Ep 30: A Publicly Traded Company, CEO Talks Culture, Recruiting and Jazz Band
Lucas: So, welcome to Bridge the Gap podcast, the senior living podcast. I’m here with my buddy Josh and I’m Lucas, the senior living fan and today we’re at Atlanta Senior Housing Southeast Interface.
Josh: Whew, that’s a mouthful!
Lucas: Yeah, say that three times fast. The energy is incredible here. The attendance is record-breaking. And the panelists that we’ve been sitting in and listening to brought up a lot of topics and today we are really excited to have Eric Mendelsohn, CEO of NIH. Eric, welcome.
Eric: Thank you very much, I’m very happy to be here with the great energy as you described. It is a good turnout.
Lucas: Absolutely. So, Josh just got off a panel and you still have your voice.
Josh: Absolutely, it’s so much fun. I, honestly, being on a panel, it’s awesome because I was up there, 13 years in the space you know, but I’m surrounded by people who make me feel like a rookie. So, I’m up there learning. Got to hear Eric right before I was up there, (and) what valuable insight he brings to our industry, really raising the bar, thinking about how we look at things a little differently and challenging leaders to look at things differently. So, it’s awesome to have him on the show with us, right?
Lucas: It’s the perfect seg way. So, Eric, obviously, you have a big financial background. So, would you mind telling our audience at what point, what led you to senior housing?
Eric: Sure, and spoiler alert, I do not have a big financial background and only be training and I started off in this business with a love of real estate and I was familiar with senior housing because I’m not only an only child, I’m an only grandchild so I was a caregiver for two grandparents and experienced senior housing for both of them.
My parents were geographically undesirable so I was tasked with the senior housing stick and made a go of it.
So, as I said, I started out as a lawyer. I got my big break when I was working for the University of Washington, which has a huge medical practice, medical real estate practice. They’re always buying, selling, financing lab space because of the Bill and Melinda Gates Foundation.
I got a call from Emeritus Senior Living in 2006 which at the time had 120 buildings. So, it was a mid-size regional operator and they were looking for a director of real estate and legal affairs and wanted to talk to me. I met with Dan Baty the founder and Ray Brandstrom the CFO and we had a great interview. We ended up talking about the deals they had done and how they did them. It was one of those instances where I didn’t do much of the talking, they did most of the talking, and they must have thought I was brilliant.
So, I got hired by Emeritus and fast forward nine years later. I tell people I got an MBA at the University of Emeritus, because up until then I had represented banks…but I was not a finance guy. I was told this was a good deal and now, you go and close it and now I was in the position of having to understand what made a deal good or not and it was kind of trial by fire, especially with Dan Baty.
He’s a man of few words but has a lot of dollars behind him so we did, on a slow year we did one billion dollars worth of acquisitions and by the time we sold the company in Brookdale, we had 540 buildings and it was a $5.6 billion transaction. So, a little of how I got my start.
Lucas: That’s a well-known merger.
Eric: People are still talking about it.
Lucas: A few people have heard about that one before. So, parlaying off your panel today, I’m going to hit you with a question. So, what do you think one of the biggest challenges the senior housing industry faces?
Eric: Getting new talent interested in the space. It’s no surprise that senior living isn’t the first category that new graduates are thinking of when they are thinking about what industry they want to get into. It’s like that old movie with Dustin Hoffman and the graduate where the guy puts his hand on his shoulder and says ‘plastics.’ That’s me; I’m saying ‘senior living!’ and it’s just not playing as well, but I keep trying.
For example, I think Enterprise rent-a-car does a great job of recruiting college graduates, training them, giving them people skills, giving them sales skills, giving them presentation skills. So, whenever I rent at Enterprise, I interview and ask them what their major was, how they like working and then I give them my pitch on senior living because some of them have actually studied social work and more than one time I’ve said ‘well, with your sales background and your management background and your social work degree, you’d be perfect for senior living and they never thought of it.
