With over 40 years of industry experience, Arnie Whitman, Founder of SLTC shares details about the business journey of Formation Capital, the purpose of investing in venture capital, and the importance of integration between technology and healthcare into senior living. 

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This episode was recorded at the ASHA Mid-Year Meeting. 

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Videos Mentioned by Arnie:

https://www.youtube.com/watch?v=pnbFkElf7gE

https://www.youtube.com/channel/UCOKXYu15WWx0LZQW5lB-CXQ

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Produced by Solinity Marketing.

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Become a sponsor of Bridge the Gap.

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Listen to more episodes here.

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Arnie Whitman

I've always been of the mindset that when challenges come, in whatever form they come in your life, there's an opportunity within those challenges.

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Welcome to season 7 of Bridge the Gap. A podcast dedicated to informing, educating, and influencing the future of housing and services for seniors. Powered by sponsors Acushield, Aline, NIC MAP Vision, Procare HR, Sage, Hamilton Captel, ServiceMaster, the Bridge Group Construction, and Solinity. And produced by Solinity Marketing.

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00:35

Welcome to Bridge the Gap podcast, the senior living podcast with Josh and Lucas here at the ASHA conference meeting for members and we have a very awesome guest that has been on our list a long time, and I'm very pleased to introduce Arnie Whitman to the show. Welcome to the program.

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00:51

Arnie Whitman

Thank you very much. Appreciate it. Glad to be here.

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00:53

Lucas McCurdy

Well, really glad to talk to you. One of the really unique aspects of coming to these meetings is, the industry has changed so much over the decades, and we have new emerging leaders, and also we have our pioneers. And it's such a unique time to have those conversations. And I wanted to take this opportunity with you, Arnie, to get your background and your thoughts on number one, what got you into the industry to, I believe, start formation Capital. And then, later, I'd like to talk to you about where you think the industry is going.

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01:27

Arnie Whitman

Sure, I appreciate it. Well, there's a little more to my background in my history, so I'll try to make it short, otherwise, we'll eat up the entire 15 minutes. I've been investing in senior living, senior care for a little over 40 years, okay? So, I started when I was five, right? Kidding. I started in a way that is fairly unusual, is that I was kind of, young man that was trying to find his way in terms of being, what was I going to do with my life and professionally? And I had a background in some real estate finance, and I was really looking for a niche. I had no idea. And when I was young I was an athlete, and I'm a bit of a hack musician. And, you know, I kind of wanted to be in something glamorous. And ironically, in through my endeavors in real estate, I tripped upon a gentleman who owned a couple of nursing homes. And my first thought was ‘Oh God, nursing homes’. I remember my grandmother being in one, and that wasn't really a pleasant experience. 

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But I ended up going to an interview in the basement of the Newton Wellesley nursing Home in Newton, Massachusetts, and interviewed with a gentleman by the name of Abe Gottesman. And Abe owned, I think, at the time, six nursing homes and a couple of medical buildings. And I had done some work for him before and, you know, but it was my first time really experiencing the nursing home. And my first thought upon that interview was, I went away from it, ‘who would ever want to be in this business’? It was like, this is kind of uncomfortable. And I went home and I slept on it. I was fortunate enough to get an offer from this gentleman to come to work for him. And I thought, you know, this is the exact opposite of anything I would ever think of wanting to be and do in my life. And there was something about that that actually was intriguing. And I also saw the opportunity that, and I've always been of the mindset that when challenges come in whatever form they come in your life, there's an opportunity within those challenges. And this was a really challenged business, end of life nursing homes that I found it is as, there was a bit of intrigue as well. You know, maybe somehow I can make a difference, and that mindset has really carried me through the 40 years of investing in this industry. 

