AI50

How To Get Started In Senior Housing Investments with Mark Myers

December 14, 2019 Hanh Brown / Mark Myers Season 1 Episode 4
AI50
How To Get Started In Senior Housing Investments with Mark Myers
Show Notes Transcript

The number of Americans 65 and older will increase from 47.8 million in 2015 to 79.2 million by 2035, due to the emergence of Baby Boomers into the age of retirement. Such a vast increase only creates a greater demand for Senior Living Facilities.

Please join me and Mark Myers as we talk about Baby Boomers and Senior Living Facilities from a broker's point of view.

Hanh Brown: [00:00:00] Thank you so much for being here and sharing with us your wealth of knowledge on senior housing.

[00:03:32]So, tell us about yourself and what do you do all these years?

Mark Myers: [00:03:36] So my name is Mark Myers and I co lead the institutional property advisors group or remark small chap. And I’ve been in this firm for 26 years. And my partner and I have been working together for 12 years, his name’s Josh genderless, and Josh and I have a team of 12 professionals, eight of whom are producers or brokers, and for our administrative and staff and underwriting professionals, analysts, and together as a group, we have sold.

[00:04:04] A little over four, $5.4 billion of seniors housing, 560 transactions to be exact. And we also help people identify sources of debt and equity as well when that’s needed for potentially development projects or potential buyouts of investors and their existing holdings. So we do a number of things, but by and large, what we do is represent sellers who are interested in maximizing the dollars of the sale of their properties.

[00:04:30] That’s our primary function.

Hanh Brown: [00:04:32] Well, congratulations to you and your team’s success. Well, thank you so much.

[00:04:37] so how do you add value to your customers?

Mark Myers: [00:04:41] I started 20, some years ago. Brokers were not really utilized a whole lot transaction advisors and we actually had to educate people. They would ask us literally, like what’s a broker, what’s a transaction advisor and we’d have to tell them, you know, what we do is we represent you the seller.

[00:04:56] Because what would happen in the past is when somebody went to sell their assisted living facility or a nursing home, and there weren’t that many assisted living. So was 25 years old, by the way. So they’re primarily nursing homes back then it’d be work that we were selling, but they would say, you know, I’m just going to sell it to my friend down the street and we would ask them, well, does your friend know anything about nursing homes?

[00:05:12] Yes. They’re in the business. Okay. Fine. They’re in the business with you. They’re part of the association. So what kind of offer have they made you? $6 million you say? Well, it sounds like it’s a little low. I think your place is probably where seven or eight, just based on the number of beds you have. Your Medicaid rate, your census mix, kind of what you’ve told me about your profitability.

[00:05:29] It sounds like the offer’s a little low, but you know what? Maybe there’s some reasons for it. Did you sign any agreements with this buyer? Yes. We signed a letter of intent. Terrific. Any earnest money? No. How long ago did you sign the letter of intent and literally hon almost without fail. They would say this, I think there’s like a year or two ago.

[00:05:45] So you you’re under letter of intent? No contract non-binding letter of 10 for a year, year and a half, two years. No earnest money, no process. I said, you know, you really need some representation because a, you need multiple bitters B, you need to constrain the buyer to a funnel process that we refer to where you start out broadly, where the buyer has a right to look at everything.

[00:06:06] But then, you know, within a short period of time, maybe three or four weeks, the buyer needs to come to a conclusion I’m buying this property, or I’m not removing or removing virtually all my continuance, contingencies other than maybe licensed licensing and pursuing the licensing. Pursuing a purchase contract, which is a pretty thick document, like 50, 60 pages hiring good attorneys, bringing a professional level to the process, making more money for the seller and bringing in competing bids, running a sort of like a silent auction process for them.

[00:06:32] Very professionally done constricting tours to only people that are legitimate buyers. So pretty much just bringing a level of professionalism that wasn’t there before, and also just making the client more money and doing it in a timely fashion.

Hanh Brown: [00:06:44] So back then buyers didn’t have a means to perform a thorough analysis, to comprehend resident, the population, statistics, market sized, supply, occupancies, and so forth.

Mark Myers: [00:06:56] They actually frankly, helped the buying community too, because had you been a buyer back then and you called that same seller and you really wanted to grow your portfolio? I remember back then by and large, the business was highly fragmented. So the average owner would own. Two to four nursing homes, maybe five or six, there were some owners of 20, 30 facilities.

[00:07:18] We represented one of them in Indiana at one point. But by and large, it was highly fragmented. It is not nearly as fragmented now because there are many regional and large players, some national players that have consolidated the market and we helped some of those buyers in that process. And those buyers also enjoy or benefit from hopefully they enjoy it, but they benefit from the process of having transaction advisors because they know the seller serious.

