share interactive transcript request transcript/captions live captions
download
|
MyPlaylist
BROOKE HOLLIS: As many of you know, the area of senior living is really-- in certain ways, it's probably one of the things that makes an easy transition and understanding between the hospitality world and senior living. Because on the lower end of the acuity scale, senior living is, in many ways, a hospitality business. And so we've seen a number of people who've got backgrounds in hospitality who've gotten involved in the field. And they're incredible opportunities, not only because of the demographic shifts, but just because there's so much need to do a good job in this area.
And we're fortunate to have three panelists with us today who've got a lot of experience in the field, and I will do a very brief introduction. They will then go into a little bit about their track and how they got to where they are, and talk a little bit about their organizations. And then we'll go into-- in John's case, he's going to do some videos and slides, and set the stage. And then Joe's going to talk about a little about the world from the real estate, investment, trust, and financing side. And Kelly's kind of crossed over both worlds, and we'll talk about things.
And if you notice, Tom, Tom [INAUDIBLE] unfortunately had a change with his board and had to go to that, but he very much apologized. He wanted to be part of this, and he said he'll be--
JOHN RIJOS: We drafted Kelly.
BROOKE HOLLIS: Excuse me?
JOHN RIJOS: We drafted Kelly.
BROOKE HOLLIS: Yes, we did. So Kelly is a great addition to the panel, and we're really happy to have her.
KELLY ANDRESS: I'm the player to be named later.
[LAUGHTER]
BROOKE HOLLIS: The TBA. All right. So just to go through the group in order of people talking. So John Rijos, many of you know, is a graduate of the Hotel School. Has been involved in a lot of different areas and different parts of the industry, but started his career in the hospitality side, and was a very successful entrepreneur or operator with Lane Hospitality, one of the two leaders.
And after they sold the company, he really thought about what he might want to do differently, and decided to join what was then a relatively small company with Brookdale Senior Living, and helped to grow it into the largest public company in the field. And is now Operating Partner and the CEO and Chairman of Chicago Pacific Founders and their division, CFP Living. And we'll talk a little bit about that, and his unique perspective in the field. He's also been a great supporter, and really is the godfather of our senior living course, and has helped quite a bit in building these ideas for the Institute.
Joe Weisenburger is a senior-- excuse me-- a Vice President with Welltower, which is one of the largest health care-focused real estate investment trusts. He's been involved in the field for a number of years now, and works with quite a few communities, and is liaison in building things. He'll talk a little bit more about what the role of a REIT is, and his involvement in the industry.
And Kelly's been involved in the industry for almost 30 years now, working in supportive seniors housing, originally with Sunrise. Was a vice president there. Built a number of facilities for another company, and is currently now the President of Sage, and currently operates six, but has got three other communities in development. So each of them will talk a little bit about things.
And at the end of the discussion, I'll ask a few questions, and then we'll open it up to the audience, OK? So John, you want to take things off? And I guess we're ready for the first video. Thanks.
JOHN RIJOS: Well, let's wait for the first video for a second.
BROOKE HOLLIS: All right.
JOHN RIJOS: The reason I want to wait is in the very front over there is a lady who has recently become a professor emeritus after many years as a professor here in the Hotel School. I would tell you that my son, who also graduated from here, thought she was his best professor in his four years here, and many people love and admire her. And some of you are teachers and mentors, but I would like to point out and have Mary Tabacchi stand up and say hello.
[APPLAUSE]
OK. So we are going to be very informal, which is my normal way of doing things. I don't know what this whole thing is with the jacket and tie, but--
[LAUGH]
JOE WEISENBURGER: Just want to look good next to you, John.
[LAUGH]
JOHN RIJOS: So yesterday, I went to maybe five or six different sessions, and I got pretty confused with all the jargon. There was medical jargon, there was science jargon, there was hospital jargon. There was even a little bit of senior living jargon. So I thought we'd run a little video to get us all on the same page for this. Can we run that first video?
[VIDEO PLAYBACK]
- [SPEAKING GERMAN]
[SIGH]
[BEEP]
[STATIC]
- Mayday, Mayday.
[STATIC]
Hello? Can you hear us? Can you hear us? Can you--
[STATIC]
--over.
[STATIC]
We are sinking. We are sink--
- Hello? This is the German Coast Guard.
[STATIC]
- We are sinking! We're sinking!
[STATIC]
- What are you thinking about?
[MUSIC- "ODE TO JOY"]
JOHN RIJOS: OK, you can turn it off.
[END PLAYBACK]
[LAUGHTER]
So let's go dark on that for now.
[LAUGH]
Can we do that? You know how to darken that so we don't have that on? No, not--
[LAUGHTER]
JOE WEISENBURGER: The slides. Dark the slides.
BROOKE HOLLIS: All right. [INAUDIBLE].
JOHN RIJOS: I think we're back.
[LAUGHTER]
So technology's not my thing, so I generally try to touch nothing. In fact, in my office, when my staff brings me some new piece of technology, they immediately take an impairment charge for its value, because it'll be worth a lot less a day later. So let's talk about kind of-- what I'm going to do is spend the first few minutes talking about senior living industry, where it is. And I'm going to do it from about 10,000 feet for a few minutes to give everybody a sense of perspective about it.
Our GDP is roughly $17 trillion. Health care is about $3 trillion. It's actually $3.1 trillion, so it's about what? 17%, 18% of the total GDP. It's a big chunk. Going to 20% within the next five years. So the reason for this conference and groups and meetings like it are that health care will be 20% of the entire GDP within a short period of time.
