“Oversupply”

At the last NIC in Dallas, I caught up with an owner/operator of mid-market seniors housing. He has successfully made the transition from owning and operating hotels to assisted living and memory care.  We talked a bit about his hotel business and I found an interesting corollary to how I look at investing in the assisted living space.

There have been a lot of concerns about oversupply in seniors housing.  Newly developed and opened properties take market share from competition and both REITs (particularly those in RIDEA deals) and operators struggle, at least in the short-run, until occupancy stabilizes again.  I get asked this question a lot, “how are you looking at the over-supply concern?”  I like the question because it provides a forum for talking about the mid-market, B to B+ quality properties that is generally ignored by other REITs.  The beauty of investing in the mid-market seniors housing segment is

  1. you avoid the new construction pressures as the vast majority of new supply is A to A+ quality with all the bells and whistles, and
  2. if you invest primarily in secondary markets you further protect yourself from new construction risk.

In addition, the demand for quality seniors housing at the $3,500/month vs. $6,500/month (depending on the market) price point is huge and growing.  There’s a recent housing study by Harvard that highlights the growing supply/demand disparity for lower-income seniors housing.  So, to invest in a Ritz Carlton or Holiday Inn?  There’s certainly a market for both.  My recovering hotel investor friend in Dallas shared his experience, “I’d convert the hotel into a Holiday Inn; put out some coffee, juice, and bagels in the morning and you’re good.”  Luckily for investors and residents who choose to live there, there are quality operators who have figured out the recipe for providing a great place to live and work at an affordable price.

 

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CareTrust REIT

It’s hard to put in words what the last 12.5 years at The Ensign Group have meant to me (though I’ve tried many times to share bits and pieces on this blog) …

20 days ago, Ensign completed the spin-off of its real estate into a new, separate, independent real estate investment company specializing in senior housing & healthcare called CareTrust REIT.

CareTrust Logo Black-02

The CEO of CareTrust is Greg Stapley.  He’s an Ensign founder, primarily responsible for acquiring the portfolio Ensign has today.  Early last year, as we were headed towards a sale of Doctors Express, Greg told me about the plans for the REIT and his likely departure from Ensign to run it.  He asked me to join him.  At that time, I joked that I still had PTSD from the prior 12 months (moving my family to Baltimore to run a business that we ended up selling a year later … and all the accompanying ups and downs) and that I needed time to clear my head before making a long-term decision.

Immediately after the sale of DRX, I went to work for Ensign in skilled nursing operations again in Colorado to fill in for a couple guys who left their buildings in Denver at the same time.  What was to be a 30-60 day interim project turned into an 8 month assignment — that I absolutely loved (except for the commute).  It was GREAT to be back in daily operations, especially with the devoted and talented “Ensignistas” in Denver.  Ensign asked me to move to Colorado and oversee operations there after a short time but I felt like I needed more time to decide.  I genuinely didn’t know what I wanted to do next.

After our relatively short time in Maryland, my wife and I wanted to stay here for many years to come.  By the end of the summer, I had narrowed down the decision to 1) join Greg and build CareTrust together or 2) open a new market for Ensign’s operations here on the east coast.

Ultimately, I concluded that CareTrust was the right course for me and my family.  Even though it’s based in So. Cal. like Ensign, I’ll be the east coast office as we look to acquire senior housing and healthcare properties nationwide.

When it comes to real estate, they say its location, location, location.  But when it comes to skilled nursing real estate, its really operator, operator, operator.  In a way, my role at CareTrust is similar to one of my roles at Ensign for those 5 years I led the new leader selection & training (AIT) efforts.  Ensign’s growth strategy depended on the pipeline of homegrown talent to lead its new acquisitions.  My role(s) at CareTrust will be to build a bullpen of exceptional operators across the country who we can confidently lease our new acquisitions to.  After a couple of operator “interviews” its pretty clear to us that it “takes one to know one.”  I commonly hear, “You’re the only REIT that’s asked us about X, Y, Z (In-house rehab, centralization v. decentralization, RU%, Culture, turnover, clinical support, PPDs, readmission rates, etc.)” So, I’ll be working on operator relations, business development, investment underwriting, and oversight of our 3 operating independent living facilities in Dallas and Salt Lake.

When I made my decision last fall to go to the REIT, I did so with mixed emotions.  I have and will retain deep, meaningful friendships at Ensign.  Today, I’m thrilled for this opportunity to build on what we built at Ensign with new partners, in new places, and in a new way.