[00:07:42] And they know the seller is not entertaining an offer from their best friend from 30 years in high school grade school or whatever. But they’re actually going to run a process with sellers agnostic as to the buyers. Because if you’re from the region, you may not know the seller directly. There’s something we call local buyer mentality where the local person is not going to pay as much as someone from outside the market because the local person quote, unquote knows too much about the property.

[00:08:03] Then they know where the bones are buried and that sort of bodies are buried. So to speak. And where the skeletons are in the closet. However you want to refer to it. And the person from the outside is like, all I’m looking at is the beauty of the facility, the location, the cashflow, the age of the physical plan, the chatbox, how it’s run.

[00:08:19] If it’s been run by a family very well, they’re very interested in, they’ll pay a little bit more money for it. So the buyers benefited and the sellers benefits.

Hanh Brown: [00:08:27] In selling of senior housing has progressed so much over the years. Now buyers can get rental rates and asking rent benchmark. Industry operating structures, uh, operating economics, including the NOI, um, operating margins by the community type monthly operating expenditures and so forth.

[00:08:48] Um, so what makes your team so successful?

Mark Myers: [00:08:53] Yeah. So what happens? The reason we’re successful is what happens when we, when we have a potential client. We gather up there, we sign a confidentiality agreement with, between them, our firm and theirs. And then they provide us with their financial information. We run a complete analysis of their data and what our team does is we literally, it wouldn’t take as long as rebuilding an engine in a car, but think of like just taking an engine apart, cleaning every piece, analyzing it, repairing the.

[00:09:20] Or pointing out the ones that need to be praised and having the client purchase, you know, new O-rings or whatever, putting the engine back together and then racing. It is similar to that. We break our analysts breakdown, the financial statements. They compare the financials to data that we purchase for other nursing homes across the country.

[00:09:36] And for that region, if it’s an assisted living facility against the system facilities that we’ve sold and other data that’s out there from American senior housing association from Nick and other sources, And we completely break down the financials of whatever type of property it is. We sell everything from seniors housing, all the way to long-term acute care hospitals.

[00:09:54] We break down the financials, we rebuild the data into something that’s more market. Focus market reflects more than the market numbers. And a lot of times, if it’s family run business or private or non-profit, there’s some fat in the financials, you don’t want to cut that if they also rebuild the revenue and the census and mix.

[00:10:12] So if the average Medicare census, which is where a lot of the profit is in a nursing home, if it’s an assisted living facility, if we’re looking at memory care versus assisted living, we look at what their rates are and the occupancy and so forth. And we rebuild the financials on our performance projection.

[00:10:27] Based where the market’s at. So if the average occupancy in memory care is 93% and our facilities at 82, and it has the same size units, same location, same agent condition. We might figure out, try to figure out why our client has an occupancy less than the market. And we might move it up to 85 or 80%.

[00:10:44] Probably not all the way to the markets. We’ll need some juice in the orange for the buyer, but we will. Represent our seller and painting the story of what can happen without being ridiculously over blown in our projections. Cause you don’t, you need the plier to buy off on the numbers and to see that there’s some upside left for them as well.

[00:11:00] So it’s a bit of an art and a bit of a science process.

Hanh Brown: [00:11:04] sure, okay

Mark Myers: [00:11:04] So that’s what I want us to do. And then in our transactions advisors add value by locating the opportunities and then working with the analysts, understand the opportunity of the story and then taking that to it. Typically a select group of buyers that are predetermined or a limited set of buyers that are interested in that kind of property.

[00:11:22] And then we walked through the entire process with the buying community and the seller because she had the transactions and the contracts worked through diligence and get it closed. So that’s what we do. That’s what we’re successful at. And we’ve done it for a very long time.

Hanh Brown: [00:11:35] Senior housing tends to be more resilient, real estate property type that doesn’t experience the same level of occupancy swings.

[00:11:44] As the other asset classes during the economic downturns. Um, so explain the buying process from start to closing.

Mark Myers: [00:11:54] So for an assisted living facility, from the very start of our engagement or a mandate to the closing is probably four months. And for a nursing home, that’s at least six months, I would say nine months.

[00:12:04] Nine to 10 months. In most cases for a nursing home, it just takes a while to work through the licensure process. In most cases and the due diligence, particularly if it’s multiple facilities like five to 10 facilities, we try to focus on transactions that are at least $20 million and above. So that would mean multiple facilities in a transaction typically, or a one large facility.