But senior living's only a $70 billion business. Now that sounds big when it stands on its own, but as part of the whole health care field, it's really not that big. Interestingly enough, it's grown by about 5% a year, which for an industry is a pretty good size. Pretty sporty growth number. But the senior living industry-- and by the way, I don't include, when I talk about numbers, I don't include the skilled nursing part of it, because I'm not in the skilled nursing part of it. So I really talk about independent living, assisted living, memory care, and actually even seniors' housing. You know, senior apartments.
So when you think about that business, there's about 11,000 senior communities across the United States. And those 11,000 communities comprise roughly 1.9 million apartment units. So think about it in that perspective. So across the United States in independent living, assisted living, and memory care is about 1.9 million units.
On an everyday basis, 1.7 million of them are occupied every day. So it runs 90% occupancy as an industry. If you think about most industries, that's a really high occupancy, right? So 1.7 out of 1.9. The assisted living and memory care part of the business runs a little bit lower than 90%. It runs 80%, 85%, to 89%. Independent living runs 90% to 91%, so it winds up just under 90% as an industry.
What's interesting is I was hearing numbers yesterday about how many seniors there were and all these different ages that they're at. But the truth of the matter is our business is at 75 and above industry. It's really an 80 and above industry. So the fact that there's 50 million people that are 65 and above really is of no consequence.
Our market, which we call the age and income-qualified marketplace, is about 13 million people that are 75 and above and have $50,000 a year or more of income from various sources, whether it's social security, pensions, savings, what have you. So that's kind of the marketplace, just so we all are on the same page.
What's interesting to me is only about 15% of all of those age and income seniors ever live in seniors housing. About another 15% wind up hospitalized and move on to the celestial senior living community. But 70% of our market never lives in senior living ever.
So that's really the interesting opportunity, is how to figure out-- how to get-- when you have a business that's already 90% occupied, and only 15% of your market ever uses your product, it's pretty easy to figure out that it's a successful product. I'm going to show you some demographics in a minute that will tell you this is absolutely the kind of business you should be in, targeting seniors in some form or fashion. But only 15% ever use our product.
What's interesting about those 1.9 million units is 60%-- actually, 61% of them are companies or individuals that own 10 or less communities, OK? So 1.9 million units. 61% are owned by companies or individuals that own 10 or less. And half of that-- so 30% of that total group-- are people or companies that own only one community.
So think about how fragmented that is. There's a big company like Brookdale, which I was president of for a very long time, has 1,000 or 1,100 communities. But most of this industry are ma and pas. It's people that own one building in their hometown or two buildings in their hometown, and they have an enormous amount of passion and legacy about that community. It's really an interesting business. It's an easy business to think about how you would aggregate it over time, right?
Our business is growing by about 5% a year. What's interesting is supply over the last 20 years averages about 4% growth of supply. About 5% growth of demand. So you can pretty clearly see that the business is going to stay at this occupancy level, and maybe go a little bit higher. But not in the short term. In the next three or four years, there's a little bit more supply coming on. The number of seniors were actually going to go kind of straight lined for the next three or four-- actually, from 2017 through 2021, we're kind of going to go straight lined, about a 1% growth rate of seniors, and then it explodes. So that's worth knowing.
So just again, to give you a little bit of background before I show you these next slides, $70 billion business by 2022, which is when the next enormous growth happens in seniors. We'll be about a $110 billion business. 75 and above age group is growing by about 2.5, 2.7 times the normal population growth. The 80 and above group is growing by six times the normal population growth. Some fairly compelling numbers there.
The first baby boomers turned 70 this year. So if you think about our business being 80 and above, which it really is, then 10 years from now, 2026, is when those baby boomers really become our customers. So I thought we should maybe look at a few interesting slides. And they put me in charge of this thing, so we're all going to find out together how this works.
So let me give you a little bit of history. After World War II, everybody came home. Over the next five-- actually, over the next seven years, 92% of all the women that could have children did have children. Families had an average of four children per family. And it was an interesting time, and that created the baby boomers.
So if you go back and look at that first slide, which is up, the change in population growth between 1950 and 1960, what do you see? This enormous growth of children. That would have been a great time to be in the kids business, right? Kids clothing, toys, what have you. OK.
Next slide. If you look at from 1970 to 1980, look what happens. That group is now starting to pass through the population. And 49%-- the largest growth in population, clearly from 1970 to 1980, 49%, that same group. 1980 to 1990, still way ahead of every other group, growing about 47% as a change in population growth.
OK. So 1990 to 2000. One of the things that I'm always fascinated by is how the politicians back in the '90s talked about what a great job they did balancing the budget. Well, this is why they balanced the budget, because the baby boomers were in their highest earning years, paying the most taxes ever, and the older people, the 65 and above crowd, was a very small crowd. So they didn't ask for much. They didn't need much. They didn't cost much. And the baby boomers were at their peak earning years. So when you hear about the people from the '90s talking about how great they did the job of balancing the budget, it had nothing to do with them.
Let's see. OK. So now you're starting to see from 2000, this last decade, 2000 to 2010, there's two-tiered growth of people in that age group. Now are you ready for this? This is what that population is growing at as we go from 2010 through 2013. Or 2030.
Oh, sorry. Hold on. I really suck at this. You know that, right? There you go. Look at that number. From 2010 through 2030, an 81% explosion. Now if you looked at the slides from the '50s and '60s, you knew it was a great time to be in the kids-- in toy business. If you look at that slide, what business would you want to be in now?
JOE WEISENBURGER: Adult diapers.
JOHN RIJOS: Adult diapers. Yeah.
[LAUGHTER]
Anything dealing with seniors, right? I mean, it's not that hard to figure out. Added to all this is life expectancy, and I'll spend a minute or two on that in a moment. But life expectancy, because of all the things that you and this audience know probably better than I, is growing or gaining by a third of a year every year. So the average life expectancy in the United States right now is 79 years of age, but growing by a third of a year every year. So every three years, it grows by a year. So by 2030, our average life expectancy will be 85, 86.
