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204: Greg Puklicz

Texas-based operator Greg Puklicz, President at 12 Oaks Senior Living, encourages young professionals to jump into the industry and embrace the people in it. 

Lucas 

Welcome to Bridge the Gap podcast, the senior living podcast with Josh and Lucas. We’re continuing our conversations with great thought leaders in the industry. We want to welcome Greg Puklicz to the episode today. 

 

Greg 

Well, thank you. Wonderful to be here. 

 

Lucas

You are the CFO of 12 Oaks, a regional Texas-based operator. This is something that continues to come up in a lot of our conversations. We’re coming out of the COVID crisis, so to speak, but there’s you know, to use your words on our pre-talk, there’s still a bit of a hangover effect, right? But I’m noticing there is a lot of power in being a regional player, a regional operator. In your discussions here in Houston, has that been a topic of conversation where you see this shuffle of these portfolios that are now shifting to more of a regional play? 

Greg: 

Yes, absolutely. I think the regional model is absolutely necessary for the long term health of the industry. And I’m glad to see some of the national investor groups actually start to recognize that. And we’ve seen some fallout in the management ranks, particularly with Eclipse, you know, what’s going on there. And a lot of with Ventas and Apollo, properties being transitioned away from a national model to a regional model. I remember seeing something on LinkedIn a few months ago about a national operator setting up a regional arm. Okay. Right. And I thought, “wait, what does that mean?”  And I thought, well, “that’s clever marketing.” 

 

Lucas

Yeah. 

 

Greg

But I don’t know that it’s really regional management. So to me, 12 Oaks, regional management is being in your communities, being members of your community, living, working, playing in your communities.

Greg 

And for 12 Oaks, we like to deploy our regional high touch model. So for example, we’re looking at a being involved in a new portfolio that increases our presence in Oklahoma city. And we have properties in Oklahoma now and Colorado property may be in the mix as well. And so one of the things we’re going to do is we’re going to put a regional vice president in Oklahoma city. It’s important to us that our regional vice presidents, are resident in the communities, understand the communities are not over burden with 10, 12 communities. Four to five is ideal so they can spend time at the communities. They can sleep on their own bed at night. They aren’t spending half their day in airports or on the road. That makes for a more meaningful role and understanding of the needs of the community. And I think it makes for happier, better employees, right. That they can connect to their communities, the leadership and staff and the communities and the residents and the community.

 

Josh 

So you may have talked about it there just a little bit, as you are touching on some of your regional vice president roles and your growth, but you guys have been very successful for many years. Talk to us about the values that have guided you to that success that you think that is going to help forge the way forward through all the difficulties that our industry is facing ahead.

Greg 

12 Oaks is founded on our principle core values and Dick Blalock is our CEO is extremely committed to ensuring that those core values are deployed across everything we do. Our four core values of character competency, servanthood, and stewardship are very to us. We conduct focus groups within our corporate staff. We provide for executive coaching for our leadership. We provide for impact training for our community leaders. And we really try to live the mantra that we speak not just words, but in actions and everything we do. 

Josh 

I love that. So let’s do a little bit of forward looking as a leader in your organization. Looking ahead let’s compare and contrast a little bit to the opportunities and the challenges that lie ahead. Sometimes with the great challenges, the flip side of that is it opens up some opportunities, but what are you seeing? What is your leadership team seeing as the great challenges and opportunities that lay ahead?

Greg 05:35

Sure. So I think the challenges first, and I would suggest that the, it’s the conquering of the challenges that will provide the opportunity. So, clearly the challenges as, as Lucas said at the outset, the hangover of the COVID impact is certainly still here. And I know a few months back, everybody thought we can’t wait till we get to the end of the year, fourth quarter, right. Everything’s coming back to normal. Well, you know, since we said that here we are now faced with some very significant staffing issues. It’s not just a matter of raising rates a couple bucks. I mean, though there is pressure to obviously increase rates and be competitive. The vaccine mandate is an issue at the communities. We’re obviously very supportive and see great value in every one at our communities being vaccinated.