So, I’m out there proselytizing and trying to spread the good word. I think that internships are important and our company, even though we only have 16 employees, does and internship every summer with a young, capable person that usually has some sort of connection to senior housing. And I’ve seen some of my interns continue on and become lawyers and bankers and they’re always attuned to senior living as a category and they’re friendly to it at least. You may not get them in there, but you’ll get them to take it seriously and to understand that it’s not a trivial category.
Lucas: Absolutely. Who would have thought that Eric is out there as one of the industry’s best recruiters on the street?
Josh: Yeah, I love that. Well, I will say, I’ll put a plug in for Eric’s team. Lucas, you and I we can both attest, you’ve built a great team. They may not be a huge team, but they’re great people and so whatever you’re doing is working and being a torchbearer for our industry is awesome.
Eric: We’re trying. Thank you, thank you very much.
Lucas: Well, with that being said, so, with challenges as you guys are both leaders, you also know that leaves opportunities. So, you’ve mentioned the recruiting and the opportunities that brings. So, either in recruiting or in another category, what do you think the opportunities are for the industry right now?
Eric: I think there’s a huge opportunity in affordable housing. It’s kind of a buzzword and people’s eyes glaze over when you start talking about but I have met people who are running building and are making money at $2,000 to 2,500 a unit and they’re delivering good service, good food and good resident experience at that rate.
Josh: That’s fascinating. So, can you reveal some of the secret sauce, some of the ingredients. A part of our show is to inform, educate and influence so we want to make sure we share that love.
Eric: Right. Well, one thing that I didn’t realize, I visited a building and I said how do you get your people around, where is the bus, you know, the bus with the wheelchair lift. You have to have one and it might have a sign on the side with the Photoshop stock photo of the smiling senior.
Lucas: It’s faded on the side.
Josh: And not clean.
Eric: And might have some graffiti on it. And this particular operator says, ‘you know, we determined we don’t need a driver, we don’t need a bus. We have eliminated that and we save $150 plus a year because people either use Uber or it’s paid for; taxis are often paid for by Medicaid or Medicare for going to a doctor. So, he said we don’t need it and we pass those savings on. And I had never even considered eliminating transportation.
Josh: Well, and I’ll tell you, you know, out there building a lot of these preformas and things that operators do, it’s easy to do what you have done and what’s easy and when you start thinking about a new community or an acquisition, it’s real easy to just take that standard template, right, that has the transportation line and you know what you’re going to need for transportation.
So, what I’m hearing is some thought provoking, creative ideas. That’s one of the secret ingredients, really is just analyzing the section of your programming and your budget to determine how can we effectively meet these needs in a new and refreshing way.
Tell me a little bit, too- you know I hear a lot of talk of the buzzword affordable. I mean, where are you seeing the real opportunities. Because, you know with our organization we obviously don’t think we can meet everyone’s needs but we’re thinking this top tier product that we all seem to be developing right now, it seems to be a slimming market. So, how can we tap the more affordable market.
So, when you’re looking at these affordable communities, is that under more of a Medicaid model and reimbursement system or is this private sector doing what private sector often does best in creative innovation?
Eric: Oddly enough, the buildings I am seeing might have 25 percent Medicaid. They want to have some kind of Medicaid and they typically double up those residents in the rooms so it becomes economically feasible but it’s most private.
What I’m seeing are buildings that are broken, they are almost always destress situations, and its capital that’s quit that has developmental expertise for renovation and they’ll renovate a building, they’ll do some work with the finishes that update it, but as my grandmother used to say, ‘they don’t go crazy.’
And, a funny thing happens. If you find, one of these operators calls it the Costco Theory. Costco’s are never located in a high-end, retail area, but yet they’re very successful. How do they do that? They get a great deal on the real estate in an industrial area because they know people will come to them.
Josh: Speaking of great deal in real estate- so, you know, I believe one of the great opportunities is to be able to take an older asset, renovate that, but often times you have to get it at the right price. It seems like, I’m not personally seeing a whole lot of great deals out there. You know, we see all these deals coming across and you’re thinking when is the market going to turn a little bit, it seems like it’s such a seller’s market. What your read on the temperature of the market and where’s it going. It seems like to me it’s just got to autocorrect itself at some point.