And that's if it only continues to grow by the same rate it's growing now. The truth of the matter is, I was just at USC for a gerontology conference that I spoke at. And one of the guys on the panel was talking about with the eradication of disease and no wars and body parts that can be replaced pretty quickly with zippers and what have you, it will probably double or triple in a short period of time.
In fact, one of the things he said was at the start of the 20th century, the average life expectancy worldwide was 31 years of age in 1900, start of the 20th century. At the start of the 21st century, 16 years ago, average life expectancy was 71. So in one century, went from 31 to 71, right? OK.
The next couple of slides have to do with-- and those were baby boomers-- have to do with if you knew that you were going to live longer and you were going to live more healthy, how would you live differently? And this is actually what the baby boomers are thinking about. They spent their whole life thinking about themselves, but now they have the chance to think about themselves for a much longer period of time.
So I was telling some people last night, back in the '60s, this is what life looked like. It was called a linear life plan. You went to school for 20 years, you worked for 40 years, you retired in your early 60s. You went on two cruises, played some golf, and died, right?
[LAUGHTER]
That's kind of how it looked, right? Now that people are living till the mid-80s and even into their 90s-- and in fact, at this conference I was at at USC, this gerontologist said that the first person that will live to 150 years of age is already born. Right now, a little baby. We don't know which baby, but one of them.
So now we have what we call this longevity bonus. And this longevity bonus is 20, 25 years. So if you kind of live that old linear life plan, and you had these 25 years at the end of your life, how do you want to live them? And this is what the baby boomers are spending time thinking about.
And so as we create senior living and senior products, this is how we have to think about it. Well, they don't want to live it that way. They don't want to live where you do all this work, and everything's pretty linear, and then you have 25 years to do nothing. What they actually want to do is if you know you're going to live longer, you want to spread that out.
So at age 50, you go back to school. At age 65, when you retire from one business, you go start another business. You go live in Florida, in Arizona, in Texas, in New Mexico. And then as your children have their own children, you come back, and you reverse migrate.
So what the boomers are figuring out is they want to live that longevity premium throughout their life, not at the end of their life. So they write a book at age 60. They take up pottery and go back and become artists. They start a third business. They volunteer. That's how they're going to live their lives.
And so we in this business have to gear our product to a marketplace that 10 years from now won't want the product that we have today. They don't want to be called seniors. In fact, they will reject it summarily if you call them seniors.
They don't want to be told where to go and how to do it. They want to be in communities that have lots of options, whether it's this congregate care community or an assisted living community or whatever. They want options. They don't want to be told what time to eat dinner. They don't want to be told they can only go one place. These are all things that Kelly and Joe will talk about in a minute.
As I wrap up these opening comments, I've spent these first 10 or 15 minutes kind of at the 10,000-foot level. I would share with you that it's easy to figure out that senior living and senior products is going to be the future, and anybody in that business will do well if you can actually figure out what boomers want and what seniors want.
The greatest generation is passing away. They're 95 and above. The silent generation or the 75 and above group right now, they've worked hard their whole life. They don't ask for much. But the boomers are coming, and they're going to ask for everything. Now figuring out what they want is going to be the interesting part of it. What they don't want is what senior living is today. I can tell you that for sure.
In senior living-- so you know, I was president of Brookdale, very big company, for a very long time. We spent a scrillion dollars a year on advertising and marketing, and I never could figure out what was working and what wasn't working. I'd walk into our communities and it all starts with our associates, our employees. If our employees or associates are happy, they take great care of our residents. In fact, any time I go to something and people talk about the customer, I tell them the customers are our associates. Then their customers are our residents. So it starts with our associates.
I was in one of our communities one day, and I was noticing that our employees, our associates, were talking to some of the residents in a way that I didn't find attractive. I thought they were seeing them as the 85 or 90-year-old person that they were, and not respecting who they had been over the course of their lifetime.
So I came back the next day with two people that work for me, and we created this little video that has become kind of the first thing every employee at Brookdale sees on day one. And in my company, Chicago Pacific Founders, it's what they see on day one, before they even start their first training class. So can we run that video? It's actually pretty powerful.
[VIDEO PLAYBACK]
[MUSIC- SIA, "I'M IN HERE, CAN ANYBODY HEAR ME?"]
I'm in here, can anybody see me? Can anybody help? I'm in here, a prisoner of history. Can anybody help? Can you hear my call? Are you coming to get me now? I've been waiting for you to come rescue me. I need you to hold all of the sadness I can not, living inside of me.
I'm in here. I'm trying to tell you something. Can anybody help? I'm in here. I'm calling out but you can't hear. Can anybody help? Can you hear my call? Are you coming to get me now? I've been waiting for you to come rescue me. I need you to hold all of the sadness I can not, living inside of me.
I'm crying out, I'm breaking down, I am fearing it all, stuck inside these walls, tell me there is hope for me. Is anybody out there listening? Can't you hear my call? Are you coming to get me now? I've been waiting for you to come rescue me. I need you to hold all of the sadness I can not living inside of me. Can you hear my call? Are you coming to get me now? I've been waiting for you to come rescue me. I need you to hold.
JOHN RIJOS: You can turn it off.
[END PLAYBACK]
You can turn it off. Pretty powerful, right?
[APPLAUSE]
[LAUGH]
So we did that in two hours one day. It cost about $50 bucks. And Brookdale spends about $100 million a year in advertising. So you decide what was important.
