfunding For Senior Care Development

In our May issue of The SeniorCare Investor, we wrote about MainStreet’s experiment with crowdfunding as a means to raise a portion of the equity capital for a new senior care development in Indiana. At the time, and they were just a week or so into it, they had raised a mere $25,000 towards a goal of $1.5 million. Just one month later, they reached that goal and are set to open it up for another $300,000. The sponsor’s capital was supposed to be a little over $1.8 million, with $10.0 million of bank financing, so we don’t know whether the debt will be reduced, or the sponsor’s capital, if they raise the extra $300,000. It doesn’t matter much, and the point is that the success of the non-traded REITs in raising billions of equity in small $10,000 or $25,000 pieces has clearly demonstrated not only demand for higher-yielding investments, but a belief in the relative safety of seniors housing as an investment class. Obviously, there is always risk in every investment, especially with development, but this may be a trend picked up by other developers and providers.

 

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May 13, 2014. 60 Seconds with Steve Monroe. The Aging2.0 Global Innovation Summit kicks off in San Francisco.

Where Senior Care Meets Technology

Today I am at the Aging2.0 Global Innovation Summit in San Francisco, which is bringing together Silicon Valley and senior care industry executives and investors. Yes, seniors housing and care is a “people” business and a human touch business, but technology is shaping all of our lives whether we like it or not. Just ask any 20-something, and I’ve got three of them with more coming, so I know.  Smart homes technology has been around for a while, but it is getting better and more sophisticated, and while some people may find it a little creepy, just wait until you have a forgetful 90-year old parent who falls a lot. From robots to wearables and virtual reality, we are seeing it all. But the technology people need input from the providers to make sure the path they are going down is going to have actual practical uses either in the senior living community or the home. And both will need capital to develop a product or idea. So bringing a few hundred senior care providers, capital providers and technology innovators together in one room will hopefully just be the beginning.

 

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In this "Expert Opinion" interview, Paul Dendy, Founder and CEO, Milestone Retirement Communities, discusses prototypes, REITs, assisted living, memory care, and more..........

Paul Dendy, Milestone Retirement CommunitiesWatch the video      Read the transcript
Paul W. Dendy was a founder and is Chief Executive Officer of Milestone Retirement Communities, LLC, located in Vancouver, Washington.  Milestone began operations in April 2008 with 5 retirement communities and 289 resident units.  Currently, Milestone manages 27 communities totaling 2,715 resident units, plus an adult day care with average daily attendance of over 40 seniors.  Milestone's management team owns all or part of 14 of the 27 communities or operating businesses.

Paul has worked in the seniors housing field since 1989.  He has served in finance, development, acquisitions and senior executive roles in public and private companies with as many as 3,000 seniors housing units.  He has acquired or developed and financed several dozen retirement housing properties.  Previously, he had extensive careers in venture capital and public accounting.

He has been active within retirement housing industry groups and was previously a member of the Board of Directors and the Owner/Operator Advisory Board of NIC.

Paul holds a BA in Finance and an MBA, both from the University of Washington.  He is proudest of being a grandfather of 9.
 

Contact Information:
Paul W. Dendy
Chief Executive Officer
Milestone Retirement Communities, LLC
paul@milestoneretirement.com
13115 NE 4th St, Suite 120, Vancouver, WA  98684
Main Office  360-882-4500 
Cell  360-931-0549  
Fax  360-882-4501
Satellite Office 360-892-2920 
Satellite Office Direct Line 360-823-1665



Watch the video of the interview: 
 

 

Read the interview transcript:



Steve Monroe

A lot of senior housing companies are growing. You can grow by acquisition, new leases, and management contracts. I’m here with Paul Dendy. He’s the Founder and CEO of Milestone Retirement Communities, which manages, I think you told me, Paul, about 27 properties right now, mostly out west. 

You recently took over a large group of communities last year. What spurred that transaction and how is it going with those?

Paul Dendy
Well, what spurred it for the owner was that he wanted a management company that had more of a commitment to having field staff ratios that provided more support for the buildings. Our ratio of people actually in the field is 2.5 to 3 times what the prior management company was doing.