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I worked for Abe for about ten years. I went and became an officer of a publicly traded REIT, which he founded. I worked for an operating company for a small period of time, which was the nursing home itself. My background was finance and marketing, and, I got to be a- what I used to say- I was Abe Gospel's bag boy. You know, you tell me what you want to do, I do it. And it was really to go out and build this real estate investment trust from what, believe it or not, was a 35 million dollar public offering New York Stock Exchange with six assets in 1984, to building the first billion dollars of investments across the country. And I was the face of the company, I would go out. At the time there was really only a few companies that were national. There was a lot of regional banks and lenders, and Abe said, Abe thought big, Abe said, I want to be a national player in real estate surrounding senior living, and build up this business platform. And so I worked for him for almost ten years. Met a ton of people. So I had the benefit of now building all of these relationships with the operating companies around the country, which was, I was loving, I'm traveling all over the place, I'm going to conferences like this. And at the time, it was really, there was really only a handful. But that began my journey in senior care. 

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But today I like to refer to what I'm involved in in my investments as senior living, and I'll get back to that in a minute. My business progressed to the point where I built all these relationships not only in the industry, in senior care, but on Wall Street. We were a publicly traded REIT. So I started to, I met the banker, I met the investors. So I built this network of people. And in 1993, when securitization took place on Wall Street, exploded like, you know, as a, you know, I remember Nomura Securities, it was a guy by the name of Ethan Penner, who was one of the big cowboys of selling securitized debt on commercial real estate. And I woke up one day and I go, why? Why not senior living, senior care being a platform to utilize securitization as a tool to stimulate capital in the industry. 

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And I decided, with the support of a company out of Atlanta, Georgia, to build what at the time was called Healthcare Capital Finance. I again wrote a business plan, went to Wall Street. We endeavored to raise 100 million dollars. We had 5 million dollars of our own capital. We were I mean, we had ten different banks wanting to give us the money. It was a little bit like shooting fish in a barrel at that time, because of market conditions. I built that business, I expanded it to 300 million dollars. I brought on two partners, a bank, South Trust bank, financial institution, Conte Financial Services. And now we changed the name to PRN capital. We had a 300 million dollar line of credit with Deutsche Bank, and we were rocking. It was all lending, it was all lending. 

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1997 comes and we have the credit crash. It takes place. And overnight, I didn't realize it at the time, I was running a business that, it took me about three months to realize, we were just out of business. There was no more capital available in the marketplace. And if you were, if you were an organization that did what we did, which was accumulate loans and then sell them in the secondary market, if you were holding loans at that time, you were screwed. You're screwed. And because what happened was everybody was doing these lines of credit, such as we had, on a one year duration. Well, the credit crash lasted more than a year, so people were desperate to sell. And what happened is we went from a place where the market was one day it was here, and the next day it wasn't here. It was gone. So there was a lot of panic. There was a lot of distress. And the fortunate part of what happened to me was, we had unloaded all of our securities at that time. I was the president of the company and ran the company. And all I was was out of business. What that allowed me to do was quickly pivot and realize the opportunity now isn't in debt, the opportunity is now in equity. Because what happened? We had distress. We had challenges. And through the challenges, I identified the opportunity as I need equity capital to clean up all this mess that just got created under market conditions, that created Formation Capital. 

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Formation Capital 20-22 years coming, closing in on the end of its run currently. But you know, we, you know, we got that business up to, we had over 6.5 billion dollars of assets on our books at one point in time, 55 people. Gosh, we had overhead, we had 10 million dollars of annual overhead in that company. So, built a really successful- I was very proud of what we did. We're very entrepreneurial. Primarily focused on health care in the beginning, then it started to emerge into ancillary and service businesses and then more into the senior housing. 

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I stepped back, about what would have been now 12 years ago, to move to California. My-quick sidebar- my wife was also with the Public Real Estate Investment Trust. My wife moved from Laguna Niguel and working for health care property investors, to marrying me and moving to Alpharetta, Georgia. Now that's a downgrade. And, my, the deal I made with my wife was I was now remarried. I had older children, and we were to go on and have our own children. The deal I made with her is I can't leave Atlanta until my kids get out of school. And I thought, you know, she'll get used to it. And ultimately, she didn't. And this is what perpetuated, eight years later, our move to California and my interest to now move toward hiring somebody to run formation on a day to day basis, becoming the chairman, executive chairman of the organization, staying involved in strategic, and high level involvement, but not the day to day running of the business. 

