WS1344: The Golden Opportunity in Senior Living Space | #Highlights

EPISODE 1344

[INTRODUCTION]

Whitney Sewell (WS): This is your Daily Real Estate Syndication Show and I’m your host, Whitney Sewell. Today is a Highlights show that’s packed with value from different guests around a specific topic.

Don’t forget to like and subscribe but also go to LifeBridgeCapital.com where you can sign up to start investing in real estate today. I hope you enjoy the show!

[INTERVIEW 1]

WS: Our guest is Doug Fullaway. Thanks for being on the show, Doug.

Doug Fullaway (DF): Thank you.

WS: Yeah. Honored to have you on the show. This is a topic we don’t get to hear a whole lot about, so thankful to have you on, because I know there are listeners who are looking to get into this asset class who are looking for more content and more experts in this field. But a little about Doug, he’s an industrial engineer, Marine officer in Harvard MBA, and former CEO of the largest software provider to assisted living communities with thousands of sites — 100% focused on raising equity and investing in senior living.

So, Doug, thank you again for your time today. Give the listeners a little more about who you are and what your focus is in this industry.

DF: Many years ago, when I found myself selling software to assisted-living communities, I began to realize that there were people with a huge passion for taking care of seniors. Many of them had started their business sort of out of their heart, and they didn’t necessarily have good systems or good processes to run their business. They started with one community. They were successful, and they grow to two or three. By the time they got to 10, they realized it was way more complex than they had imagined.

QuickBooks had stopped working for them because they couldn’t do all the manual work. They couldn’t find enough people to do that, but I also began to see a set of operators who were very much superior at delivering quality care and making great money. I found those people really struggled to raise money largely because, for example, the multifamily housing business will put up about 350,000 new units this year. The senior living space will put up less than 50,000.

So it’s very small and not as well covered and certainly not as well understood. So when those people want to raise money, they were often talking to people who didn’t quite understand what they were doing. So I’ve seen that this is evolving, and it’s certainly changing. But it’s still a business that is very much run by small businesses. Because of it, it’s not very efficient to go raise the capital that you need.

WS: Wow! So many topics here we can talk about, but it’s neat that you bring up just the, what you say, 350,000 in multifamily and then the 50,000 in senior living. Just those numbers and the differences in those asset classes. So it makes sense that potential investors, a lot of the even that I talk to, a lot of times it’s their first time thinking about investing in syndication, much less thinking about the specific type of asset class. Then we try to educate them on multifamily and different things that we’re doing. But then you have another thing here you got to educate them about, about senior living and that type of business.

DF: I do. I would say that it’s, in many ways, not any different than multifamily and that the same things you understand about the real estate running it are true. You just now have to add on top of it all of the other things that have to go on. But it’s worth doing for a couple of simple reasons. The first is if you look at the population of those over 75 years of age, it’s going to grow by 10 million people in the next 10 years. That’s about a million people more per year who will need some kind of proper care and housing.

Now, only about 10% of those will move into some kind of senior living community. But even then, that’s a million. You take a million new people a year and 10% — that’s 100,000 new beds needed every year. That’s a thousand new buildings. So there’s a massive opportunity here that’s just beginning to take off now, and it will go for 10 years. So when you could learn about a market that’s not well understood by everybody, that’s going to have that kind of pressure on it tailwind behind it. It really does show that there’s a large opportunity coming. Is it as big as multifamily? No, but it’s a place where everybody hasn’t invested. Because of it, if you understand it, you can find real opportunities.

WS: When you understand those numbers, you can get ahead of it. Right? You’re talking about –

DF: You can.

WS: How do we find that best market or location where we can get ahead of that and see that happening?