Steve Monroe
Wow, that’s a big difference.

Paul Dendy
It is a big difference.

Steve Monroe
And the costs go up then.

Paul Dendy
Well, absolutely. Our operating costs have increased tremendously, but we feel it’s a good investment. It’s allowed us to broaden and deepen our management team that helps those properties plus the rest of our portfolio.

Steve Monroe
Do you see Milestone taking on more portfolio management contracts in the future?

Paul Dendy
Well, we’d certainly like to if there’s a good fit with the geography of the owner. It’s very important for us who we work for and that we have a meeting of the minds about the importance of resident care and taking care of the asset. We are looking at some small portfolios right now.  That last one you referred to is 10 communities, which was a big bite for us to take. And we certainly couldn’t have done it at the time we did without the fact that we had formerly managed those properties in a prior life, so we were very familiar with them.

Steve Monroe
That really helps. But you can grow with some portfolio acquisitions or management contracts, but how about just kind of onesies, twosies in the regions, in the local areas where you already operate in. Are you focusing on that as well to  kind of consolidate your market presence?

Paul Dendy
Well, we are. The 27 communities that we operate, 13 of those are management contract only and three of those are single assets. The other 10 are one owner. Of the 14 communities that we own all or part of the real estate or the operating business, we lease some of those properties from private investors, we lease some from REITs. Nine of those 14 for us started out as management contracts and over the years we’ve been able to either buy in a piece or arrange a sale for the investors, the original investors, and then we bring in our investors, for example, along with a REIT and accomplished the goal.

Steve Monroe
Would you prefer to buy, manage or lease?

Paul Dendy
You know, owning is great. There’s no question about that, but we’ve done very well in terms of just return on equity in our lease transactions. The management business for us, as I said, has been good because we’ve been able to convert a lot of that to ownership. Plus, just the presence of those management fees has allowed us to broaden and deepen our management team, which is a benefit to the entire portfolio. So, we’re open to all of those aspects.

Steve Monroe
And your current portfolio, the 27 properties, what’s the split between IL, AL, memory care and do you want to continue with that split or would you like to focus on one side or the other?

Paul Dendy
We presently have 60% assisted, 25% memory care and about 15% independent. And that’s a good ratio in today’s market. In the past I’ve been involved in much higher ratios of independent. That’s been a weaker part of the market, obviously, in the last few years. The buildings where we do have independents, some of them have very large numbers. So, most of our communities are just AL/MC. And that is probably our strong suit and what we think the market’s strong suit is right now.

Steve Monroe
And that’s where you want to still focus?

Paul Dendy
That’s correct. We have one property under construction and five others under development.  Four of the five are AL, memory care combined and one is a standalone memory care.

Steve Monroe
And, as you know, the senior housing industry right now has been flying pretty high, from the acquisition volume, the values out there. Do you see any headwinds in the future coming along?

Paul Dendy
Steve, there are always headwinds.

Steve Monroe
Always?

Paul Dendy
Always. We just hope they’re manageable. I think there’s a certain relationship or similarity to some prior cycles that we’ve gone through. There’s a lot of equity out there right now that’s easily accessible. There’s a tremendous amount of development going on and I’m concerned in a market-by-market, case-by-case basis there may be some overbuilding or the wrong people getting the business from the standpoint of just not being experienced.

But other headwinds are internal headwinds that we’ve had for years, finding and retaining quality staff is always a challenge. And with the nursing shortage that’s out there, not that we have nurses in all of our buildings or even 24 hours – in some we do – but we have found it harder to even find good CNAs. So, those things are a challenge.

I’m not terribly concerned about the regulatory environment at the federal level because, in the first place, it isn’t regulated by the feds and they haven’t really shown that they want to. But, of course, if they decide to then they will and it may affect us even if we don’t take any money directly from them. Certain states have become much more adversarial in our opinion, and just unreachable.