In fact, I used that slide, that little video, at my annual limited partners meeting a couple of months ago for our fun. Bunch of 60-year-old guys with gray hair and great suits, all crying in the audience as they were looking at this. And one of them came up to me-- he was worth a scrillion dollars himself-- and he said, is it OK that I cried at this meeting? I said, of course it's OK. You're supposed to.
Anyhow, so that's kind of a quick overview of where this business is at, and why we do it, and how important it is. And I'll pass it over to Joe.
JOE WEISENBURGER: Nothing like trying to follow that video. Thanks, John.
[LAUGHTER]
I work-- I work for Welltower Inc. We're the largest real estate investment trust in the world. We have assets in the US, Canada, and the UK. Our portfolio is comprised of about 75% senior housing, which I'll define, because we have skilled nursing as skilled nursing, independent assisted, and memory care, and some other active adult communities, and other things that attract seniors.
I'm going to give you a little context of what I remember about where the industry started and where it's gone too. So if you go back to John's timeline, where did seniors go when they were in their-- in the 1950s, '60s, and early '70s? There was hospitals. Medicare didn't come into place until the early '60s, so we didn't even have nursing homes in the early '60s.
So a lot of the perception of the greatest generation, the silent generation, comes from, their parents went to the hospital, and they died. And then they went to the nursing home, and they died. And they were both very, very institutional settings. That was just the nature of what we had in the US at the time.
In the early '80s, some companies started to come up with a concept called assisted living. One of the founders of the Clausen's came up with a concept they brought from Scandinavia, which was a home with apartments behind it. And they started an industry that's now senior housing today. And it's a private pay model, so it's not government-reimbursed. It's people go, and they pay out of their own pocket for a better place to live in the last few years of their lives.
Some context. The average person lives in assisted living for 24 months. It varies over time. In the earlier days, it was probably four or five years. In the height of the great recession when people delayed their move, it was probably down to 12 to 18 months. And then it's starting to lengthen again, just depending on longevity and how well we care for people.
Well, Welltower was founded in 1970. We were the first real estate investment trust. Fritz Wolfe and Bruce Thompson founded our company with the idea that there was Medicare in place. They wanted to find a platform to develop skilled nursing to take care of seniors. So they founded HCN, and then they also founded a company called HCR ManorCare, which eventually grew into one of the largest nursing home companies in the US.
I started in 1998. Our previous CEO, who was a Cornell grad, George Chapman, started in 1992. And he took our company from a $350 million mortgage REIT-- so all we did was mortgages-- to where we are today. We're a $40 billion market cap company.
But there were some cycles that happened throughout the industry. In 1998, PPS came into play. So the skilled nursing environment dramatically changed. Up until that point in time, the government thought it was a great idea that you just give operators costs plus reimbursement system. So a lot of smart businesspeople took advantage of that system, and they figured out ways to make a lot of money.
It didn't matter as much the outcome, so they changed it to what was now you have an issue. Grandma breaks her hip, she's coming to your nursing home. You have to rehab her. We're only going to pay you $10,000 for that whole episode instead of you just determine what your costs are, and we'll give you a profit. That dramatically changed the landscape of the world.
So at that point in time, in the late '90s, the REITs at that time were financing a lot of skilled nursing. Welltower, fortunately, was doing a lot of what was called assisted living. We backed people like Steven Vick, Tim Buchanan that were developing 40-unit homelike settings throughout the Midwest. We backed Bill Lasky at Alterra. We backed many of the regional players that were out trying to form this new industry. We actually did the second facility that the Clausen's ever did at Sunrise. So that's kind of the backdrop.
At that point in time, there was 10 REITs. The largest REIT was Meditrust. They had a grand total of $4 billion in assets. Abe Gosman was the person behind that. And he did a lot of great things, but then he went far afield and went into golf courses. He bought Santa Anite racetrack and kind of changed the dynamic of the trajectory of where that company went.
At the same time, the operators were starting-- it's a new asset class. People are starting to get excited about it. Capital flows into industries when they get excited. There's a lot of companies like Standish Care, Just Like Home, Atria, [? Capsin, ?] Senior Quarters, all going public on very few facilities, and a business plan that we're going to grow. We're going to make this a great deal.
What happened was capital rushes in. They develop a lot of facilities, because there's no existing supply. I think at one point in time, what is now Brookdale was opening a facility every three days. So imagine opening a facility every three days, and you have, A, labor issues. You have an education issue, because people still at the time believed that people are going to go to a hospital. And when you leave your home, you go to a senior place, you're going there to die. It's not a place to fulfill your lifestyle, which it is today.
The industry gets overbilled in the late '90s. Bankruptcies happen. That causes opportunities again. So private equity comes in and starts buying up these assets, develops them, incubates them, and we roll along really pretty well from middle-- the late-- call it late 1990s to early 2000s. That was the issue of turmoil.
Up until from that point until 2007, it kind of goes along growing steadily. Pretty consistent. Not many issues. Supplies under constraint. The banks took their lumps, so they're not letting growth get out of hand. The REITs are funding mostly assisted living, not as much on the skilled nursing side.
Legislation passes in 2007 called RIDEA, which is the REIT Investment Diversification Empowerment Act, which allows the REITs now to own both the property, as well as share in the operating performance of the facilities. Dramatic change in the way the environment happens.
Up until that point, the big players were the banks, lending debt. You had the agencies, Fannie and Freddie and HUD providing capital. You had private equity. And you still had a little bit of Wall Street, but not a lot. Once RIDEA happens, now the REITs have a platform to joint venture, and really take the property ownership with the operator and marry those two together so that there's a sharing of the risk.
At that point in time-- so Welltower, when I started in 1998, had a billion in assets. In 2007, we had 10 billion. And then from 2007 until 2016, we've grown $25 billion in assets, primarily driven by RIDEA, marrying our ability to raise capital efficiently with the operators' ability to perform and take care of seniors. So that leads to dramatic growth.