Hanh Brown: [00:12:25] What are the property types and explain the distinction between them. In other words, um, independent living, assisted living, memory care, skilled nursing, and so forth.

Mark Myers: [00:12:38] Yes. So there’s a saying that seniors can be broken and I did not invent it, but I love it. I’ve always used it is the seniors can be categorized as either go-go slow-go or no, go, go, go, slow, go.

[00:12:50] No-go. So the average agent seniors housing is the same. From independent living or congregate living as what used to be referred to, but we refer to it as ILS or independent living, which is where you have a couple of meals, a day activities, housekeeping, so forth all the way through long-term acute care hospitals.

[00:13:09] The average age is 85 years old. I need to be 85 and a half these days, the exception would be senior apartments. The average agent senior apartments is more like 65 and above. So they’re a bit younger because there are no services in senior apartments. It’s just strictly apartments. They happen to be four people designated 55 and older.

[00:13:28] Most of the people are 60, 65, 70. They’re not typically 55, but anyway, so the rest of the, the rest of the product continuum would have people who are 85 years old. So what distinguishes someone in a nursing home from someone in independent living is simply their level of health and their mobility and their cognition.

[00:13:46] So someone who has. Very high mobility, very high cognition. Very good health. Maybe they’d take high blood pressure pills or something, but they’re by and large, they’re very healthy people. They might play golf once in a while they go out to lunch and dinner with their family, they might have a car that’s independent living.

[00:14:02] Those are go-go seniors. And yet I would say senior apartment people would also be classified as Coco seniors. They would just be younger. And you have a lot of Dell webs and ropes and communities and so forth that are also built for see your, they call it, play tennis. Some of them are even younger than that age, but when you get into like the slow-go senior realm, you’re into assisted living as some forms of dementia, like the earlier forms of dementia, that’s where your cognition is a little bit off.

[00:14:25] You have some health issues taking a few more pills. You need some help dressing, bathing medication reminders, and that’d be slow-go seniors. And then the no-go seniors would be nursing home subacute facilities, they’ll tax, which are long-term acute care hospitals. People that need oxygen. People that need help with medications, transferring bathing, people that are on cancer meds, people that are wheelchairs, or maybe in incontinent, you can be in a wheelchair or Walker and some of the other lower 2d ones too.

[00:14:49] But so you have a multi of multiple conditionalities or you have multiple morbidities and you just need a lot more attention care, 24 seven care. So the staffing you can imagine grows exponentially. Or geometrically as you grow up the continuum. So senior apartments, just pretty much like an apartment complex, maybe even fewer staff, because you don’t have a lot of turnover in senior apartments.

[00:15:09] Seniors don’t move that often and they don’t tear up the place. Like maybe a student housing complex might have some, some issues with some. You know, so damaged and so forth from parties and so forth. You don’t have this, maybe even have fewer staff there, but then independent. Let me a few more, because you have a dining service, you have housekeeping.

[00:15:25] So you’re running like a hotel and an apartment complex at the same time. So you have more staffing assisted living even more per person because you have care aspect. Plus all the hospitality components. Memory care even more because you have even more hands-on training or not training, but tear of the staff and trying to, trying to arrest their dementia, the sliding of their dementia health.

[00:15:45] So they would even be staffed even higher. And then of course, nursing homes, higher subacute, even higher and so forth as you go up the continuum. So as you go up the continuum, clearly the staffing, you know, you might have one to eight people in some assisted living facilities and you might have. One to two or one to three people that are full-time equivalents in a nursing home.

[00:16:04] You have about one employee for bed, for licensed bed and nursing home. But as far as FTEs full-time equivalents, you might have more like one to two or, or something of that nature. So, but it’s still very high comparatively speaking. So that’s how we would address staffing.

Hanh Brown: [00:16:18]One has to research a lot, uh, on this topic before making a very important decision where to place your mom or dad at the later years of their lives.

[00:16:28] Um, I’ve learned a lot along the way in finding an assisted living from my mom. I found out that you gotta make sure you pick an assisted living home. That’s a good fit for your loved ones and not necessarily for you, uh, help them make their new room, their own representing their own identity. Uh, you must visit often.

[00:16:50] Uh, make sure they have access to the activities they love, uh, whether it’s gardening, sewing, listening to music or so forth, um, provide them a means to maintain some independence, make sure they still have an active life outside the facility and also create, um, a sense of, uh, community in life, uh, within the facility.

Mark Myers: [00:17:16] Yeah, and it’s, it’s something where like anything else you do need to educate yourself. There are some really good sites. If you will, if someone would Google to find an assisted living facility, find independent living, find retirement community, find a nursing home. Things like place for mom will pop up.