Their own problems are unmanageable. In Arizona there’s one person that looks at all development projects and so to get through the process, the licensing, conditional license, can take months after a building is completed. But we’ve also seen the survey teams be adversarial, much more so than in prior years.

Steve Monroe
It seems now everywhere I turn or read, there’s a new memory care building being built or memory care part of assisted living. I look at that and I wonder is there such demand for that and where was that demand two years ago? Is there demand suddenly? I mean, where were these people who are going to be moving in? And I haven’t quite figured that out. 

I know it’s a great market and it’s a great place to be, but are we going overboard there do you think?

Paul Dendy
Well, again, it may be true in specific markets. We have opened two standalone memory cares in the last year, which were the first two we’ve done on a standalone basis. We have another one under development. But we’ve had good lease up success. We have friends in the business who right now are doing nothing but standalone memory care and they’ve been very successful with that as well. But we watch that quite closely.

We like the feeder from the assisted. As to what’s driving the greater demand I think it has partly to do with the fact that people are living longer, that people are coming into even independent housing at later ages. We’ve had more and more short stay assisted folks who within a few months are needing memory care. And I think that phenomenon is increasing because of later arrival into assisted living.

I remember a little verbal joust I had with Bill Colson 20 years ago when he said that Holiday [Retirement Corporation] was and always would be an independent-only company. And I said, “Bill, if you have independent folks you have to have some who need assisted services.” And sure enough, within a year or two he had pretty pervasively in the company home healthcare.

Well, I contend even going back a number of years before memory care was a hot commodity, when you have AL residents you have people who are on the verge or do need memory care settings. Now that they’ve somewhat popularized and some of the operational design elements are there and the frequency and the knowledge about it, I think it’s attracting more people directly into memory care that might have stayed with family before or stayed in AL when it wasn’t appropriate.

Steve Monroe
What about a lot of the assisted living communities that are called assisted living “lite,” much more of a hospitality market, and we’re kind of seeing, especially to help occupancy, a lot of these providers are going into the memory care business. And that’s a very different business than more of a hospitality assisted living.

What operational concerns should these AL providers have as they expand on the memory side and Alzheimer’s care and that kind of thing? Operationally, what do they look at?

Paul Dendy
Well, first and foremost, the fact that Alzheimer’s is a progressive disease and to treat it as just an expansion of hospitality is a real mistake. So, there has to be within the company, within the program and training, a real understanding of that disease and how to engage with those residents on an around-the-clock basis and then something other than large group settings, because you may have to engage a particular resident one-on-one most of the time.

So, there has to be a real dedication and understanding to the process of interfacing with a memory care sufferer.

Steve Monroe
I just hope the assisted living “lite” people know what they’re getting into because it’s a very different business. So, 2013 was a big year. Values were strong, transactions were up. What’s going to happen in 2014? More of the same?

Paul Dendy
I think the trends will tend to be the same. What nobody knows really is the pace. There is some upward pressure on interest rates and cap rates have to follow at some point, but now you have the new dynamic of a new Fed chairman who starts at the end of this week, so there may be a honeymoon period there. But I certainly think that interest rates have more bias on the up side, which is going to push cap rates.

And it’s been a seller’s market. Many sellers have done tremendously well. It’s making it harder, I think, to buy things now, which we’re constantly looking for good acquisitions because buyers are still remembering the six caps. So, I think that there will continue to be a number of transactions, though, because there’s a lot of equity and a lot of debt available in the industry.  So, as I alluded to earlier, it’s starting to feel like some of our prior cycles.

Steve Monroe
One of our cycles in a non-cyclical business.

Paul Dendy
Yes. And some of us have been around long enough to remember four cycles.

Steve Monroe
All right. Well, good. Great catching up with you and good luck on your growth plans and I’m sure we’ll be seeing you pushing past the 30 communities soon.

Paul Dendy
Well, a number has never been a target. People ask us many times, how large do you want to get and it’s always been our mantra that size is not the measure of our company. We have turned down business and we will turn down business, if it’s not a good fit for us in geography or in the philosophy of the owner or if we’re just not ready for it.

