There are few in the senior housing industry who have as extensive a résumé as Dan Baty.
With more than 40 years experience in investing and developing in senior housing, Baty’s distinguished senior living track record has included executive positions at a number of the industry’s largest providers, including roles as president of Hillhaven, a national nursing home operator based in Tacoma, Washington; and chairman of Holiday Retirement.
Most recently, Baty served as the chairman and co-founder of Emeritus Corporation from 1993 until the company’s merger with Brookdale Senior Living (NYSE:BKD) last year.
In these various roles, Baty was influential in several high-profile transactions, such as the $6.9 billion sale of Holiday to Fortress Investment Group (NYSE: FIG) in 2007 and 2014’s blockbuster $2.8 billion merger between Emeritus and Brookdale.
And since 2006, Baty has been the driving force behind Columbia Pacific Advisors, an SEC-registered investment advisor that manages assets of more than $850 million in a variety of alternative investment strategies.
The firm has much more in the works for senior housing in 2015 beyond, not the least of which is a development pipeline soft-circled for $600 million worth of investments for the U.S. and abroad.
Senior Housing News recently caught up with Dan shortly after the start of the new year to hear more about the vision of the senior housing veteran.
SHN: Your extensive background in senior living is illustrated by a résumé that includes executive positions at several prominent companies like Emeritus and Holiday. In your experience, how has the industry evolved?
Dan Baty: Before Holiday I was at Hillhaven, which grew from just a few buildings to 500 properties while I was there. Back then you originally had one building that was basically nursing, independent living and assisted living patients. Over time, those products segregated and they now have more specialized operations and properties.
Another big problem early on was there wasn’t an inventory of people or the education programs and internal training programs like there are today, which are critical. Those have evolved and there are now defined systems.
The senior living business started off primarily as mom and pop companies, however, we’ve spent a number of years consolidating that. The same happened once we got to assisted living and independent living, which was started mainly by regional operators.
Today, we’re seeing a re-emergence of regional providers putting 8 to 10 properties together and building that up again.
SHN: You’ve also been involved with companies that have enacted some high profile transactions. If you had to say, what were the main ingredients to bring those deals from just talk to fruition?
DB: The biggest driver was inexpensive money, both for the REITs and private equity guys. They had cheap money, which allowed them to pay high prices. Inexpensive money has allowed a lot of acquisitions where both the buyer and seller win—and then you load on that chief debt money and the high multiple that the REITs sell at. That’s been the biggest driver.
I’ve been through five cycles now and have gotten fairly good at feeling the wind and getting a sense of when to shift from buying to building to selling over the last 40 years.
On the Brookdale deal, one of the biggest drivers was the usual overhead savings and synergies, but most importantly was what is going to happen to post-acute care over the next couple of years. By putting those two companies together, there are at least 15 [metropolitan statistical areas] where the combined company is the largest post-acute player in those markets.
The benefits of that are, say three to four years down the line, Brookdale along with Genesis and Kindred are all in a position to take advantage. That’s a really big opportunity.
SHN: About your company Columbia Pacific Advisors—what sectors is the company focused on and how active is it in the senior housing space?
DB: After we sold Holiday to Fortress, up until then, [Holiday Co-Founder] Bill Colson, myself and the other principals had reinvested the cash flow we generated into the business. But then we sold the whole thing, and then we said: how are we going to invest our money?
Over the last three years, a big part of Columbia Pacific Advisors has been the development of senior care facilities. We’ve got a pipeline of about $600 million—mainly assisted living and memory care. We’ve got 30 buildings—about seven of which have been built and opened, another eight that are under construction, and the rest are in development.
We’ve made a major commitment to the development side in this sector. We’re using a variety of national and regional operators and picking the best ones for those markets.
In 2015, we’ll probably add another five or six to our pipeline and probably have about 15 projects underway.
SHN: Cascade Healthcare, the joint venture between Columbia Pacific and Emeritus has explored opportunities for development in the past in China. Is Columbia Pacific still exploring senior housing development opportunities in China, or anywhere else overseas for that matter?
DB: We’ve had operations in Southeast Asia and India for 17 years. We currently operate 27 hospitals in those countries and are just starting to develop senior facilities in India and Malaysia.
We first went to Asia 20 years ago thinking the cultural changes were sufficient enough to maybe start senior housing. But, we concluded quickly that we’re about 15 years too early. However, we found an opportunity in the middle price hospital business.
In China, we have three senior facilities that have been opened for a couple of years, each with about 70 rooms. We started small and are just slowly catching on. We didn’t anticipate a big rush.
These types of services are brand new there. The market is huge but it’s going to take a while for it to adjust and for people to understand what the product is.
SHN: What does Columbia Pacific have on the horizon for the year ahead?
DB: To continue the development of facilities here in the U.S. and abroad. We have four hospitals under construction in Asia and we’re in the process of buying our first hospital in China. You have an emerging middle class and with that the demand for healthcare goes up.
We’ve taken the best about how things work in the U.S., while also being sensitive to the cultural, political and financial differences in the countries where we operate. If you ask me what we do well, it’s understanding those things and being very thorough in responding to them.
What do you see as a big opportunity in the senior housing sector in 2015?
Post-acute care. I’m surprised that hospitals and payers aren’t knocking on the doors of the bigger senior care operators, because when you look in the whole continuum, [senior housing] is in a position to provide some key parts in the management of the whole cost structure now. That’s the big opportunity.
However, coming up with technology to be able to integrate different kinds of post-acute services and upstream it with payers and hospitals will still be a challenge. We have all of these independent operators out there, but we need a system to track patients and keep score.
Written by Jason Oliva