[00:17:30] I think that’s the most common one. A friend of mine in the industry is developing a new system as well. And she’s very digitally focused and much more detailed than some of the other sites. So there’s various sites out there. You can, you can find the, a Googling it as they say, but. Yes, it is important to know what you’re buying, what kinds of services you’re looking for and how the pricing works because an assisted living in particular, much more so than the other components.

[00:17:54] You might have a $4,500 base rate, but then you have to $1,500 of levels of care. And so, as you’re, as what we refer to as acuity creep occurs with your loved one, you can be starting at $5,000 a month and end up at 6,000 or $7,000 a month, which is also fine. If it’s comparative to other facilities. If it’s competitive.

[00:18:14] And also if the person really does need that care, the biggest thing to do is just get involved, look online, compare pricing like you would with any other service. These days are professionals just like going to a doctor. You don’t want to just focus on price, because if it’s your own body, you want to be cared for by a physician in a group that’s going to be covered by insurance and also, or it’s going to cost the right amount, but also is going to take care of you.

[00:18:36] Same in an assisted living facility or any other kind of senior housing. You want the care to be good. So you want to maybe look at the reviews, talk to people in the community, go see the facility. And then after your loved one is in the facility, no matter where they are along the continuum, you should go see them at least once a week.
[00:18:52] Probably every few days is even better. If you can afford the flights or the time of the tribe, it’s very important to be present because I would love to say that human beings aren’t like this, and many of them are, but many of them are, you know, human nature is if you don’t care about this person and I’m being paid.
[00:19:10] Nine to $12 an hour to care for them. I’m not making a lot of money to do this. You know, I’m making 18 to $30,000 a year to care for your loved one and you don’t care about them. And why should I care about them? I’m not saying it’s completely the attitude, but I’m just telling you that if you’re there, the attitude will be the opposite.

[00:19:25] Like, especially if someone does care about your loved one and you also care, you’re kind of like a team. And then if you see them there, there depends need to be changed and they’re not so quickly. Or they pull the call button and they weren’t answered, or they, they didn’t make a meal. No one checked on them.

[00:19:39] Things like that. We’re dealing with human nature. We’re dealing with human beings. And if you’re there and you’re checking on these things, you don’t have to be a noxious about it. You don’t have to yell and scream, but it does help. The squeaky wheel gets oiled. Like, Hey, why wasn’t my mom checked on? You know, she forgot to take her meds, whatever it is and will really help for chair.

[00:19:55] And it usually is mostly mom. Usually mom, dad is typically passed away.

Hanh Brown: [00:20:00] How do you see the current environment for senior housing development and acquisition?

Mark Myers: [00:20:04] So it’s a terrific environment. There’s just a ton of plethora of capital and a dearth of good deals out there. So to speak. That’s how we refer to it.

[00:20:13] So, you know, there’s just capital coming in from private equity funds. Blackstone’s been in the business. People like green core partners are in and out of Chicago, just a ton of capital out there from the reeds. So Welltower HCP, Omega, just different, different reads, different funds, private equity on the nursing home side.

[00:20:31] We have clients like the Roth NERS Chesky legacy and Leo Friedman and Ben land on there’s just a ton of people in the nursing home space that are private. People that also are growing strongly and they’re looking for facilities as well. So there’s plenty of money out there and, uh, people that are looking for deals and they just, they need good operators.

[00:20:51] They need good deals. And, uh, the deal flow is, is very strong. So a lot of development, there is some overdevelopment, some markets. So if someone’s looking at investing in this space, they do have to be careful that they analyze each market thoroughly. We use a Pew reports that we purchased that help us.

[00:21:09] Determine if a market is heading toward oversupply or already is an oversupply mode or on the flip side has a heavy demand versus supply. And they really have a bad knee or unit need in that area for assisted living, memory care, nursing care, or whatever.

Hanh Brown: [00:21:23] Give us some insight on the lending sources available.

Mark Myers: [00:21:28] A tremendous plethora of lending sources out there.

[00:21:30] Wells Fargo, M and T a HUD Sandy Freddie. There are mortgage brokers like Meridian HFF. No Aaron will CBR either. Just there’s a lot of financing sources out that we have someone on our team, the capital Corp professional Jordan Berger. She helps our clients obtain financing. So between the financing sources and the equity sources, there’s plenty of money out there for, for the entire capital stack.

Hanh Brown: [00:21:53] Please explain the dynamics and buying an existing senior housing as compared to rebuilding a senior housing.