So, for the last 10 months and since we took on that portfolio, we haven’t wanted to add business and we would have turned business down. We’re getting close to being able to say we can take on some more business. So, we’ll see what happens.

Steve Monroe
Well, that’s a big change, 17 to 27.  But you knew the properties, so that helped.

Paul Dendy
That did help.

Steve Monroe
All right. Great. Nice talking to you.

Paul Dendy
Steve, thanks very much. Really appreciate it.
 

 

 

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May 6, 2014. 60 Seconds with Steve Monroe. Kindred Healthcare has agreed to partner with and invest in an Accountable Care Organization in Nevada

Kindred Healthcare Invests In An ACO

Is this the start? Will we see more announcements like this in the coming months by other post-acute providers? I am referring to Kindred Healthcare’s announcement that it has signed an agreement to become a strategic partner with and owner of an accountable care organization in Las Vegas, Nevada. This has been the sort of thing that Kindred has been working toward the past 18 to 24 months or so. Las Vegas is one of its Integrated Care Markets, with three LTACs, one co-located hospital-based transitional care center licensed as a skilled nursing facility, another SNF being built, plus home health, hospice and personal care assistance services. Silver State ACO was formed in 2013 and approved by CMS as a “shared savings” ACO to serve Medicare fee-for-service patients in southern Nevada. The goal is to improve patient outcomes and in doing so, help keep a lid on health care costs. No disagreement from me on those goals. 

 

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April 29, 2014. 60 Seconds with Steve Monroe. With new CEOs at two of the Big Three REITs, the sector may be going through a generational change of sorts.

Health Care REIT Sector Going Through Changes

The times they are a changin’, or so said a folk rock song nearly 50 years ago. Health care REITs, a group of real estate investment companies that helped fuel the growth and financial stability of the seniors housing and care sector in the 1980s, the 1990s and into the new century, may be going through a generational change of sorts. The Big Three now have two new CEOs who did not come out of the senior care side of the business. The smaller REITs, both publicly traded and non-traded, dominate the acquisition market, at least for transactions under $100 million, but that may soon be $200 million, and maybe higher. The sudden departure this month of George Chapman as President, CEO and Chairman of Health Care REIT, and like HCP last fall, replaced as CEO by a board member, marks a definite change in atmosphere, as well as governance, for the once collegial health care REIT industry. What’s to come of this very important financial source as it keeps searching for yield to fuel their own dividend growth? We hope to have some answers.

 

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April 22, 2014. 60 Seconds with Steve Monroe. Now one of the fastest growing diseases, but one with few treatments and no cures, Alzheimer's Disease needs attention and funding.

Curing Alzheimer's Disease

It used to be that the scariest words a parent could tell their children, or their spouse was, “I have cancer.” When I was young, the “C” word was not even mentioned out loud because more often than not, it meant death would be knocking on the door, and you didn’t talk about that in polite company either. But today, many cancers have cures or at least drugs that can prolong life for many years. Now, one of the fastest growing diseases is Alzheimer’s Disease, but there is no cure. While the fastest growing segment in seniors housing is memory care and Alzheimer’s care, especially on the development side of things, we all get too wrapped up in return on investment, what the cap rate should be and the merits of private versus semi-private rooms. But when your 90-year old parent turns to you and says, “I think I have Alzheimer’s Disease,” it really gets personal. So take a moment and support the Walk to End Alzheimer’s, or join Bob Thomas and Senior Star Living’s team, help make a difference and find a cure. That’s what I did today.

 

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In this "Expert Opinion" interview, Jim Stroud, President, Stroud Companies, discusses prototypes, HUD, the Great Recession, memory care, and more.....

James Stroud, Capital Senior Living CorporationWatch the video      Read the transcript
James Stroud has served as a founder, director and officer of Capital Senior Living Corporation (CSU:NYSE) and its predecessors since 1986. Capital is one of the nation’s largest operators of residential communities operating 112 senior living communities with an aggregate capacity of approximately 14,600 residents.

