Lucas: Welcome to Bridge the Gap podcast with Josh and Lucas- the senior living podcast. We have an exciting guest here in Philadelphia. It’s a cold, rainy day, but it’s nice and sunny inside with Scott Stewart, the principal of Capitol Seniors Housing. Welcome Scott.
Scott: Thanks Lucas! I’ve always wanted to be on NPR.
Josh: This is as close as we can get it
Lucas: Yeah, no, you’re going to be wildly disappointed. It’s basically two dudes with a podcast. We’ve got the mics on and we’re going to have a great conversation. Scott, it’s an exciting time in seniors housing. You’re here (and) you’re going to be on a panel discussing threats, weaknesses, opportunities- a lot of things that are going on in the industry.
Tell us a little bit about your background. You’re a fascinating guy- how did you end up in seniors housing?
Scott: That’s a great question. It didn’t come from a burning desire to be in seniors housing. It actually kind of landed in my lap. And what I mean by that is I had worked at the Carlyle Group, a large equity group in Washington, D.C. and had left there to run the acquisitions program for Sunrise Senior Living, which is also in the D.C. area. I was going to be their head of acquisitions which meant they wanted to augment their development program, grow their portfolio of assets through acquisitions and that was going to be my job.
Well, almost to the day that I showed up, they made this change from going from an owner-operator of real estate into a management services provider- kind of like the Marriott model. They wanted to shed all the hard assets and just become a fee manager. That was great, I understood the direction, but it would have been good to know that before I made the leap.
I’m kind of a sticks and bricks guy, so, the good news is I kept in good touch with the folks at Carlyle, especially the head guy by the name of Rob Stuckey. He’s a really smart guy. He’s been running the U.S. real estate program the for the last 28 years. He and I would take a run every Friday. At the cool down of one of those runs, we started talking about, you know, seniors housing.
I said that the move over to Sunrise may not have been the best career move, but this space is really interesting. By the way, this is in 2003 at kind of the birth of seniors housing real estate. He said, why is that? And I said, well it’s because it’s high yielding and it’s recession-proof or as recession-proof as any real estate industry can be. The smart guy he is, he got it, and said, watch, grab a couple guys and we’ll set you up in business, become a venture partner. And that was the birth of Capitol Seniors Housing. 15 years ago this month.
Scott: Yeah. So, we embarked on a couple of joint ventures where we were buying opportunistic properties. Those are properties that have not fully achieved their potential or half-broke. There’s something wrong with them; they need resources, they need to get a fresh coat of paint, new landscaping, maybe a new marketing program, perhaps a new operator and just get their house in order before they can grow the NOI, get stabilized and ultimately harvest that value at the market.
So, we did that. Timing was great. There wasn’t a whole lot of competitors going after these properties. We grew our portfolio pretty quickly. We went from JV1 to JV2 and then the bottom dropped out on everybody in real estate, you know, circa 2008 with the great recession. So, we took a pause. But, that’s how we got started in the business.
Josh: So, you took us up to kind of 2008 there. What changed for you guys, what kind of strategies changed? Because I think hit pause, like you said, and then you know reset. A lot of people did new strategies, new things. Take us from 2008 to what you guys have done up to now.
Scott: Sure. So, 2008, nobody was doing anything. It’s just human nature, just basic common sense. You don’t want to buy things as they’re depleting in value-
Lucas: -Sounds good.
Scott- Or losing their value. So, you’ve got to wait until we think that things bottom out. Then you get back in the game. So, during that time- that two and half year stint- that’s when we really got focused in on the operations and understood. You think we would have done that before; we’ve got that in the business. But, we waited until we had that time to really hone in on detail line items and really had a first, good appreciation for how complex the business is. So, having that full understanding and a robust economy on the Launchpad, we took on another capitol partner at that time which was Harvard Management Company, which runs the endowment for Harvard University.
So, here we found ourselves in a great space with two really good blue chip partners and then we grew a new platform from there.
So, all that was going great, but we really hit our stride, I think, when we got a development team on board. Joe McElwee who runs our development program brought over a couple guys from Sunrise- Jim May, Dave Ennis- and those three guys are responsible for over 150 new developments, mostly mini branches that died at the Eastern seaboard. They’ve seen it all and having them on our team really morphed us into going from an opportunistic group, acquisition group into more of a development company. Which is where we are today.
Josh: So, that’s fascinating. Kudos to you for weathering through those economic challenges and really diving in on operations. We’ve heard that from a lot of our guests. So, take us a little bit forward looking then. I think we want to dive in a little bit to the interesting guy that you are, kind of behind the veil a little bit. What is the future look like- let’s say next five or 10 years- not only for the industry as you perceive it but how you guys are positioning yourself?