What's the next thing that happens? The great recession of 2009. Capital markets dry up dramatically. Bankruptcies happen again. What happened in the senior housing space? Nothing. Occupancies flatlined. And still in the high 80s. No real disruption in performance. The best performing asset class of all real estate classes for that two-year cycle till we truly bottomed out.
So what's the net effect that? We now have private REITs. So up until really 2009, it was a public REIT environment. You have a few public operators, and then you have financing sources. Private equity, no private REITs. The birth of the private REIT really happens-- coming out of that recession, they see this great opportunity to come into an industry that's a best performing asset class, appears to be recession-proof, inelastic demand. A great investment environment.
You have a lot of private REITs that come into the business, buy up a lot of property. Meanwhile, three leaders kind of emerged in the health space, at least on the REIT side. You have Welltower, Ventas, and HCP all kind of separate themselves. And today--
AUDIENCE: What's a REIT?
JOE WEISENBURGER: I'm sorry. A REIT is a Real Estate Investment Trust.
AUDIENCE: Thank you.
JOE WEISENBURGER: So a real estate investment trust, really you can think about it as it's pretty similar to a mutual fund. It allows the individual investor to have the ability to own real estate. If we were going to try to buy this building, and this building costs $50 million, John can write that check. I can't. I couldn't own this building. But if everybody in this room pools our money together, we can own that. That's basically why the real estate investment trust came into being in the late 1960s, early 1970s.
AUDIENCE: [INAUDIBLE].
JOE WEISENBURGER: No problem.
[LAUGHTER]
So the model evolves. And then like anything else, the capital markets take another change. They now decide that skilled nursing's not a favorite environment. So you're seeing the larger REITs spin out of the skilled nursing space and remain focused on, what is private pay senior housing?
So what that's meant is, obviously, Welltower and the other REITs have had to evolve. When I started in the business, to give you some context, we were doing investments in assisted living and independent living. Cap rates at the time for assisted living were 14%. We were investing dollars between 10% and 11%. That was 1998, 2000.
Today, we're doing deals in cap rates as low as 5%. Investing money in 5% to 6%. And that's all driven by cost of capital and advantages of people seeing that it's a very investable asset class. Just recently, all of REITs have their own sector now. They used to be in the financials. Now they have their own real estate-specific sector, just given the demand for real estate across the global economy.
But what Welltower's done that I think is unique, our growth has always been driven by the operators. We've always backed the operators and the operators first. And we've grown people. many times. We back some of the industry icons like Dan Baty at Emeritus. We did business with Dan and have done until Brookdale bought him in 2014, from the day he started, back in the days with Holiday and Bill Colson to when they merged in 2014 with Brookdale to become the largest senior housing operating platform in the world.
But we back operators because we understand, as John rightly said, your employees take care of the people. And it's a pretty simple business. If you take care of your employees, and you make your residents happy, your buildings will be full. Now there's going to always be fits and cycles of when too much capital comes into an industry. And we're probably at that point in time right now in a cycle where there's a lot of capital coming, both foreign and domestically, to a sector that was the best performing in the last recession. So they want to share in that participation.
But as John did put it, there is a period of time until the baby boomers truly hit 80 to 85. That's when the peak demand's going to be, and there will be a lull for the period of time. So the goal for people like Welltower is to make sure we continue to back great operators like John and his management team and others to ride this cycle out.
KELLY ANDRESS: Can you hear me? I haven't talked yet into this. This has kind of been a walk down history lane for my career. In 1989, I answered a blind ad. It was little square in the newspapers that wanted-- a financial analyst wanted assisted living company. And I said, well, that kind of sounds like me. I don't know what assisted living is, but I'll go.
And I drove my Acura to this house next to a nursing home in Vienna, Virginia. And I had been living in DC, And I almost didn't go in, because it was kind of stranger danger.
[LAUGH]
And I walked in, and there was Paul Clausen, the founder of Sunrise. And he was 30 years old, and I was 23. But it was before the internet, so I said I was 25, because they couldn't check it. And it started my career in senior housing.
And we didn't know. Back in the day, we had one purpose, and that was, we were disrupters to the nursing home industry. And I say that every meeting back then was two hours, because the first hour was, what is assisted living? And basically, what we were building was 58 apartment mansions. For the first time, it was residences that we were building that wasn't skilled nursing and didn't have the protection of Medicare or Medicaid funding.
But we were building a 150-square-foot apartments with no kitchens. And lenders would ask us, well, what are we going to do when this fails? And we say, it would be a really great frat house.
[LAUGHTER]
But there was a lot of lenders and investors who backed us. And we had long discussions about whether assisted living was going to be the name. Or we thought personal care. All of Sunrise's early marketing had personal care underneath it, because we didn't think assisted living was going to stick.
So it's been a long career through this. We started ALFA, which is Assisted Living Facilities Association, out of our offices. Mainly, it was a campaign against nursing homes. And what we found was, why do you need assisted living? You need assisted living because there was nobody home to take care of mom.
And we have not been aging very long, as others have-- as my co-panelists have said today. We are just aging for the first time. So whatever we are doing now is senior housing 1.0, maybe 2.0. But if you've only been living in any quantities of people to 80 years old for 20 years, then the times have to change. The health care system has to change. That's why we are here.
And that's why we shouldn't feel bad about not quite knowing how to do this, because we haven't been aging very long. It wasn't till Mary Tyler Moore went to work that we started meeting senior housing and child daycare, right? Because nobody was home to take care of mom or the kids.