In 2009, Mr. Stroud returned to Stroud Companies, the real estate and investment Company he founded before Capital.  Stroud Companies is a privately held real estate and investment company that has developed, acquired and sold senior housing and commercial real estate in excess of $1 Billion. Stroud Companies is currently developing assisted living and Alzheimer communities.

Mr. Stroud has served on the Owner’s and Operator’s Board of the National Investment Center for the Seniors Housing and Care Industry, and served on the Board of the Assisted Living Federation of America. He founded the Texas Assisted Living Association, and served as President and Board Member of the National Association of Senior Living Industry Executives. He is an Inductee to the Stifel Nicolaus Senior Housing & Healthcare Real Estate Hall of Fame.

Mr. Stroud earned a B.B.A. with highest honors from Texas Tech University, a J.D. with honors from the University of Texas Law School, and a L.L.M. with honors from New York University Law School where he was editor of the Tax Law Review and a Wallace Scholar. He is also a licensed CPA.

 

Contact Information:
James Stroud
President
Stroud Companies
jstroud@stroudcompanies.com


Watch the video of the interview: 
 

 

Read the interview transcript:


Steve Monroe

I’m here today with Jim Stroud. He is the Founder of Stroud Development, and in his career he has done a lot of things in senior’s housing and I’m not sure if I should say you’re in your second, third or fourth career in the industry and other things. Jim, you’ve obviously had a long career in senior housing. When you left Capital Senior Living several years ago, I can’t remember when, you got back in the development business, though I think it was in the multi-family side initially, maybe for a couple of years.

Then you started back up in the assisted living and memory care business. What did you think your differential advantage was in that sector to get back into the development?

Jim Stroud
Well, I think several things. I think, one, the experience from 1990 through 2009, when I retired from Capital Senior Living, someone, when they were giving me an award at Capital they calculated that we had served 57,000 seniors. So, I think that one differential is that there were a lot of lessons learned of what to do and not to do. So, I think that’s one thing.

The other differential was when I got back in the development of senior housing in 2010 there still was kind of the hangover of the Great Recession, so you had to have capital, access to capital, access to debt. I had access to capital because I was using my own capital. And then the debt were lenders that I had been involved with for over decades.

So, when I came back to them, I said I want to get back in the development business of senior housing because I have an idea and the idea was a new design and a new culture. When I went to the lenders they had faith in us and I actually got pretty excited about it, so that’s why we got back into it.

Steve Monroe
In 2010 I’m a little surprised it would be exciting because we were coming out of the Recession and there really was not much development, but when you did this in 2010 what were other providers not doing right that you were able to exploit when you started developing?

Jim Stroud
Well, we really took a year to work on our design and we came up with a design that we believe is not only consumer preference, it’s also cost competitive. Because our mission was always to be able to build and serve the middle class and we always looked at it that we had to be able to open our doors and be $300 to $400 less in rent and total all-in fees than the competition.

So, we went ahead and we designed the building that was a state-of-the-art technology that has a state-of-the-art type of construction because during my 19 years at Capital I had been involved with over $490 million of new development from the ground up.  If you include the multi-family background before that, it was a very significant number of developments. So, we were able to kind of take our best practices as a developer and then go to the architect and say this is the concept, this is our market. We’re going after the middle market. We want to be affordable.

This is the goal of how to accomplish it and then will you design it?  Whereas most architects, developers will go to them and the architect will say, well, I have this idea. So it’s from the architect down to developer and ours was the other way around.

Steve Monroe
But 2010 people were still hurting quite a bit and the economy was not great from the Recession.  Was there that much pent up demand for your product?

Jim Stroud
There is if you focus on who we serve, because we’re serving the middle income area and I’ve always felt that those that have pension funds and private insurance are at kind of the top of the pyramid, they’re the higher income seniors and they could pay $5,000 to $6,000. Those in the low income, they had Medicaid, they had tax credits, there were various platforms and programs for them, for their housing.

And what we were burdened about was the middle income. How do you really service that middle income? When we went out into the marketplace and through our design and our experience with construction cost, because we could build, generally, for $10 to $20 a hard cost less than our competition and then we could open underneath their rent scope, we were really serving our mission.