Eric: I don’t know. I saw an interesting in Memphis recently that was a distress situation.
Josh: Okay. So you are seeing them?
Eric: We are. The trickle is started; it’s not a torrent yet. 2008-2009 was a torrent, but I would also think outside the box a little. I know one operator who buys skilled nursing buildings who have gone dark. Is anything scared than that?
Josh: Oh, it is. It’s pretty scary.
Eric: Think cobwebs, think cracked linoleum tile, think graffiti, think of squatters- yeah you can see it. So, this guy has nerves of steel and he’s an old hotel operator and he’ll buy dark, skilled nursing buildings, completely renovate them, and turn around and every room is double locked occupancy and he’ll charge $2,200 a resident. You’re not going to have the most amazing life experience but you’ll get three meals a day, you’ll get qualified care and you’ll have money leftover after your Social Security check and your pension share.
Josh: So, we touched a little bit there on the acquisition market, repositioning. What about for all these developers where the wind’s at their back, they’re just turning out product- what do you see as opportunities for the developers for new developers, how can we develop new product, innovative product more affordably? And do you see, you speak in platforms at a national and international level, are you seeing movement to where’s there’s going to be support and subsidy and things like that for creative solutions in the private sector for caring for this aging population?
Eric: Boy, there were a lot of questions.
Josh: Sorry, I should-
Eric: Let me unpack a couple and if I forget one, remind me.
So, new and innovative- I tell my parents that I am going to build them a senior housing unit that looks like W Hotel and it’s staffed by Chip and Dale’s waiters. And my mom is all in on that.
Josh: I would imagine so.
Eric: Yeah, so, I do think there are companies out there that are making a name for themselves by pushing the envelope of what the future looks like. I am thinking of one in particular in Seattle called Leisure Care. They are very progressive operator and edgy and they even have their own brand of coffee, branded coffee, that they say is life enriching. So, to me, that is on one end of the spectrum-the high end of the spectrum- and when I retire, that’s kind of what I’d be looking for in the senior housing environment.
So, I do think that there are new operators out there that are developing and thinking 20 years from now when senior housing should be a much more popular way to live your life.
Lucas: Well, recently, we had a discussion with a young, not rising but established leader Shamim Wu at Elmcroft and she was a rock star on a podcast. One of the things that came up is she talked about margins.
Lucas: Right. And this idea of, you’ve got some historical background in data, so she mentioned, hey, we may not be able to have that same margin that we had 20 years ago, we may need to look at this a little differently. What are your thoughts?
Eric: Well, I didn’t know there was going to be a quiz. But, so, Shamim came from holiday independent living where margins are much higher, typically 50 percent just as a data point. And she’s now in a different type of senior living environment, assisted living and memory care.
Assisted living margins that are good are between 30 and 40 percent. Even high 20s would be acceptable. And for memory care, even lower, closer to the 20 to 25 percent so those are the data points that I’d look at. By lowering your margin, that means you’re giving more to the customer, which I think is a good idea and if you can do it consistently, then other things have to take up the slack be it technology that’s a replaces some sort of labor and you get efficiencies there, capital stack- my part of the world. You could do things like bond financing or hut financing and lower it there.
So, there are ways to shift the water balloon of expenses to make it more resident friendly, give them better food. I know that companies like Sunrise have a concierge in addition to a person, a greeter and they will help you track down the best doctor, the best dry cleaner, whatever you want. So, if you’re known for that and you’re willing to live with the lower margins, but keep them consistent, I think that’s a very viable business model.
Lucas: So, Eric, talk to us about your company as we’re rounding up the show. What are you excited about at NIH right now?
Eric: My favorite topic. What gets me up in the morning is opportunity and NIH is still in a growth mode. When you’re a three- to four-billion-dollar company, it’s much easier to become a six- or ten-billion-dollar company than a larger (company) that’s already 30 billion; it’s hard for them to move the needle quickly.
So, even in tough environments we seem to be able to outperform our competitors and part of that secret sauce is our relationships. You guys have been to some of our events and we’re a much more approachable group. You can come by our office and see me or our chief investment officer without a lot of fanfare. We’re usually pretty available and I think that distinguishes us.