What I did, though, is I decided being in California now, which is, I had this interest in, in technology. I didn't know anything about it. I knew how to turn my phone on, but I didn't know how to, you know, I didn't even know how to use the apps that were on it at that point in time. So my interests were, though, and my belief was that, is there anyone out there that's actually talking about the issues of aging in our society and the utilization of innovation in technology? It turns out there were very few. I got involved with a gal by the name of Katy Fike, doctor Katy Fike. Had her doctorate degree in Gerontology from USC. Very brilliant gal. She and a gentleman by the name of Steven Johnson had created a company called Aging 2.0, which we celebrated last night, the 10th year anniversary. It wasn't quite, it's actually a little more than ten, but we decided to celebrate ten years of existence. And that Aging 2.0 platform, one of- the first time I went to a meeting there was like 75 people. There was eight companies doing a bit of a Shark Tank proposals in this little theater. And I just sat in the front row and watched, and I went, man, could I do something with this idea, most of which I attribute to my experience with the NIC board involvement, where I was involved literally from the beginning of NIC, was chairman of NIC, and looking at this and I'm going, there's no reason why technology and innovation can't establish an organization to bring together thought leaders, investors and most importantly, innovators and technologists.

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12:21

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12:50

Arnie Whitman

I got involved, there was a partner in that organization very early on, but there was a purpose on why I got involved. Number one, I was convinced there was an opportunity. And number two, I wanted to create an investment vehicle in venture capital. And so that's what happened. We stood up the first venture capital firm, at a 60 million dollar fund called Generator Ventures. I was the founding partner, along with Katie and a gentleman by the name of Doctor Russell Hirsch. We still run that business today. But it was early on in the integration of innovation and technology, into caring or for identifying and addressing issues of aging globally.  At one point in time, we had 140 chapters around the world, our annual conference was bringing in a thousand people. And we then started a fund, which certainly affected the day to day operations of Aging 2.0, because I was no longer focused on that. Katie, who ran it and started it, was now focused on the fund and then Covid came and all bets were off for conferences of any kind. But that experience was an incredibly valuable experience for my own professional experience and really leads me into what I see today. 

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And as I look to the future, that is truly the utilization of tech enabled services and tech enabled programs and products to integrate health care into senior living. If you step back and you think about it, and my experience in senior living is that we didn't really understand or measure, but the experience I saw with my father when he reached 88 years old, that he was either going to live alone in his apartment after his wife died, or we were going to convince him he should go into a community where it's going to be healthier for him to live. He went kicking and screaming and it was in Yarmouth, Maine. It was a benchmark facility. He went in and immediately, he was so afraid, step back, he was so afraid that people were going to interfere with his daily life. He was like, I don't want people, you know, bothering me. But what happened was he established a group of friends that he ate every meal with, and he developed socialization and that socialization improved his enjoyment in life. And what I saw with my own eyes was my father getting happier and healthier. Now, no one at that time was measuring that, but I witnessed it from a literally observational standpoint as an improvement in his quality of life and his actual health care by just bringing him from isolation into socialization.

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That's a powerful dynamic. So I started looking at senior living, and I started thinking about technology, and I thought to myself, you know, if we could actually utilize certain innovations and technologies, and not in your face health care, but supportive to the staff and the operations and the owners and the regulators. I mean, the stakeholders are many in this business. So, number one, I applaud anyone that gets involved in this because this is hard stuff to do. But what I realized was you can't really manage what you can't measure, And measurement in this, in our business, in a world that is moving more and more toward at the recommendations and driving of CMS, is that our industry in the next, 7 to 10 years, is going to be all embraced into value based care. And who better to manage that population than the senior living industry who sees these, their residents on a daily basis, knows what they eat, knows their activities, knows, are they walking funny? Are they not sleeping? Are they getting the right care? Are they socializing?