DF: I want to make one other point before I answer that question, okay? That is, if you look at all of the different kinds of real estate that you could invest in — retail, industrial, warehousing, commercial private homes, and so on, there is a group called the National Council of Real Estate Investment Fiduciaries, NCREIF. They’ve been reporting for many years, and what that report has shown over and over and over again is the asset class of real estate that produces the best returns is senior living. It’s not well-known that that’s the case. It’s been 14% average annual returns. It’s currently dropped to about 11%, but it’s always 5 to 600 basis points better than apartments. So not only is it big, it has better returns.

Now, to your question, “Well, where do you find these things?” It’s kind of like asking the question where do you find hotels. You find them everywhere. But it also gives you some clues.

If you were to go to a class A market, let’s say we’re going to go to Manhattan — well land is difficult to find. It’s very expensive, and there are a number of large national operators who are currently building in that market. For most of us syndicated deals, those markets are very difficult to go to, because there is really big money there.

But the minute we move to a secondary market as I live in Portland, Oregon, or even to a tertiary market like Salem, Oregon which is smaller, now you still find 75-year-old people who need assistance who are looking for a nice place to go. So you can find these everywhere. I think that when you go look for them, first, it’s the market. The second thing is it’s to understand that this is driven by a market that’s five or seven miles in diameter.

It really doesn’t matter what the national average is. It really doesn’t matter what the national occupancy is. What matters is if I’m going to put my money into a business that’s located in this space, what’s the product you have? How does it compare with the other things in a 20-minute drive circle, if you will? Most people tend to stay where they’ve lived. They don’t move. Now, there are some exceptions — there’s a pretty steady migration to Florida or to Arizona. But in general, people stay close to where they live. So it’s not hard to find where.

WS: Interesting. So it kind of brings me to a question. I grew up in a really small town — one stoplight. I mean, there’s just nothing there, and there’s no like a great place that you want to send your grandparents to where they’re going to just get great care. But I think about that small town versus there are larger towns that are close by that have some really nice places, senior living facilities where they just get great care, great communities, and all those things. Is it something that a small community like that, or is it valuable to go in and build a small facility? Or is it something you’re mostly going to look for in larger communities?

DF: So the answer is a little bit more complex than you might imagine. I’m actually part of an ownership group that has a property in Madras, Oregon. Nobody’s ever heard of Madras, Oregon, even in Oregon. Its population is 15,000, and one would ask, “Well, is there some kind of senior living community there?” Yes, there’s one. Now, the only reason Madras is famous is Jacoby Ellsbury, the pitcher for the New York Yankees, who grew up there. He played in Oregon State before he went to Boston and then New York. There’s nothing, and you would think, “Well, will it work?”

The reality is you can’t make a small assisted living community work in the smallest town around. They’re called group homes. There are, at least, 6,000 of those, for example, in the State of California. So it can be done. It is a different kind of business than most assisted living. Because it’s so small, it, first of all, may be difficult to keep it full and keep the economics working.

My experience is that anything less than 25 units in size is really prone to the ups and downs of

the change in the demographics. People get old, and they die. The average length of stay in an assisted living community is just about two years, and that’s really because assisted living is a place that we’ve got where people go when they absolutely need help. They don’t go because they woke up one Saturday morning and said, “Gee, Martha. Let’s go look at assisted living.” That’s not how it works. It works because people need help. They’re no longer taking their medications. They’re not eating well. They’re confused. They truly need 24/7 help.

Now, there’s another type of offering, which is referred to as senior apartments. They’re just that. They’re apartments that are age-restricted. Or independent living, which is like an apartment. However, meals are offered. Those are growing very, very quickly. In fact, if I were starting this business as a syndicator or an investor, I would definitely consider independent living. It’s definitely a growing product. Most of the properties that are out there in this class are over 15 years old, so there are new buildings going on, and they’re not that difficult to run. Typically, there are no state licensure rules for those. There might be some, but they’ll be very simple. When you step across the line to provide assisted living, it now gets more complex. So back to your question about a town that’s very, very small. It’s unlikely there’s going to be a 120-unit assisted living community built there ever. That’s just not going to happen. For that, you’re going to need to go to a larger location, but the beauty of those properties is they can provide more public areas, more amenities, and a larger range of services. So it’s actually a little easier.