And then also at the same time it was the timing. 2010 there wasn’t such a great demand on the debt side, so when I went to the lenders I could negotiate because there weren’t a lot of other sources for them in the senior housing area. So, we negotiated very competitive rates financially.

Steve Monroe
And there was very little on the provider side, there was very little competition?

Jim Stroud
There’s always competition and we would go in...

Steve Monroe
At your price point.

Jim Stroud
At our price point there was not and that’s where we could go into a market that others may view that could be saturated with existing product at the high end and we would come in underneath it at $300 to $400. Keep in mind, a lot of people that were in the higher end product were all of a sudden getting an income squeeze because their yields on their retirement funds were dropping rapidly through the Great Recession. 

So, they were looking at how long can I afford this style of life and is there a spend down issue?  So, we were serving those. We were able to service seniors from the higher end that were coming down to the middle class area.

Steve Monroe
Why weren’t there others seeing what you saw and trying to develop a similar kind of product for that middle market?

Jim Stroud
I think it gets down to your equity source. We were building with our equity, and so we have a long-term hold mentality and so we could go in and we could be very satisfied with a 10% return. If I looked at the bond market for a comparable time period, I would prefer to have control of our equity and our investments versus putting into a bond or municipal fund that may have a credit issue.

So, we were able to go ahead and invest at a 10% return, whereas if you look at most of the other; if you go to outside third-party equity they’re going to want a mid-20s return. So, they’re a 25% return, we’re at 10%. We’re more competitive on our construction costs because of our experience and the new design that we had. And then you layer in the financing.

For instance, we did use the HUD program, 232. We locked in 40-year financing, non-recourse construction, full permanent and it was at a rate of 2.5 to 2.75.

Steve Monroe
You can’t beat that.

Jim Stroud
And then you look at it today it’s up 200 basis points over that. The all-in rate now is generally around 4.75%.

Steve Monroe
So, what’s so different about your buildings?

Jim Stroud
Well, we have two different prototypes. One is called the Orchard, which is a larger facility. Generally, it’s 75 units. A third of that is memory care, certified Alzheimer’s. The other is high acuity assisted living. It’s about 70,000 square feet, so we call that the Orchard.

Then we have another one called Sonoma House, and Sonoma House is generally about 60,000 square feet, but it’s in multiple buildings. There we also serve the assisted living and memory care Alzheimer’s as well. So, we have two different prototypes and what we end up doing is we look at a market and make a determination of which would be best to serve the seniors in that area.

The other that’s beyond the bricks and sticks, which is probably equal to the design quality, is the person-centered care. What I recognized during that 2010, there’s this whole new movement in the skilled nursing area called the Green House and Dr. Bill Thomas, who is Harvard educated, a gerontologist, very focused on how to increase the quality of life in skilled nursing and the mindset was to call it the Green House.

And they actually designed a house that could provide skilled nursing. It was generally designed for 10 residents and we really looked at that and analyzed it and digested it, very similar to when we co-founded Capital Senior Living back in 1990 and then determined that model, we could change it for assisted living memory care and it really became person-centered care and it’s a name that I think you’re going to hear more and more about.

And what that’s going to do is really drive the value for our product. We’ve always recognized it starts with the bricks and sticks. But that’s the start. The key to it is what you deliver. And that’s one reason I think Capital Senior Living, we focused on a culture of really quality care and empowering employees. And that’s why the executive team that’s there has an average of over 14 to 15 years because that culture worked and it’s grown and it’s worked in the public market.

What I’m doing now is really growing a culture that’s going to work in the private sector, could be public, but that’s not our focus. But the private sector, that will be the next generation culture to serve the baby boomers.

Steve Monroe
Now, let me play devil’s advocate a bit and I know the Green House for nursing homes, but is there any kind of inefficiency of having the same campus, but several smaller buildings?