Mark Myers: [00:22:02] Oh, yeah. When you look at whether a good market is one of the interesting things, as you want to look at the age of the existing stock, particularly for assisted living for independent assisted living and memory care and senior apartments, sort of moderate to lower acuity properties, the bells and whistles do matter.

[00:22:19] The physical plant does matter. And if someone builds a brand new gorgeous, you know, purpose-built beautiful flooring, well lit great activity rooms, property. That’s opening this summer and it’s next to something that’s 25 years old and everything else in the markets. 18 to 30 years old, that brand new community is probably going to receive a lot of attention.

[00:22:42] And if their rents. They’re going to command higher rents. And if the seniors in the area can afford it, because you have to remember, our seniors are kind of bifurcated into two different bifurcated between those who can afford almost anything because they’ve sold their home and they made three or 400, $500,000 on that.

[00:22:58] And or they have savings. And then folks that need affordable seniors housing. So if someone needs affordable seniors housing, And they can pretty much put it in their SSI, social security and so forth. They’re going to have to end up in some sort of a Medicaid support system, which there are plenty of good options for that.

[00:23:12] Now in many States like Illinois has a wonderful system called the supportive living program. And Oregon has a great program. North Carolina has a good program. Some of the other States are, are coming along Florida and some others, uh, New York has at the ALP program. So those people can still find good care and good facilities.

[00:23:27] And, uh, there are other States who are also developing these. But that’s one set of folks. They would also qualify for Medicaid. And then there’s other people that, that have enough resources that for the next five years of their life, they’re probably going to live to be 90, 91 at the most. Although there are plenty of centurions out there that are living beyond a hundred, but if you plan for living to be 90 before you need to go on Medicaid or Medicare in a nursing home, then you know, if you have, if you figure you have a half, a million dollars, you can afford almost any community that’s out there.

[00:23:55] That’s like $8,000 a month or more. So. The new community is always going to attract the people that customers. And so you want to look at the age of facilities when you’re looking for, to build somewhere or to buy somewhere. You want to look at the average occupancies, the average rates, you know, have your analysts, do the underwriting, make sure you can support the price that’s being asked or the price, the cost to build there.

[00:24:15] And my father used to use a builder. He used to always say always costs more and takes longer when you’re building something. So. Whatever your estimates. Sorry. You can probably assure yourself that it’s going to be a little bit more costly than these tank. Maybe your rents won’t be quite as high as you thought.

[00:24:27] And if you can use some moderately conservative estimates and it still make sense to build there by there, then go for it. But those are some things to look at occupancy, age of the existing stock red levels. And then maybe turnover levels. And then also staffing, you know, this is a business heavily, heavily relying on staffing.

[00:24:42] A nursing home. 60% of the revenue goes to staffing costs and assisted living. It’s more like 40%, but you still have a lot of staffing costs, 30, 30, three to 40%. And it’s just living independent living probably 25 to 30, but you need to make sure that you’re either on a bus line or a train line or you’re near freeways.

[00:25:01] Tollways. Yeah, it’s, it can be pretty tough if you’re out in the middle of nowhere, we always say, if you’re on a bit of a corn field, it can be tough to find staffing. You can still make money in a corn field, but you better have your staffing figured out there. Take care of the staff, make sure you have quality staff long-term because turnover can kill you in this industry.

[00:25:19] Particularly if you don’t have a way to access good staff.

Hanh Brown: [00:25:22] Explain the components in senior housing business. And in other words, a dietary, the healthcare and so forth.

Mark Myers: [00:25:29] So senior housing is as much a business as it is real estate is especially as you move up the acuity chain. So you have a dietary component of housekeeping component activities.

[00:25:39] And so forth and so on. And when you get into the healthcare components, you have an additional component, which is healthcare, which is a big part of the industry. And so like any business, every component provides a profit center or a negative experience financially for an owner. So there’s more risk and there’s also more profit.

[00:25:55] The returns for seniors housing start off at about a hundred basis points above traditional real estate. So if an apartment community in a given market sells at a five and a half cap and assisted living facility that’s of the same age probably sells at least the six and a half cap, maybe closer to like a seven cap.

[00:26:13] The memory care would be even higher. It’s probably more like a seven and a half to eight jab and nursing home sell. At around 12 to 12 and a half taps. So if you’re willing to take on pretty heavy amount of risk that the nursing home business provides, like if you start a public non-traded REIT or you start some sort of syndication and you’re promising an 8% dividend for, for preferred dividend, you can’t possibly go into assisted living or independent living in most cases because.

[00:26:41] There’s not gonna be enough cashflow there. So you’d have to go into skilled care where the 12 and a half percent return before debt service and dividends would probably provides you the room to have that dividend. So higher, higher returns, higher risk, more profit centers, more, more chances to create value.