So what we did was, as I said, we started building 150-square-foot apartments. We served little old World War II, greatest generations. They were compliant. They did what we asked them to do. We marketed private rooms and carpet on the floor. And from that, an industry was born. Independent living, assisted living, memory care. Since then, since the late '80s, all of those have come into being and come to be different segments of what is now a supportive senior housing industry.
In 2004, after building 20-plus communities for Sunrise, after building the first nine Brightviews, after building communities from literally Maine to Florida, I said, OK. It's time to do it for ourselves.
So we bought one of the old Sunrises. My husband and I started Sage in 2004 when we bought an old Sunrise, which we still operate today. It's a Sunrise that I had built when I was at Sunrise. And we broke ground on a 168-apartment independent and assisted living community in Wallingford, Pennsylvania, which is outside of Philadelphia. 18 months later, we opened. And in 12 months, we were 70% occupied, and we were swimming.
In October of 2008-- is that when the-- it's 2008 or 2009 when the bottom fell out of the market.
JOE WEISENBURGER: It was 2007, 2008.
KELLY ANDRESS: 2007, 2008. My phones in my community stopped ringing, because my residents, when Lehman failed, they were sure it was the second Great Depression that was starting. I'm not saying they were wrong.
[LAUGH]
But our phones stopped ringing for three to four months. At the time, my husband and I were one of those mom and pop operators. We had one other community. And we lived in Newport, Rhode Island, and our community was in Wallingford, Pennsylvania.
So we rented our house in Newport. Not immediately, because we didn't know how long it was going to be. But we moved out of our house in Newport, Rhode Island, and we moved into our community, Plush Mills retirement community, where we lived for 18 months with our two children and our standard poodle.
I learned more in that 18 months of living in our community than I had learned in 20 years prior. And what I learned was they were really great places. I learned that it is a 24/7 business. I learned that we see families through some of their greatest memories and some tragic losses. We learned that you go where your residents pull you. We learned that there is love in our communities. There is pain in our communities. I've been in the elevator with a family member who has just lost their patriarch of their family, and I've been in the elevator with a daughter who just found Viagra in her dad's apartment.
[LAUGHTER]
I don't know which daughter was more sad.
[LAUGHTER]
As an industry, times are a changing. If you're not changing, you're dying. We will deal with this baby boomer generation when it gets here.
But for now, the silent generation that we are serving, that we are all serving in the health care industry, in hospitals, and everywhere, they are the perfect vehicle to take us from the complacency of the greatest generation through to the baby boomers. The reason they're perfect is because they're more demanding than the greatest generations were. They have more diverse needs than the greatest generations did.
But they saved enough money to pay for their retirement. Between the ages of 40 and 55, the silent generation was saving upwards of 30% of their income. I guarantee you, the baby boomers, right now they've saved at the most, the latest baby boomers on average were saving about 10% of their income during that time period. And they're going to be, as John showed, retiring much longer.
So this generation is teaching us how to deal with demanding clientele. As a nation, we'll figure out how to pay for the baby boomers' retirement, but we're not there yet. So with that, I know we want to leave time for questions and answers.
JOE WEISENBURGER: I just want to add, if I can just add one more thing. Just to add maybe a little bit of context. So as John said, there's 1.8 million seniors living in our communities today, and that demographic has income of $50,000. Probably a net worth of $250,000 or more.
And it's one of the, I guess, I don't know if it's a great secret, but from the health system side of the business, when I go out and talk to health systems, they don't seem to understand who our client is, and understand that the people that live in our communities are the people that the health systems want to come when an episode happens. And senior housing is also a solution to when bad things happen, they go to the hospital. They can't really go home yet.
I mean, most people can't go home. And that's why the government's pushing, if Mrs. Jones breaks her hip, she's going to go, and she's going to have to go home within three to five days of a hospital visit. They want her to go home. They didn't want her to go to the nursing home.
And we're automatically part of that solution to have someone come to our communities for 30 to 60 days to stabilize them, to really get them in a position that they can go home. Or maybe they should never go home, that the setting is just not appropriate. So I think there's a huge opportunity for the senior housing industry to educate, you know, the health systems as to what we can offer, and help provide solutions that can be symbiotic for both.
BROOKE HOLLIS: I think that's a good point. And I don't want to take a lot of time asking questions, but I think that Joe's company is actually-- Voorhees, New Jersey is an interesting example. They have a thing they call the Medical Mile. And I think we all struggle-- we talked about this a little bit in a round table we did in the spring-- how we do a good job of managing the entire continuum of care between post-acute and the acute care world, and that includes skilled and rehab facilities and assisted, and all these different kinds of players. And so I think it's going to be an interesting time.
But since we have a short time, I don't want to ask any formal questions. I'll throw it out to the group. But if you can kind of put it in context too of thinking what you're interested in, and also how this might relate to how we can help prepare future people through the Institute in places like Cornell and other universities. But I'll open it up. Yes?
AUDIENCE: [INAUDIBLE]. So I may [INAUDIBLE], and there's just not that temporary-type facility that I've seen. My question for the panel, do you see the hotel industry getting into this space? Because the occupancies and a lot of the metrics that they look at are very attractive.
JOHN RIJOS: So let me take the first shot at that. The answer is probably no. So who's coming into this business now? It's mostly multifamily housing companies, shopping mall developers. Because when you think about senior living, it's where three different businesses meet. It's where real estate, hospitality, and health care meet.
Now real estate people think that because they've developed office buildings or multifamily housing that it's really easy to do senior living. It's just a building, right? I can't wait for these guys to go broke, because I'm going to buy them. And it's a very difficult business. Hospitality, there should be more hospitality people, but I don't think hospitality companies will go into it. I think hospitality people will go into it.