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So the concept to me was I want to look at transforming, and the name of our new company is SLTC, Senior Living Transformation Company, which is built from an investment standpoint similar to Formation Capital, but focused on this model of transforming senior living by integrating health care through the support and utilization of technology and data. I mean, data becomes so powerful. And so from a personal standpoint, I see an opportunity in an extremely challenged marketplace. So let's take a look at the dynamics. Covid, workforce, inflation, capital markets. These are all headwinds in senior living that are creating incredible challenges for our industry. Again, I'm going to go back to my original premise. These challenges are what creates opportunity. And from my perspective, the opportunity is how do we actually transform the industry in a subtle way to the families and the residents, in such a way that we're able to measure things, to create value? Because if I can tell the outcomes, or I can tell that my length of stay is getting longer. If I can tell that Mrs. Smith didn't fall this week, when she was a high probability to. When I can tell that Doctor Smith is not taking his medications properly.

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Whatever the dynamic might be, my theory is that by bringing in and this is the structure, is that historically our industry has been an opp go, prop go business where you have a real estate asset, you have an operating business, and that's kind of the way the industry works. We propose to enter a third party, which is a health care licensed entity that allows us to bill Medicare for certain services. Well, if you look at what's going on at CMS, and especially CMMI, which is where all the innovation takes place, the direction that they're sending us in is to continue to create and develop products and programs that create value of quality of social determinants and quality of life, which then equate to outcomes that create economic, efficiency or outcomes.

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So the dynamic of the value proposition from my perspective is, can we create an environment that creates a better quality of life for our residents, provide support from a health care perspective, and is able to then take that that model and start to utilize Medicare as a supplemental benefit for what is a population that all of these residents qualify for Medicare reimbursement. Yet the old model says, we don't use that. We don't do that. We're not in health care. Well, yes, you are. And by the way, I say that, there are plenty of people that will continue to do what they've done for a long time and be very successful, very hospitality oriented quality of life experience. And they've done it well. They do well. They'll continue doing it.

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I'm an advocate for all of our seniors, and I am now one who can benefit from an integrated health approach that gives us insights and gives us value to reduce chronic illness, to reduce hospitalizations, to improve quality of life, and to be able to measure it in a way that we can now start to show, and this is early stages, an ROI, on top of what we're measuring. So the day comes when I can show you what an ROI is by improving socialization. That's a long driver, but I think we're not that far away that it becomes a shorter punt, that we actually get to a place where you can measure the quality of one's life, the quality of one's experience and the cost of health care. That's attributable to that in a way that's really meaningful in our industry. So that's a really long winded way of going from how I started to what I'm shooting for. But I guess I would open it up to other questions. 

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21:54

Arnie Whitman

Or thank you very much. Your time is up.

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21:57

Lucas McCurdy

Yeah. My job right there. No, I mean, that's a fascinating take. And I and I knew that, we wanted you to go into depth on, kind of this, this history and then and then moving forward on your background and how that coordinates with the projects that you have going on today. I mean, Josh, it brings to mind a lot of different things and conversations that we have here, especially with industry pioneers. It's a great opportunity to really get really, really great insights.

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22:24

Josh Crisp

No, you're exactly right. I mean, our listeners as well as you and I just got a master class on senior living. Not only where it's been, but where it's going. And, Arnie, we so appreciate you, because everything you said, I think is so substantive and so relevant. There's so many young leaders that are energetic, that see the challenges that we're in right now but don't understand also the context in the history of how far back this industry goes. We were just talking about that yesterday. I think many of us don't think it goes that far back. So, the history in the context of what you shared is very valuable but amazing, I think the read that you have on where we are now and where we're going. So, so relevant, so valuable. I would say right now to someone that finds themselves as a young Arnei where you were when you stepped into this industry, what would you say to those folks that right now are stepping in here? Maybe this is their first ASHA. You know, they've got a similar background to what you had. And what would you say to that individual? What should they be chasing? What should they be focusing on right now?

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23:29

Arnie Whitman

Well, my first comment would be you're in the right place at the right time. And so I, I've in my history of investing and watching markets ebb and flow, watching the industry ebb and flow, that in fact, we're in a place of incredible opportunity right now. And that relates to whether you're in the operating side of the business, the real estate side of the business, the service side of the business, the technology side of the business, or the risk side of the business. I, you know, I'd be remiss if I didn't say part of our value proposition, it's kind of a opp co, prop co, health co, risk element here that drives what I call enterprise value, right. I think we need to look at the business differently. 