Greg 

So we don’t want it to be a political issue. We want it to be a health issue. We want it to be an issue to ensure that our residents are safe and well cared for. That’s of paramount importance to us. So we need to be more creative and more involved and make sure we build a good culture as well as a good pay structure at all our communities to make sure that we can recruit and retain quality employees that our residents deserve. To that end you know we work very hard to inject that culture at all our communities pay fair wages and try to create a very nurturing and wholesome environment for everybody. So certainly number one issue, I think on the board today is staffing those staffing costs.

Greg 

Now we’re also faced with inflation. We’re seeing the cost to fill up the activity van.  Utility costs, food costs, everything’s going up across the board. So people see that, they see the inflation. What makes it tough for us? The challenge that is a result of that is, we aren’t able to immediately pass on those costs to our residents. So here we are coming off the cost of COVID, cost of reduced occupancy, cost of personal protection and enhanced sanitation, lack of staffing, all those costs that we’ve had to endure over the past several months a year are now compounded by these additional costs that can’t be passed through immediately. The pressure on the net operating income. So these properties is, is enormous right now.

Greg 

You know, we’re in budget season right now, and we’ve delivered first drafts of all our budgets to our own groups, and we are gonna be meeting with them over the coming weeks. And there’s going to be some very difficult discussions about the realities that we face. And we need to deal with that. And we can try to lay out a plan to regain the health of the financial health of the communities.  But with the immediate cost increases we’re faced with, the lag effect of you know, rent increases and concession based selling still in play. And the lack of occupancy in certain sub markets, 2022 is still gonna be a difficult year for the industry. We are certainly not in the clear. There’s a lot of headwinds in front of us, so those are the challenges.

Greg 

So the opportunities Josh, to come from that are as an operator making sure that we are looking at every opportunity to be cost efficient, to make sure we’re building culture at our properties, that we are providing the best possible care for our residents and building the reputation of the community amongst the community at large and the residents that are there. And that in the long run will certainly pay off in spades as we’re able to build census and stabilize these communities. We’re very fortunate that our owner groups are very supportive of these initiatives. When cap ex improvements are needed, the properties need upgrades, they’re supportive of that and that’s important too that the residents see that they’re getting value in the communities that we’re reinvesting back in the communities. So the opportunities are to have efficient operations, provide financial returns for our owners. And then also for us, 12 Oaks as a company to grow our portfolio, right. And it’s our plan to you know, grow as a regional operator and become best in class operator in Texas and Oklahoma.

Josh 

Well, that’s a lot of great information. You know, one of the things I’ve talked a little bit about with Lucas, I’d love to know your thoughts as well. On the part where you’re talking about meeting with these ownership groups, I think everybody’s in that time of year, that season, and there’s gonna be, like you said, a lot of tough conversations, right? Because maybe that budget isn’t what anybody really was hoping it was going to be, but it’s realistic in most cases. Do you think there’s going to be for lack of a better term over this next year, the coming year, sort of a reset on expectations from the, the capital markets,, the ownership groups all the way down through the operators in the communities where there’s a little bit of a reset on margins and what they expect? Because in the past it seems like as costs go up, we immediately just try to go back and raise rates. But I think we’re kind of compounding situation now to where there’s only so much you can raise rates. So I feel like now we’re kind of at this pressure cooker point where almost our expectations from ownership down to operators have to be realigned. Do you have any thoughts on that? 

Greg 12:15

Sure. So the answer, I think is yes, there has to be a realignment of expectations. The proformas from two, three years ago, you know, we’ve had to kind of tear those up and start over again. A lot of in investor groups have deployed significant capital investment in these communities. So we need to figure out a better way to earn them the best possible return. Returns aren’t going to be, in most cases returns are not gonna meet expectations on current operations. So we have to figure out a way to be as efficient as possible try out creative, new ideas, be it in activities, delivery of sales and marketing, food service try just kind of open our minds to new options, new ideas, new alternatives, the kind of old steadfast model of senior housing where it’s a chicken fried steak on Tuesday and BINGO on Wednesday night, those days are long gone. We have to be and innovative and thoughtful management group to provide the best possible service and business plan for each of our communities.

Josh 

So forward looking for you guys and maybe even just industry as a whole, is it going to be more a new development? Is it going to be a repositioning of legacy properties? What are you guys, what do you guys have your eyes on or is it both? 