In fact, I will tell you that in my communities, I hire mostly hotel people to go run our communities. They know physical management. They know marketing. They know personnel. They know food and beverage. What they don't know is clinical. But we hire clinical professionals, and so hospitality people are great for this business.
I will tell you that I was in one of my buildings the other day, and they had 90/90/90 on the wall. And it really made me happy, because that's what I teach them is in the first 90 feet and the first 90 seconds, you get 90% of your first impression. And I learned that in the hotel business. As you walk in, those first 90 feet that you walk into, in that first 90 seconds, you've made your decision about whether this is a place you want to be or not. And so in senior living, it's the same thing.
JOE WEISENBURGER: I think from a capital markets side, Marriott and Hilton both made a go of it, tried to make a go of it in the late '90s, early 2000s. Marriott had the Brighton Gardens brand, and then Hilton through what is now the Pritzker family. I mean Hyatt. Excuse me, Hyatt. Tried to get into the business. And they did, but they understood this is a 24/7 business, and it's totally different. The care component is totally different than what they can do in the hotel business. And they ultimately-- Brighton Gardens folded into Sunrise, and Hyatt's still out there today [INAUDIBLE].
AUDIENCE: We've got a question.
KELLY ANDRESS: I was just going to say, we take a lot of people from the hospitality industry. And one of the things that they like about our industry is they get to touch and have this fulfilling, sustained relationship with the customer and the client and their families.
And the younger folks are better at that than the folks that have been in the hospitality industry a long time, because hospitality folks are a little more reserved. They're not used to sitting down at the table and having dinner and breakfast and lunch with the clients. When they learn to do that, when they learn to break down that barrier, they love it. But it's very difficult.
We saw a lot-- a surge in interest in our industry from the golf club, from the country club business when the country clubs started falling off. And that sustained relationship with the client is difficult for some. It's not transactional.
AUDIENCE: This was fabulous. Thank you. I'm Esther Greenhouse. I'm an environmental gerontologist. And 25 years ago, I was one of the first Cornell students to participate in the then-new Gerontology Certificate program, which I'm very proud of.
But for the past 25 years, I've been waiting for society to catch up with the awareness that we need to pay attention to our seniors in a much more significant manner. But I feel like now we're already at a different wave, and the new wave is multigenerational. Do you see any kind of hybridization or evolution of senior housing or senior campuses that address that, that aren't so age-segregated or have more of an involvement of other generations?
JOE WEISENBURGER: Well, I mean, I can speak to-- from Welltower's standpoint, we absolutely do believe that. We have a project in Raleigh, North Carolina that's part of the North Hills development where we have a senior housing project. The challenge is, we don't have buildings that are segregated by age, but they're part of active, vibrant communities. We're also developing a project at 56 and Lexington in Manhattan that's going to be a multigenerational project from the standpoint that you're going to be right in the heart of Manhattan and participating in everything that these people did. So we understand that you want to be where the seniors are going to be.
And as John put it earlier in his talk, things are changing. People aren't going to Florida, retiring, and that's where you think you need to be. They're going to come back to where their kids are, and you have to make that environment dynamic. I think that's one of the biggest things that the baby boomers want, is they want to be part of an inner core or a community. That don't want to be out in the suburbs. They're going to want to have vitality to be able to walk to restaurants, shops, and do the things that they've enjoyed during their life. And we're trying to meet that demand.
JOHN RIJOS: I agree with that. I wouldn't add anything to that. What's interesting about that is that seniors, even though the whole congregate care environment, that social adaptation, that togetherness with other people with purposefulness, emotional content, intellectual content, spiritual content is all part of why people live together in a congregate care environment, but what's interesting is they don't just want to be around people like them. 80-year-olds want to be around 50-year-olds and around 20-year-olds. And for a very short period of time every day, around six-year-olds.
[LAUGHTER]
Mary.
AUDIENCE: My question is back to the rehab business, because the silent generation or the boomers, when they break a hip, they probably want a different kind of rehab than the people that have to depend upon Medicare or Medicaid. So is that an upcoming business where you could really capitalize on that large number of seniors-- albeit small-- that large number that might break a hip or might need rehab from surgery or whatever?
JOE WEISENBURGER: Yeah. I mean, I think the model's already there. Genesis does it, and Mainstreet's out developing a short-term rehab. So Genesis has their PowerBack facility, and Brooke bought up the project that we call our Medical Mile. And that basically is a project where we worked with Virtua Health System. They built a brand new hospital. We built a 300-square-foot office building for them.
We built a Genesis PowerBack, which is really a short-term stay rehab facility. It's got therapy pools, it's got all the latest stuff to help you rehab. The goal is to get you there, get you out in as short of time as possible. The average length of stay is, like, 20 days. So then you can go to the right setting.
And we also have a facility right down the street, which is run by Brandywine, which is a state-of-the-art senior housing project that has a concierge service. They have a floor with concierge. So however much care you want, you can get it.
And then ultimately, you know, ultimately, everybody wants to go home. And we understand that. The number one competitor for senior housing is the home. But we just have to figure out what the right setting is, because at some point in time, people can't stay in their home. And you know, by staying in your home, they probably shorten their life. If they would come to a community where they get the socialization that Kelly and John's companies do, that's just as important as anything.
AUDIENCE: So is that business going to be very profitable? Because I think one of the things that could happen is, let's say you go in and you say, oh, I never want to be in a senior home, da, da, da, da, da. OK. So you go in, and you get such good care and rehab, you go, maybe I should stay here. So is that-- I mean, is that a piece of marketing that should be-- or kind of inadvertent marketing that's kind of interesting?
JOE WEISENBURGER: Well, that's always what you hope.