[00:26:58] That’s why people buy seniors housing. And frankly also there’s an altruistic component to it. People do like taking care of elderly people. And if you don’t like that component of it, there are a lot of easier ways to make money. So you should probably not be in the business. We don’t really have some sort of altruistic heart or really enjoy or feel completed or fulfilled, or have a purpose and feel valued by taking care of seniors.

[00:27:23] Because when they’re, especially in the higher levels of like dementia, And nursing care, but even sometimes it’s assisted living. Once people become incontinent or these help with bathing and dressing, those can be pretty thankless jobs. And if you don’t have a heart for the elderly, you’re not gonna last.

Hanh Brown: [00:27:39] um, explain the availability of capital for such projects and purchases.

Mark Myers: [00:27:45] I think it will be there. I mean, the reason we don’t put our faith in. Rich’s right, is that they can fly away in a cupboard. Solomon said, so we’ve looked for more eternal places to put our hope because you know, it’s like back in Oh eight Oh nine, we didn’t cause as an industry, the senior housing industry didn’t cause the crash, but by and large, the shenanigans with the banks and the lending communities caused at the residential level because the entire real estate industry to collapse, it almost brought down our entire economy.

[00:28:11] We almost had another great depression, maybe worse than the first one. And we were very close to pointing to what I’ve read and studied. So, you know, and we didn’t cause any of that. And yet we had a lot of problems finding debt and equity back in Oh eight Oh nine, getting deals done way back in 2000 late 2009 or 2010, 50% of our deals were done.

[00:28:30] All cash people couldn’t get any loans. And they have plenty of cash stored up. So they just started buying properties, $15 million properties, all cash. So to say that it can never go bad. It would be a mistake, but by and large, it looks like there’s going to be a plethora of equity debt out there for a very long time.

[00:28:46] This industry is silver tsunami that everybody hears about, which is pretty far off. It’s eight to 10 years off or more, but it’s still putting a lot of demographic pressures on this demand. So we’re going to need more and more units out there. And, uh, there are certain markets that are growing exponentially, like, like Texas is growing tremendously.

[00:29:06] And that’s why the four most active development markets are all in Texas. The four major markets in Texas, San Antonio, Austin, Dallas, Houston. And there can be some pockets of overbuilding, some of those markets, but by and large, the absorption is going to be there. So I would just say there’s still going to continue to be a lot of capital flowing into the space bar, barring a, uh, an unforeseen.

[00:29:26] You know, economic explosion or implosion like we had in Oh eight or nine, whether we caused it or not, there is a bit of a risk and seniors housing, no question that, that we can overbuild. Saster I like to say it’s a little bit like a minor oil spill, a senior house. It could be a little bit like that in the sense that, uh, once the oil spills, it takes a lot to clean it up and it takes time.

[00:29:48] And a lot of effort, unlike apartments. If you think about it, every single kid, student that’s graduating from college, that’s, you know, 23, or if they’re going to grad school, 26, 28. They are almost without video. I’m going to rent an apartment. I mean, you’re talking about hundreds of thousands, perhaps millions of kids each year are coming out of college and need a place to live.

[00:30:09] And they’re going to need entry-level apartments. Once they have a job. If it’s on wall street, if it’s a good job paying 80 to a hundred thousand a year, they’re going to need moderately expensive apartments. They’re going to move every so often. There’s a lot of activity and creating pretty lot of demand.

[00:30:22] But for seniors housing, you’re talking about a longer decision making process. It can take up to two, two and a half years for seniors to decide to sell there. 3,004,000 square foot home and move into a 600, 400 square foot, whatever it is, apartment. I mean, think about that. That’s a huge change for senior and have to get rid of some of their stuff.

[00:30:38] So I might argue John, but others, other people might meet you. It might be heirlooms. It might be their Hummel collection or hydro collection or something. It might be the stuff that near and dear to them as a family pictures on the wall and so forth. So you’re asking a lot of these seniors so that the choice process to move in is, is a lot longer of a cycle and much more so than multi-family.

[00:30:56] So I’m saying all that to say that, that when you overbuild and this decision process takes along long as it is, it’s not like apartments where it’s like, you’re you built next door to somebody else who builds and you’re both 50% occupied and within a year or two you’ll be filled out. It could be that it will take several years.

[00:31:11] For two senior housing communities built in the same market. They only needed one facility or one and a half. They could suffer for several years.

Hanh Brown: [00:31:20] So what role does staffing play in senior housing operation? Given that it’s more like a hospitality and healthcare business and not just real estate.

