EXPERT OPINION: A Conversation with Paul Dendy

May 7, 2014

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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