KELLY ANDRESS: Right. Assisted living has not been particularly good about marketing the short-term stay. We're getting better at it. We have recuperation programs where people are saying-- seniors and their families are saying, I don't want to go to a skilled community for even five days, two weeks. They come straight to us. We have physical therapists. They get a full apartment. Their husband or wife can stay with them in the apartment. They can have a drink at night. You know, all of the things that you get from assisted living.
For a while, we let the clinicians run our community. And you know, now that the hospitality is coming back in, our communities, I say they're cruise ships with small hospitals in them. And so we are seeing an increasing-- one of the reasons the length of stay is shortening is because we are doing things like recuperative stays. And we see it as a way that they get a good feeling about us, and they'll come back two or three years when they-- you know, to live.
AUDIENCE: So I think I can talk loud enough without it. So Joe, I guess [INAUDIBLE], but I'm thinking about [INAUDIBLE]. So I'm on the board of a major medical center. And there are [INAUDIBLE] depend upon our ability to manage our population count. We can no longer sustain [INAUDIBLE]. So where's the conversation? Where does this begin? Where do we start a partnership for, how do you help us create these communities around [INAUDIBLE] population because we can't keep them in hospital beds? We want to keep them out of the hospital. Keep them healthy, keep them as vibrant and independent as long as possible.
JOE WEISENBURGER: Yeah, I think it's a two-part process. So the senior housing industry has to collect better data to make sure that the health systems understand what recidivism is going to be back to the hospital. Because obviously, you get penalized if you're a health system if someone comes back within 30 days.
So we as an industry have to do better. But what we're trying to do, and Welltower is somewhat unique to it, we work with 60 different operators across the country. So we have a network of operators that we think is the gold standard of who you should do business with. We're working with many financial institutions and health systems to put a portal in place that's going to allow people to come through the Welltower website to say, OK. If I have an episode, where do I want to go? And then that's going to tentacle out to operators to help them keep their buildings full.
But there are ways that we can work with the health systems. And we have conversations with them, so it would be a dialogue of getting with the CEO of Montefiore to figure out, how can we partner? And how is this going to work?
And the challenge has always been that the health systems [INAUDIBLE] understood that they discharge to the nursing homes. They just kind of forget that the senior housing space is-- a lot of it's education on our side and we can bring the data to help support that. Because in the Northeast, we have $3 billion worth of real estate in the Northeast. So there's plenty of opportunities in New York and other areas to partner with health systems.
And we're trying to do that. We're trying to-- our CEO is very visionary to try to make sure that we can change the way health care is delivered. Because a hospital serves a great purpose, but we want to make sure that they get to the right setting. So I think it's just an ongoing dialogue. I'm happy to help in any way we can to start that dialogue with any of the health systems.
AUDIENCE: Good morning. [INAUDIBLE] New York state right now. [INAUDIBLE] what that all stands for. But we're now compensated not just on return and stay and all that stuff, but the whole continuum of care. We're responsible, whether we own that home health care agency or not. [INAUDIBLE] based on how they're handled elsewhere.
JOE WEISENBURGER: Absolutely.
AUDIENCE: [INAUDIBLE] community.
JOE WEISENBURGER: And that's why you're seeing Kaiser Permanente in California, they're running wings of buildings in California to say, we're going to take these 10 units. We're going to be responsible, keep them full, and they're sending patients, doing exactly that. So it's just getting creative. And I think our operators are more than happy to do that, and we're happy to facilitate the conversations.
KELLY ANDRESS: It's always been frustrating to us as senior housing providers that the health care continuum didn't understand how good we are at keeping people out of the hospital. You know, when our residents go to the hospital and come back, anybody in health care knows that a key to lowering recidivism is doing what you're supposed to do on your discharge plan. And when a senior gets discharged back to us, there's somebody that is charged with reading the discharge plan and being sure that happens, and taking the temperature every hour, and all those preventative things.
And when we go and we speak with hospitals, they say, now what is assisted living? Still. And in our environments, in our private pay environments, if our residents are paying their own room, they're paying their own board, they're paying for the 24-hour nursing, they're paying for all that themselves, and we're taking ownership of their discharge plan, hospitals that aren't looking at the seniors continuum are losing out on a major assistance in lowering their recidivism.
But like was just said, we have to get better at speaking health care. We've always been proud as an industry that we didn't speak health care. When we went to electronic health records three years ago, there was only one electronic health record for assisted living that was ICC-based. And so tracking outcomes in ICD-9, now ICD-10, is critical for you. So we're trying to do our part by tracking our bills, our rent, level of care, lunch bunch, transportation. [LAUGHS]
You know, a hospital's bill for an ED visit is pages long. So we are getting better at speaking health care, but hospitals and health systems have to get better at looking outside of their own environments.
AUDIENCE: [INAUDIBLE] I know you had something. But my thinking is that since we're running out of time, it might be better just to have, like, people come down and talk. Because I want to encourage the opportunity for people to have the networking time, if that's OK. Are you all right with that? Was there a burning question you had, Aaron?
AUDIENCE: [INAUDIBLE].
BROOKE HOLLIS: OK. All right. So why don't we just have people gather down here if you want to talk?
JOE WEISENBURGER: Thank you.
KELLY ANDRESS: Thank you.
BROOKE HOLLIS: Thank you so much.
JOHN RIJOS: Thanks.
[APPLAUSE]
Panelists discuss the need for more senior living facilities, Oct. 11, 2016 at the Cornell Symposium for Hospitality, Health, & Design.
Featuring: Brooke Hollis, Associate Director, Sloan Program in Health Administration, Cornell University; Kelly Andress, President, Sage Senior Living; John P. Rijos, SHA '75, Co-Founder and Operating Partner, Chicago Pacific Founders; and Joe Weisenburger, Vice President, Senior Housing, Welltower Inc.