Having said that, here in Portland, Oregon where there are many, many assisted living communities, there are also many group homes because some people just like living in a place where there are five or six other residents who need help. They don’t want to be someplace where they have to go to the dining room. Where there are going to be a hundred people  eating. So there are different products for different people and their needs. 

[INTERVIEW 2]

WS: Our guest is Vinney Chopra. Thanks for being on the show again, Vinney.

Vinney Chopra (VC): Oh! Thank you, Whitney.

WS: Vinney is just an amazing individual. I’ve known him for a few years now, and I don’t think I’ve ever had anyone on the show — I catch them during their Miracle Morning while exercising. Vinney is at it right now in the middle of his exercise and still doing a podcast. He is on fire this morning. In case you haven’t heard of him, you should go back and search for him on even our  website. We’ve done numerous shows together about the syndication business and many topics related to the business specifically. But just in case you haven’t heard of him, a mechanical engineer, MBA, author of two top number one Amazon bestsellers, host of two podcasts and two weekly live shows, and founder of five companies. He came to the US from India with $7 in his pocket. And as a multifamily syndication expert, he has facilitated over 30 successful syndication deals. 

There are not many in the industry who can say that alone. He’s acquired and manages a very successful real estate investment portfolio worth over 400 million dollars, and more than 4300 doors. But in 2020, his passion increased for developing new businesses in luxury assisted senior living, grounds ups, and hospitality spaces along with multifamily like before. He likes to make everyone feel very special and believes that we are entrusted to do good in life for the people we come in contact with each and every day.

Vinney, it’s always a pleasure to have you on the show. I know today we’re taking a different focus in talking about different asset classes that you and I haven’t discussed together before, and it’s going to be interesting to get your take on that. You’re so successful at multifamily, but now you’re bringing in another asset class. But why don’t you give us an update and tell us a little about what’s new with Vinney, and let’s jump into this new asset class and this new passion that you have?

VC: Thank you. Thank you, Whitney. It’s such a pleasure to be on your show again. Actually, we just purchased a 35 million dollar deal in Austin in multifamily just about two weeks back. So that was a very good closing — 56 days it took us from the contract to the ending stage. So I’m still in multifamily big time and I’m looking at a lot of great opportunities coming up in 2021 because there’ll be quite a few great opportunities coming.

But at the same token, you’re right. I’ve been very much focused lately for about nine months, first, on senior living. Because, as you know, 10,000 baby boomers are turning 65 every day, every single day, and I’m a senior myself. I’m 68, right? So it’s been in my mind. How can I make a difference in the lives of seniors who are in the 80, 85 to 90 years of age in their golden years and also help the seniors who have retirement money, and other things, which they can get great returns if they ever invested with me, right? So two-fold mission, and that’s what I believe in the law of attraction, the law of manifestation as some of you all know. I’ve been thinking about it for about two years — how to get into it. And with the grace of God, I found a partner who has built this luxury senior assisted living and memory care for the last nine years.

Hold on. So he’s been doing it and proving the model. I don’t know much about construction to be truthful. I’ve been just managing 28 assets, particularly in our companies. So that’s where it all came about. And now we are so excited to build maybe four to six every year all through the USA. And actually, in the last five months or so, I raised almost 60 million already for four projects. So that’s very exciting! Yeah.

WS: That says a lot about you and just your track record, all those things. But 160 million for four projects for ground up that’s still to come, right?

VC: Yes. Yes. Yes. Yeah, we just finished the buildings in Cape Coral, which came out really good. We are building 26 miles away in Punta Gorda, then Virginia, then coming back to Florida again, because the demographical shift is that the seniors are moving to the warmer states and retiring. And the good part is, Whitney, that what I find is I’ve been chasing jobs, jobs, jobs with multifamily, which I will. But in this community, they are retired people. They have made it, right? And they are ready to enjoy their fruits of labor when they are turning into this level of assisted living. And that’s what our motto is, to spoil the generation that has spoiled us. That’s my partner’s logo.