Jim Stroud
It’s interesting because the Green House is really an add-on product. So, you take an existing campus, as you mentioned, and you do an add on. What we’re able to do now is with Sonoma House we’re able to, in Texas you can build a licensure called small house. It’s actually called small house and it’s for less than 17 residents. So, you can have 16 residents or less.

And then what you’re able to be is much more efficient on your building costs. You can reduce your building costs because you don’t have to have as many items that you do in a larger facility.  And then what we end up doing is we build a neighborhood. So, we’re not just building one community. If I just built one community, one house, it would be inefficient. 

But what we’re able to do is we come in and we build a neighborhood of these houses and that way I can have an on-site executive director, on-site activity director, the registered nurse is there, but we’re still able to maintain the residential effect. You walk into it and it’s a feel of this is the house I wish my mom or dad could live in.

Steve Monroe
One last question. After the Great Recession everyone was doubling their expected fill up times on new construction and they got really aggressive many years ago and lenders were requiring that. Are you finding you are filling up faster than you expected?

Jim Stroud
We’re really filling up as expected.

Steve Monroe
Better than the industry averages?

Jim Stroud
Better than industry averages. And, again, Steve, it’s not that we’re smarter or brighter or more capable. When you serve 57,000 seniors and you’ve been doing it for 19 years you kind of realize where the pitfalls are and what to do and not to do and the number one thing for us is it’s a combination, starting with a design, starting with a construction technique, starting with the actual culture and then having a rent that’s competitive where we’re $300 to $400 below the competition.

Our theory is with the right culture, a newer product and better design and at the right rent, and we’re not looking to increase the rent. We’re not looking, even though we could price above the market in certain situations, we still come under the market because we don’t want to lose focus of what our goal is and that’s to serve the middle market.

Steve Monroe
Well, I hope you have many more years of serving.

Jim Stroud
I appreciate it.  Thank you, Steve.

Steve Monroe
All right, thank you for telling me about all of this.

 

 

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April 15, 2014. 60 Seconds with Steve Monroe. Despite a nasty winter, occupancy did not drop in the first quarter, which bodes well for the rest of the year.

Seniors Housing Occupancy Holding Firm

In a few weeks we will start to hear from the few remaining publicly traded seniors housing companies about how they fared in the first quarter. But after the cold and unusually snowy winter, which had to result in some move-in delays in the northern half of the country, balanced by a much milder flu season than expected, occupancy trends appear to have survived winter’s wrath. According to the NIC MAP data, for the most part occupancy was flat from the fourth quarter last year to the first quarter this year, when there is usually a decline. The other good news is that first quarter 2014 occupancy overall was about 65 to 75 basis points higher than a year ago, so there is some longer term momentum building up. The market will need it if all the assisted living and memory care properties that are being discussed get built, and some will not. But trailing 12 month memory care construction starts as a percentage of supply are almost three times higher than they are for assisted living, and six times higher than for independent living. And all we hear about is new memory care everywhere. While they do tend to fill up faster, we are not sure for how long. 

 

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April 8, 2014. 60 Seconds with Steve Monroe. New legislation defining patient criteria for LTACs could be a game-changer for companies like Kindred Healthcare.

Game Changer For LTACs

Talk about the stroke of a pen. Usually this involves bad news for senior care, but in an analysis provided by Frank Morgan of RBC Capital Markets, there could be a whole new ballgame for LTAC operators, particularly Kindred Healthcare. As you know, we have been singing the praises of Kindred’s strategic plan to concentrate all its post-acute services in select, defined markets and to become the provider and partner of choice in those markets. Now, according to new legislation passed regarding new patient criteria for LTACs, a game-changer according to Morgan, Kindred could see an increase of more than $900 million in revenues over the next several years, and with that an increase of more than $140 million in EBITDA. That is huge and is on top of any other revenue and EBITDA gains that could be coming to Kindred as a result of its strategic plan. According to Morgan, this incremental EBITDA should translate into a future share price for Kindred of $42 or so, based on a seven multiple of that incremental cash flow. That means this stroke of the pen legislation could double Kindred’s value. That is huge.

 

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