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But to answer your question, if I'm a young person, if I'm yourself, you know, first of all I'm jealous because I want to be that person. And, you know, my hope is, is that I can help people that are younger, that are here, that, you know, there's, the challenges are what lead us to opportunity. The consumption of dollars in our economy, spent on this population, and this demographic is 70% of the health care spending in our country, right. But who actually says that out loud, that's, you know, when you think about it, we've been this stigmatized sort of second class asset, which, by the way, is one of the most critical elements of of going forward is alleviating that stigma and getting people to truly understand what our industry really is about. 

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But the opportunity right now is enormous. I mean, it's all the basics. It's demographics, it's need, it's health care. It's, you know, how do we treat people and improve their quality of life? You know, again, I'll go back to my own self. You know, I have gone through challenges over the last five years that have changed my perspective of the whole health care system in a way that makes me realize the need for that integrated approach to care, because we have such a bifurcated and siloed kind of approach to health care. Well, communities of seniors have such an incredible opportunity to improve quality of life and address that cost. If there's any frustration I will feel, it's that if operators don't realize the opportunity that they have to be the drivers of the value that they talk about in value based care. If we don't take the lead, the payers, the insurance companies, the pharmaceuticals, the health systems, they will.

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So I sit here today and I go, wow, look what well, look what this opportunity is. But I'm also fearful we won't organize, collaborate, big word- collaboration. We need standardized approaches to infrastructure of technology. We can't have this like mishmash. We need to work together to build the infrastructure. But then, then all of the different customized solutions that you use on top of that, that's individual's choice. So I, you know, I'll finish by saying, huge opportunity. Really exciting. This is no longer about geriatric, I sit on the board of the USC School of Gerontology, and I talk with the dean all the time. I go, why do we have to call it gerontology? You know, if you were to call this, you know, innovation in technology for health care, in aging, how many more people would you get in your school versus the school of Gerontology? And the truth is, we need to change how we tell our story, how we message and how we actually lead people into seeing the opportunity, because it is big.

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27:35

Josh Crisp

Wow. Well, you know, Arnie, thank you for taking so much of your valuable time here with us. Spreading this information, education and also that encouragement, but that challenge, I think that I heard you just give us, that hopefully will be the stimulant for many of our listeners and the folks here at ASHA to go about and bring about great change for our industry. Lucas, what an awesome opportunity we've had today.

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27:56

Lucas McCurdy

Yes, yes. And final comment, because I know you said you were a hack musician. Well, I've heard you play. Actually, I heard you play the song that you wrote, I believe, for your mother.  You're not a hack musician. And I believe you used that opportunity, maybe at the Brain Ball or-

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28:14

Arnie Whitman

It was at the Brain Ball.

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28:14

Lucas McCurdy

Okay, yeah, it was a while ago, to raise money for Alzheimer's and, yeah, maybe we put a link. Is that on YouTube somewhere?

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28:22

Arnie Whitman

It's, you can find it through googling me. If you Google me and go to videos, you can see the whole presentation, and within the presentation I do the song with a little bit of a video background.

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It was one of the, one of the most important days of my life. Because I wasn't, they asked me, you know, it's funny, when David Schless asked me to ask me to be honored, you know, what that really means is we'd like to raise money from you. But what it afforded me the ability to do was turn that into a, you know, dedication to my mother.

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And honoring her and all of the people that suffer from that just terrible, terrible disease. So it was very special. And I appreciate your comment.

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29:03

Lucas McCurdy

Yes, yes, yes. I'll never forget it. So we'll link that for our listeners that want to hear that and be a part of, fundraising for, for Alzheimer's as well. So, Arnie, thank you so much for your time today. I know you're going to be moderating a panel on technology here at ASHA. I look forward to checking that out after lunch today. And for all of our listeners, you can go to BTGvoice.com, check out this content and so much more. Hit us up on LinkedIn, we’d love to hear your comments and conversations there as well. And thanks for listening to another great episode of Bridge the Gap.

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