WS: Wow! Love that. Is senior living, Vinney, something I mean you’re just adding on, or is it something you think is going to have better returns in the near future than even multifamily?

VC: Yes, totally. I would definitely explain it right now to all the audiences. Oh! It’s kind of warm. I should get my fan going. But it’s good though, good sweating. But what did you say, Whitney? I would say assisted senior living, which is the niche we are in, we are not in nursing homes, we are not in rehab centers, we are not in independent living, not at all. So only that niche we are serving our seniors who are needing some help, right? That’s the only thing assistance, with three meals a day, with enjoying their life and everything, like that, right?

So essentially, it’s multifamily. Hold on, what I just said. Because it’s multifamily, we are building 80 units, 92 units, 100 units from the ground up, one level, no elevators, with four to six courtyards, with waterfalls, with putting green. And in that senior living, we’re building movie theaters, spas, salons, libraries, dining halls, living areas, and pianos. I mean it’s a lifestyle of its own, which we never did, I never did in my multifamily.

In multifamily, it’s an individual resident using their own space, in the units. But in senior living, it’s a community. It’s a community that you really need for the seniors when a spouse passes away. So then the life starts going down, or they cannot cook, or they had a slip and fall. So it’s multifamily at its core, but the one thing I like about it, Whitney, is there’s no different maintenance. So we have hardly any cap-ex budgets, we have hardly any different maintenance, no value adds in this market, no delinquency, no concessions. Holy cow!

WS: Oh wow!

VC: So this is the best of the best preservation of capital in multifamily is in this niche, senior living, yeah.

WS: So what’s the risk, Vinney? What’s the risk that you’re concerned about with senior living specifically?

VC: Okay. I would say the risks do come always in real estate, right? But we like to mitigate the risk. So what that means is we start from feasibility studies, looking at different demographical data and then we analyze what’s a product out there comparing what we’ll be building. And then we hire an outside company to do a thorough feasibility study. Pay thousands of dollars and they come up with a capture rate. Capture rate is like what will be the demand in two years, because it takes us 12 to 14 months to build it, right? Because from the ground up. So we find the location first. Get the contract to LOI actually for six-month closing, six to nine month-closing. We never buy the land first, because if the land does not get accomplished or approved for senior living, it’s dirt. It’s not worth it for us, right? So that’s how we do it. And we get architectural drawings. We do the ordinance changes, everything.

So my partner and I really pay for all that. We never raise money until we are ready to put shovels in the ground. So when we get all the permits, that’s when we do it. So we mitigate the risk that way. We have all the insurance from our general contractors, and subcontractors, which have done this for us for so many years now, right? So that way we do have full fire hazard or any kind of slip and fall during construction, things like that. And then we manage all our assets ourselves.

So we have 700 employees, 700 full-time, team members I should say. Yeah. So each facility, I would say probably 55 to 60 people in just 80 units. Just 80 units, because caregiving is given. There are nurses. No doctors. We don’t need any doctors. We are only state-regulated, not federal-regulated at all. So that way it’s a much, much easy and very easy to operate because we know how to hire the right people. We train them for six to eight weeks even before they start working at our sites.

And we start marketing about when the building is about 75% complete, 70 to 75, we start advertising; television, print media, everything. So that by the time we open the doors, we had about 40% to 50% occupied.

[END OF INTERVIEW]

[OUTRO]

Whitney Sewell: Thank you for being a loyal listener of The Real Estate Syndication Show. Please subscribe and like the show. Share with your friends so we can help them as well. Don’t forget to go to LifeBridgeCapital.com where you can sign up and start investing in real estate today. Have a blessed day!

[END]