Mark Myers: [00:31:30] Yes. In fact, I, we just finished, we just went to a conference in quarterly in Idaho, which is beautiful by the way.

[00:31:37] And the founder of Ritz Carlton or Schulty spoke amazing. Nan started the Ritz-Carlton also started, uh, an even higher end chain Capella recently. And he talks about the 27 points that the Ritz Carlton uses. And it was an excellent presentation. So many of those things are applicable to any service industry because we don’t make anything when we’re in the service component of it.

[00:31:56] Now, the real estate part of it, we’re building something obviously as a community, as an industry, but there are things. When did you have to do with staffing, just to make sure that you have people that care about seniors, people that are going to provide good service, people that catch your vision. You have to cast a vision of taking care of seniors.

[00:32:11] In a high quality way and communicating with their families. And there are new high-tech ways to do that different services that you can subscribe to and making sure that they are active and entertained and healthy and not losing weight, which is a very common thing for seniors. They’re just not hungry anymore.

[00:32:28] They don’t feel good if you think about when you have itself good, or I haven’t solved that, you know, you’re taking this and you just don’t want to eat. Making sure they’re obtaining their nutrients that they need so that they don’t drop 10, 12 pounds and a grandma who was at 105 pounds. It’s now 90.

[00:32:42] That could be very dangerous. If she gets sick, she doesn’t have anything within her system to fight the Monia whatever. And there are times when they, they die from that. So it’s a very serious business. You have to make sure that people care about what they’re doing. They’re focused on it. They’re knowledgeable and they’re trained.

[00:32:56] Well, it’s a very, very complicated task to have good staff.

Hanh Brown: [00:33:02]Yes, it is absolutely. So when is it, um, the right time to buy senior housing? And when is it the best time to sell?

Mark Myers: [00:33:07] Well, there’s a saying that you make money in real estate when you buy, not when you sell. So the time to buy is when you think you can add value to a facility.

[00:33:17] We tell people this all the time we sell facilities at retail or near retail prices. We’re not, we’re not selling stuff on the clearance rack. But at the same time, there’s plenty of upside in our communities either by adding a wing or converting assisted living to memory care, a portion of it, or converting independent living to some assisted living or renovating a place.

[00:33:35] So we might sell something at a seven cap on trailing EBITDAR, trailing net operating income after management fees, but it could be that the rents are $300 lower than the market because the owner hasn’t spent money on the physical plan in 10 or 12 years. So you spruce up the place you put in what one of our clients used to call powder and poss.

[00:33:53] Well, as long as it doesn’t need like foundation and roast and stuff, you can put millions of dollars into paint carpeting, which by the way, it costs a lot of money. You know, it’s not an easy process and you can disrupt the it’s pretty disruptive, a lot of dust and so forth when you’re doing it and smells and that sort of thing.

[00:34:07] So you are going to have maybe a doctrine occupancy for the first year and then sort of like a J-curve once a place is spruced up looking great, competitive in nature, then you could sell back up. And those are the kinds of places that you want to buy or places that have a staffing issue or an operational issue and could be fixed.

[00:34:23] So it’s not to say you can’t buy it from an advisor. Advisors, sell properties all day long and people have fix them up and they, they make a better and they resell them at a much higher profit for a high profit. So good time to buy is when you find something that, where there’s value you can create a good time to sell is when you’ve created that value you continue and you can.

Hanh Brown: [00:34:41] Okay. So what is your best real estate investing advice to new operators in this space?

Mark Myers: [00:34:48] So I think when I just said, you know, part of it is just knowing when to buy and sell. I think knowing where to invest the money with whom I think probably the best piece of advice I could give to anyone is connect yourself with a good partner.

[00:34:59] So if you’re a private equity fund or an investor, a syndicator of equity, align yourself with a tremendous. Tremendously qualified operator. There are plenty of them out there and there’s senior lifestyle. There’s charter, senior living there’s Harbor there’s. I mean, I could name the sunrise and there are probably 30 or 40, 50 fantastic operators these days, but Brookdale’s and a lot of facilities.

[00:35:21] I mean, there are just. Numerous operators out there for memory care. There’s Silverado there’s Anthem. They’re just tremendous operators out there in the nursing home side. There’s cascade legacy there applaud throughout, uh, Rothers are good operators. Are there plenty of operators out there that for nursing homes that they know what they’re doing, they know how to fix up a facility.

[00:35:39] You know how to take care of the residents. You know, they know how to work with the state to make the place better than when they bought it. And there’s just plenty of good people out there. Like I mentioned, the people from New York, you know, as well that we deal with that they can make a better facility.