Scott: Great question. You know, there’s a lot of doom and gloom out there even today with the Dow dropping 600 points yesterday and the 10-year treasuries at 10.2. Those are not growth indicators and there’s always the fear that, you know, that interest rates are going to continue to keep climbing. Nobody wants to hear that if you’re in real estate but this space is really, I don’t know if teflonic is the right word, but we’re close to it.
I think that the future is bright for seniors housing. It remains bright. And the reason for that is just statistics. The demographics. We haven’t even begun to see- the wave has not even begun to crest in the pinnacle of seniors that are going to be age appropriate for this space. We’re at the front end of it. So, I think that’s going to help this industry defy gravity.
We’re putting our money where our mouth is with that. We’ve got 14 developments that are in some cycle of their development life and we’re just looking at new opportunities every day. I think a lot of people are starting to take pause and think about whether that’s the right strategy or not, but we’ve still got the pedal down.
Josh: That’s awesome. I had the opportunity to spend some time with you last night with a group of folks. That was really awesome chatting around dinner. One of the things I heard you talking about was kind of how you guys are, I don’t know, I’d classify it- you may not- as what is next generation look like? What is the consumer of the future want (and) need? I think everybody is trying to figure that out, right? There’s a lot of different variations. I think the term I heard you use was “active living.” So, maybe describe what you mean by that and what validation points are you seeing and markers that would cause you guys to say, that’s kinda where we want to be positioned?
Scott: Sure. Again, our thinking and our going along with that strategy of active living is driven by statistics and fundamentals. We look at that as-we call it- the new frontier of seniors housing and we believe it. We looked at properties that are out there that are active living or that are currently active living and we think that they’re B+ at best and the operators are usually multi-family guys, don’t really have a full appreciation for seniors and seniors needs.
But, they’re full. Even by bumbling around, they’re actually doing a great job. We think that if we’ve got a better mouse trap, a better property to develop- a template- and we can execute with a seniors mindset that we can do well in that space.
So, you flash forward to today, we’ve got four seniors active living properties that are in some form of development. We’re excited about that. You know, why we like that space is we found- I’m a convert by the way- I thought that seniors would want to stay in their house as long as possible. You get that, who wants change at that stage of your life? But, what you’re finding is that seniors are really looking for a third act. They want to do it, figure it out, like my folks. They want to congregate at the same space- share a community center, share ideas, share opportunities to figure out what they want to do for the long period they are going to be in that community.
Looking to cohort is closer to- it’s not 55, I’m 55 and I’m not ready for that- but we’re looking at the cohort as more like 68 to 75. Folks that still have jobs, they still drive, they still have a focus on activities and ideas and they want to be with like-minded folks sharing those ideas. That’s what really turns us on by the space. It’s really exciting actually.
Josh: Yeah, that’s exciting. So, give us a quick skinny on the ingredients that y’all are baking up in this new cake. What are some of the features? What are some of the amenities that you’re thinking next gen, active living adult? What are they going to be looking for?
Scott: The prototype that we’re going to go for is more of like, I call it, a four-story stick build. We also want to attack the middle class. That’s where the biggest market is. We’re defining that by $1,800 to $2,300 a month for rent. That’s very affordable. So, what do you have to do to do that? You’ve got to build an affordable product. So, you can’t go crazy. On the front end, you can’t go crazy on the land price and you’ve got to be able to stick build it and be economical about your construction because everybody knows that construction costs are just through the roof these days.
That’s where our key focus and key challenge is. In order to deliver an economic product that works those rents, you’ve got to manage your p’s and q’s on the development side. So that means you want to size it right- 140 to 160 units, four story, stick build, surface parking with a community center that serves as the focal point. And within that community center you’ve got to hire a real cracker jack activities director.
Our bread and butter is still assisted living with the memory care component. There your focus is on care and on dining, as well as other elements. Here it’s more on activities and providing a good stimulating environment for our folks.
Lucas: Are those going to be single occupancy or double occupancy? On the active adult?
Scott: There will be more sized for double occupancy, for bigger units. Which again turns the bread and butter thing of assisted living on its head because there you’ve got more refined-type units.
Josh: So, some great insight. I know we’ve got a very diverse audience, Lucas. Things like this are really helpful. The fact that we’re talking about this and people are planning gives some insight to some really successful folks who have some vision for the future.