I tell analysts that follow us as a public company that if you call our office Monday about a deal and we like it, it’s likely that we will be in that building before the end of the week and you might have a letter of intent by the end of the week as well. So, we can move a lot faster than most of our competitors.
The last thing that gives us an advantage is our cost of capital. We have virtually the same cost of capital as the larger reeds because of our good track record, our growth and our low leverage. So, we’re able to offer smaller, regional operators very competitive rates.
Josh: That’s awesome. So, I can attest to a lot of those areas because I’ve been able to work and meet with your team. I love one of the things, and I think it’s part of your culture, is I don’t think I’ve talked to any of your guys where they don’t shoot me a text or something – I just got a text from one of your team, I don’t want to start name dropping right here-
Eric: Cameron Bell.
Josh: Okay, Cameron Bell, thank you. And he said, man, when we connect we need to know how to better serve you, how to help you grow, how to serve your needs. So, he’s reaching out to me. I know that guy is busy, traveling all over the country, talking to a million people, but it’s a very servant mentality. So, kudos to you for developing that. Those guys are working hard and I agree they’re agile. So, I’d say that’s a degree of separation.
Eric: We wear a lot of hats. Sometimes I act as a lawyer and proofread documents and make comments.
Josh: Speaking of wearing a lot of hats, I’d like to see some of those hats like right here, right.
Lucas: Right, we’ll have to get a photoshoot after that, we’ve got some hats.
Eric, last biting question and it doesn’t have anything to do with the Emeritus merger. We’ve heard through the grapevine that you’re an incredible guitar player, so, are you in a band, are you going to start a band, are you releasing a new album?
Josh: What genre? We want to know the skinny.
Lucas: What’s going on with that?
Eric: Well, I live in Nashville, so it’s kind of obligatory that you play an instrument and thankfully I’ve been playing guitar since I was 8-years-old and realized that I could get the attention of a certain 9-year-old girl by playing guitar badly.
I’ve been playing since then and I’ve talking lessons off and on. I’ve played in bands on and off and right now I have a jazz band and we call ourselves the Volunteer Jazz Band for two reasons- one, we’re in the Volunteer State of Tennessee-
Josh: Yes, go Vols.
Eric: – and the second reason is we often play for free. So, we are truly volunteers and we have been playing at some senior housing buildings. We recently played a gig at Elmont Village. And that was a packed house, standing room only.
Josh: So, for booking, could you give us some help here?
Eric: I’ve got to work on that. Right now, you can call our office and I handle all the booking; that’s one of the hats I wear.
Lucas: I don’t know, I’m thinking Pedal for Pat, the day ride, you need a band.
Josh: I know, we are trying to book some talent right now and I feel like there’s a wealth of it right beside me.
Lucas: I mean, Pedal for Alzheimer’s in Knoxville, Tennessee needs the Volunteer Band.
Josh: That is right. I mean, we’ve got a huge kickoff ride to the 1,098-mile journey to Daytona, so you’ve revealed maybe too much right here.
Eric: Okay, well I’ll check my calendar.
Lucas: He’s going to become unavailable very quickly.
Eric: I might be on the ride, I’m also a rider. Cycling, right? I’m a motorcycler.
Josh: Right, there’s no motorcycling here, it’s all on a road bike. So, we’ve got all kinds of connecting points here.
Eric: I’ve got my DMC bike, I’m ready.
Josh: Perfect. Well, you’ll be glad to know that we’re riding with the Hincappie team. They’ll be on their DMC with the legendary George Hincappie. So, they designed our kits. But, enough about Pedal for Alzheimer’s- but that’s awesome.
But, a very well-rounded gentleman here beside us. That is awesome.
Lucas: Awesome, awesome. Eric, you’re in high demand so we won’t keep you much longer. We’re just grateful for you spending time; I think our audience is going to love listening to this and so as we say in every show, we don’t want the conversation to stop here. So, we’ll continue it on our social media sites and we’ll link to Eric at NIH and feel free to reach out to his staff.
Thank you for listening to another great episode of Bridge the Gap.