Greg 

So for us so first and foremost is working with our current client base to make sure that their properties are properly positioned in their market markets. Where cap ex is needed that’s being provided. Where rent structures need to be reevaluated that we do that where our operating costs, our staffing are the most efficient models that we can possibly put in place. So that is job one. Next up for us is expanding our portfolio. we’ve got a very talented corporate staff. We’ve kept the entire team together throughout the pandemic. We’ve actually added to the staff in incorporate. And we’ve got some new initiatives through our solutions group where we’re adding staff to provide an expanded level of service be it in facilities management, helping on the cap ex programs, some of the compliance and care components that need to be addressed.

Greg 15:12

So obviously sales and marketing being as creative as possible as we can in those areas. So all those things combined I feel like over the course of the pandemic though our portfolio hasn’t grown, we’ve kind of been sharpening our tools and getting ready for the next phase of our growth, expanding our staff, our capabilities implementation of Yardi Senior IQ, better data reporting, across the board, we’ve kind of been making 12 Oak ready for the next phase of growth. So that next phase of growth Josh, I think, is going to come initially more from value add opportunities. What we’re seeing in the market are distress properties in need of a new plan, a new vision and we want to be the catalyst for that with our investment groups to take a look at this property or this portfolio and say, “Hey, these are fundamentally okay, properties, right?

Greg  

They’re in good markets, right? With a new business plan and new approach, a new vision. We get, take these properties from where they are and elevate them to be communities that the owners and residents and managers can be proud of.” And those possibilities are real as some of these properties trade and get recapitalized. So I see a real folk focus there. I think a lot of the core assets, A assets, there’s still quite a divergence between bid and ask pricing. The gap is wide that’s certainly one takeaway from NIC. So yeah, I think the focus for us is definitely we going to be on the value add side. And that’s repurposing a lot of properties that might be a little tired that we can come into and, you know, turn into real communities. 

Josh 

Yea. So Lucas, segue that that’s in your will household, you guys, I guess that’s why you guys have had so much success working together. 

 

Lucas

Yeah. Yeah. Texas is a great marketplace for those types of repositioning. It kind of ties back into that regional play, right? As some of these either mom and pop or family owned, smaller portfolios start to retrde, and then you also have the REITS and the private equity groups that have large portfolios. And they’re starting to make that shift as you said earlier. Great conversation. You know, there’s talking about staffing and as we round out our conversation. We do have a lot of young listeners or people that are just pursuing senior housing as a career. What would be some advice or something that you would say to somebody that may be listening? They’re in college, or they’re just saying like, “oh, I’m check out this senior living.” What is this all about? What would you be some advice for those people?

Greg 18:23

My advice would be take a really hard look at it and you know what? Take a chance. (CUT) My background was more as a merchant developer you know, dealing in single fam and multi fam and condos, and it was more about turn and burn the deal, right? Monetize assets into cash flow. What I’ve really enjoyed with senior living is seeing the real impact you can have on people’s lives, the residents, and it’s not just about renting an apartment or retail space or selling a building lot. It’s about creating communities. And the complexity of operations in senior housing in optimizing NOI is significant. It’s a big challenge and there’s so many things that go into it. The sales and market side, understanding your submarkets, ancillary revenues, looking at your operating cost structure, your staffing, your dining, your care programs. There’s so many elements. And if you want to be in a very dynamic, a very challenging industry, but a very rewarding industry where you still have all the rewards, either financial or otherwise that you can get in other asset classes, senior housing provides much more at the end of the day. So yeah, I would say anybody, who’s looking at a career at, real estate investment, senior housing, right? It’s an asset class that you can embrace and its you back and you can, you know, really have a wonderful career.

Lucas 

And the great people in this industry is what has attracted me and kept me being the senior living fan. And I’m a big fan of senior housing and the people that are working in these communities and helping these communities thrive and making them true communities. Greg, we thank you so much for spending time with us today. 

 

Greg

My pleasure. Thank you. 

 

Lucas

Absolutely. Everybody can go to BTG, voice.com. You can download this episode, check out the transcript, connect with us on our social media sites and send us a message. And thanks for everybody listening to another great episode of Bridge the Gap.

 

204: Greg Puklicz