[00:35:51] So align yourself with good talent and experienced operators, experienced investors. Gotcha.

Hanh Brown: [00:35:59] Okay. So, um, what was your first deal last and the best deal ever?

Mark Myers: [00:36:04] So we’ve listed a couple, an assisted living facility, a nursing home in the Chicago area. And they were priced pretty highly, but we still ended up selling them to a group out of Chicago.

[00:36:15] But during that process, we sent out a notice to bind community about those two offerings and a gentleman named Dick Miller from Indiana called me, and he engaged us to sell his 30 some Miller’s Merry Manor facilities. And ironically, we had the section under a binding letter of intent was $5 million nonrefundable.

[00:36:35] And the reimbursement system in Indiana changed during our diligence phase, during the buyer’s diligence phase, tremendously that the net operating income or what we refer to as the EBITDA earnings before interest taxes, depreciation, amortization declined from 26 million to 24 million during diligence.

[00:36:51] So that $4 million drop. Which if you use an eight, multiple, or a 12 and a half cap rate on that $4 million loss, the place was worth, you know, that they were worth $37 million less. So the buyer was still willing to buy the seller, decided not to sell at that point. Eventually did some recapitalizations about 15 years later.

[00:37:07] But, uh, that was our first big transaction we worked on and we got to know a lot of people in industry through that transaction and ended up garnering a lot of business from it, but we never actually closed on that. We only sold one of the 37 properties at the end of the day. So that’s another good example of in our industry where you have point to what you have, which is called pen stroke risk.

[00:37:26] In any time you’re receiving reimbursement from the government, they can change your reimbursement for the better or worse with the stroke of a pen. So there is some risk. And that’s why there’s higher cap rate. That was probably, that was our first couple of deals. Last couple deals we did. We just sold a continuing care retirement community.

[00:37:40] CCRC in Fairfax, Virginia called the Virginia is all in with renovations and so forth. It’s going to be almost a hundred million dollar. Campus on 35 acres, tremendous location, great property. When it’s renovated again, another good value add we sold it for what it was worth, but someone’s going to make it worth even more through their good management renovation process and best deal I ever did.

[00:38:01] I’ve actually invested in nursing homes myself and bought some with some partners in Ohio and the first property we ever bought, it was not doing that well financially. We bought it, fixed it up. Operationally changed out the staffing and put some, a little bit of money into the physical plant. And that nursing home purchased two other nursing homes with just very little capital from us.

[00:38:20] So, and then launched us into owning a couple more buildings. So I would say that was my desk deal ever because there’s a, I was involved in it and it turned out to be an excellent investment. As far as transactions, probably the best deal we ever did ever was Regency healthcare in Texas for Don too. But once we sold his nursing homes, his ancillary companies, his construction company, and so forth.

[00:38:41] Management company, everything for about $500 million. And that was a tremendous transaction. We did that in 2006.

Hanh Brown: [00:38:48] Congratulations. Um, so what do you do now to give that.

Mark Myers: [00:38:55] Well, you know, I’m a born again, Christian. So I serve my Lord and savior and he’s been so, so good to me and to those around me. So I like to mentor young men.

[00:39:03] There’s a school near me. We live in a pretty athletic community, but within five miles of our house, there’s a school where 65% of the kids live below the poverty line. And so I’ve been mentoring, a young man whose family has. Very little financial resources and that’s been a joy. I also mentor guys are coming off.

[00:39:19] Drugs are coming out of prison and I’m involved with something called corn strain course ministries, where we pray for people coming in out of court, give them free Bibles, the literature. So just trying to get my wife and I very also try to be very charitable to a number of charities and ministries around the world and the communities we own trying to provide good care first and worrying about profits.

[00:39:37] Second one follows the other cause profit drives mission, but just try and be good in our business to give back to people.

Hanh Brown: [00:39:44] Thank you. Thank you for that. So if listeners want to reach out to you, how do they do that?

Mark Myers: [00:39:49] Okay. Best way to do that. As on my cell, which I answered until late at night, much to my wife’s chagrin sometimes, but that number is (773) 383-6821.

[00:40:01] Call me anytime. And the advice we’ll give you is good advice. We’re not going to charge you for it with the intent that we’re establishing a strong business relationship with. The color with the person that needs assistance. And obviously our ultimate goal would be to help you buy facilities or sell them.

[00:40:17] And that’s where we are in our living.

Hanh Brown: [00:40:19] Great. What is your email?

Mark Myers: [00:40:21] Yes. M M Y E R S like Sam at ITA, like the beer USA, like the country.com.

Hanh Brown: [00:40:30] Thank you so much. Thanks, Mark.