We joked a little bit about it last night because you’ve had the opportunity to know Scott a lot longer than I have and I think we were talking about he may be one of the world’s most interesting men. So I was pleased and enjoying the history bluff, realized you’re an Iron Man.
So, Scott and Lucas, I mean, give us a little insight into y’all’s relationship, how y’all connected and then I want to know more about the world’s most interesting man.
Lucas: Well, so let’s transition to that.
Scott: You can’t see, but I’m blushing right now.
Lucas: Right, you’re going to be fine, don’t you worry. So, you’re a history bluff. You just bought a new house that’s got a lot of history. You’ve run marathons on, I believe, every continent. You’re an avid suit collector- looks like a custom suit; you’re wearing a dog vest today that has an interesting backstory with even some politics there.
Scott: Who doesn’t like dogs?
Lucas: Bring us into the fold. How have you been such an overachiever?
Scott: Well, that’s maybe an overstatement but I’ll take the compliment. So, thank you, first. I would say- well, people would say; not me- that I’m blessed and cursed with a lot of energy. On the blessing side, you tend to get a lot of stuff done (and) don’t need as much sleep. As folks on the cursed side, you’ve got to figure out what to do with all those extra hours.
The seven continents club thing- which was a lot of fun doing and I’m very proud of that- is really a marriage of two passions- traveling and running. Running is great. Running is an individual sport. You have a lot of time by yourself and do a lot of thinking. You can also educate yourself with podcasts, with books on tape, that kind of stuff. I like that and you put a pair of running shoes and take them anywhere and next thing you know, you’re getting a workout in. So, that’s got good benefits to it itself. It’s also an energy burn- just can you stay healthy along the way. What’s not to like about all those things?
So, did that. And now I’m doing the seven continents and going around for round two with my daughter who just got back from Dublin, running that marathon over there So, she ticked off Ireland- I’m sorry, Europe- and that was neat.
I’m debating whether I’m retired from the Iron Man. Those are like marathons on steroids.
Josh: I feel like you’re not retired. If you’re debating then you’re not retired.
Scott: Yeah, maybe I’m not retired. If I could get- you have to qualify for Cono just like you’ve got to qualify for Boston. I didn’t say I run these things or do these things fast. In fact, I’m pretty slow. The age thing is tough to combat and then you’ve got to put your miles in to get good at this stuff. But, if I could get to Cono where the world championships are, that would probably be a good cap to doing all that stuff.
Lucas: So, to round out the show, talk to us about your infatuation or obsession with JFK.
Scott: I guess it’s a fair characterization. I share his ideals. I like more, I think, by coincidence than by stalking, I’ve got a lot in common with him- spent a lot of time in Boston, I’ve got a place on the Cape, went to grad school at Harvard. But, he was just a cool, cool cat and he was very inspirational. What he did for America for the time was just giving everybody hope and promise as we saw with Obama recently in Obama’s first year or so. Clinton and even Reagan where you just have a new beginning. He really did that. Didn’t, obviously, achieve what he wanted to do because of what happened. But, he’s just a very interesting guy.
And with that, the latest thing I think you’re referring to is I had an opportunity as an empty nester, moving out of the Washington suburbs into downtown, into Georgetown specifically, and the house where he met Jackie on Mother’s Day- May 13, 1951, came on the market and I scooped it up.
Josh: That’s awesome.
Scott: I’ve got it all renovated. The ‘60’s Mad Men themed house warming happened just this past weekend, in fact.
Josh: I think I saw some pictures from that, yes. It looked awesome.
Scott: Well, Scott, we’re grateful for your time. Congratulations on 15 years at Capitol Seniors Housing- a gigantic accomplishment. I was most impressed really not just of the accomplishment of the longevity but by the words of the people that you’re developed around the company. I found that to be really inspiring. So, congratulations. We’re going to be watching you closely with these developments and we’re going to be rooting for you.
Scott: Thank you. Thanks Lucas, particularly for showing up to the party and being a part of the celebration. I hope you had a good time. That was a great, pinnacle for us. So, 15 years in the business is tough for any kind of business, right, but tying it all together with all the running and all that stuff. The way I’m able to do a lot of that is I’ve got, arguably, the best team in the industry. In fact, I know it I do. It’s just fantastic folks who are competent. They’ve seen it all. They’re confident in making great decisions with or without me. That’s enabled us to do a lot in a short period of time with just a few people.
So, we got to celebrate that on Thursday night. Again, I’m glad you were there for witness it.
Lucas: Honored. So, thank you so much. This has been another great episode of Bridge the Gap.