Merrill Gardens Acquires Blue Harbor, Names Gall as President

Merrill Gardens is nearly doubling its size through the acquisition of Blue Harbor Senior Living, and is welcoming back a familiar face to lead the combined entity.

Merrill Gardens has acquired Blue Harbor — a senior living management company — from private equity firm Fortress Investment Group for an undisclosed price, the Seattle-based senior living provider announced Friday.

After coming up through the industry ranks, Tana Gall served as Merrill Gardens’ president from 2013-2015 and will now be returning to that role, effective at the beginning of next year. She is replacing David Eskenazy, who recently announced his retirement from the Seattle-based senior living provider. Gall currently is CEO of Portland, Oregon-based Blue Harbor.

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Blue Harbor operates 21 communities in 13 states; even as the Blue Harbor operating company transitions to become part of Merrill Gardens, 15 of its assisted living/memory care buildings are currently involved in a change of ownership due to a separate transaction, Gall told Senior Housing News.

Those 15 properties have been owned by real estate investment trust New Senior (NYSE: SNR), which on Friday announced that it is selling its entire assisted living/memory care portfolio to an undisclosed institutional investor. Three Blue Harbor independent living buildings will remain in New Senior’s portfolio, and the balance of Blue Harbor’s communities are owned by other groups.

Merrill Gardens’ current portfolio consists of 33 communities in eight U.S. states and three in China. While Merrill Gardens has been largely focused on ground-up development of properties that it owns and operates, the acquisition of Blue Harbor represents its expansion as a third-party manager. The company intends to operate the Blue Harbor portfolio under a new brand that will be developed.

At 8,523 units, the combined company would have ranked as the 15th-largest U.S. senior housing operator in the 2019 rankings from industry association Argentum.

The dual-brand play

With Blue Harbor being one of the few senior living providers left in Fortress’ large portfolio, Gall began to sense that her goals for growing the company were not aligned with the private equity firm, she told SHN. This became even more apparent as New Senior transitioned to internal management rather than being externally managed by Fortress.

So, Gall asked her contacts at Fortress if the company would be willing to sell Blue Harbor. The answer was yes. One of Gall’s next steps was to connect with Bill Pettit, president of Merrill Gardens’ parent R.D. Merrill Company.

“For 25 years, we’ve gotten together and talked about business and the industry, and I shared with him what I wanted to do,” Gall said. “I by no means went to him saying I want Merrill Gardens to buy [Blue Harbor]. I wanted advice, and he was amazingly helpful to me.”

As their discussions progressed, however, the idea of Merrill Gardens acquiring Blue Harbor did come up.

“We both got very excited about it,” Gall said.

Specifically, she and Pettit perceived that Blue Harbor could be a good platform for Merrill Gardens to reach a new and different part of the market. Merrill Gardens is known for creating high-end buildings in Class-A markets, whereas Blue Harbor’s buildings are generally older and located more secondary or tertiary markets.

“We still provide great service and great quality, just in a different building,” Gall said.

By leveraging Merrill Gardens’ resources and expertise, she and Pettit believed that they could turn the Blue Harbor portfolio into a new middle-market brand. Doing so would give Merrill Gardens an entry point into serving a huge rising demographic, as was enumerated in a study released earlier this year.

Creating a scalable, profitable middle-market operating model is a puzzle that Gall has been thinking about a great deal. 

Blue Harbor has conducted some consumer focus groups to gauge their expectations and desires for a middle-market product, and has some valuable findings. Still, “a lot more studying” is required, Gall said.

She believes that creating a middle-market product will take a thorough, department-by-department analysis of where efficiencies can be captured, and innovations in labor-intensive areas like dining.

“I don’t think there is one silver bullet,” she said.

In pursuing a dual-brand strategy to roll out a middle-market offering, Merrill Gardens is joining a growing movement within senior living. Other providers creating multi-brand portfolios include: Louisville, Kentucky-based Atria Senior Living; Lake Oswego, Oregon-based Eclipse Senior Living; Roswell, Georgia-based Phoenix Senior Living; Chicago-based Pathway to Living; and Denver-based Solera Senior Living.

If successful, operating multiple brands would enable companies to share back-end efficiencies while targeting different consumer segments or care levels, to diversify revenues and increase market penetration. Multi-brand portfolios are commonplace in the hospitality industry, and Gall drew the comparison with hotels, saying that sometimes she stays at a J.W. Marriott and sometimes she stays at a Residence Inn.

“Both are great hotels, but at a different price point,” she said.

Pieces fall into place

The combination of Merrill Gardens and Blue Harbor was facilitated by some happy coincidences.

For instance, Blue Harbor operates in markets coast to coast, and “the footprint is all over,” Gall said. But, when overlaid with Merrill Gardens’ footprint, the two companies largely align. There are some exceptions, with states such as Utah where Merrill Gardens does not have any presence. Yet, there is significant overlap, which will allow for the combined company to fill in the map to create market strongholds.

As for the pace of growth, there are no set timelines for reaching a certain scale, Gall said. Getting the integration right, and fine-tuning the Blue Harbor operations, take precedence.

“I want the Merrill Gardens team to get to see these buildings, and the Blue Harbor folks to get to know the Merrill Gardens team so we really do create a good brand,” she said. “I don’t want to rush into it.”

Also helping the deal get done: Gall’s predecessor at Merrill Gardens, David Eskenazy, was ready to move on from the company and spend more time with his family. This smoothed the way for Gall to step back into her old role as president.

“It’s been completely great timing,” she said. “Everything just lined up how it should.”

Her familiarity with Merrill Gardens will doubtless help make the integration of the companies go more smoothly, she believes.

There is some irony in her return to the company. In her first stint as president, she led the company through a significant period of change, in which it divested 38 communities and revamped its technology and operating systems to support future growth. Having overseen that scaling back, she will now lead an effort to scale up.

Today, she was formally introduced at Merrill Gardens headquarters as the incoming president. She saw many familiar faces, including someone who greeted her with the words, “Welcome home.”

“Welcome home — that’s what it felt like to me,” Gall said.

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