On the Record: Adam Kane, SVP of Corporate Affairs at Erickson Living

In 2009, the company known as Erickson Retirement Communities, headquartered in Baltimore, Md., filed for Chapter 11 bankruptcy protection. In December of that year, Hanover, Md.-based Redwood Capital Investments LLC bought most of the bankrupt company’s assets for $365 million, out of which emerged Erickson Living.

Senior Housing News recently caught up with Adam Kane, the Senior Vice President of Corporate Affairs at Erickson Living, around the time that Erickson community Ashby Ponds in Virginia welcomed residents into the newly-constructed Red Robin View, an independent living addition that opened on April 4, 2012.

Despite Erickson Retirement Community’s bankruptcy, the new company now known as Erickson Living is back, and stronger than ever, Kane tells SHN, as an organization that manages and develops retirement communities, has no debt, and is “very bullish” on expansion opportunities.

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Senior Housing News: Considering Erickson Retirement Communities’ rocky recent  history, are there any outstanding legal issues with Erickson Living today?

Adam Kane: There are no financial restructuring issues at Erickson. Erickson Living has zero debt, unlike a lot of the other industry competitors. There’s a portfolio of new campuses purchased by Erickson Living with development potential, and none of those campuses have debt (although some of the mature campuses with no remaining development opportunities do have their own tax exempt debt).

This is a huge advantage, we believe, for us. So we’re probably the strongest operator/developer in the industry with our current balance sheet and the potential we have.

Erickson Living focused on building its management team and on developing our existing properties, and we are looking for new development opportunities.

SHN: How has the transition [from Erickson Retirement Communities to Erickson Living] been for the staff, residents and the communities since the re-organization?

AK: What’s been great about Erickson Living is, when Redwood purchased its assets, Erickson kept the majority of its staff. We’ve implemented more financial discipline, more of a focus on financial operations. Our communities are performing better operationally; they’re better on occupancy, and better than ever  before on resident satisfaction. Our occupancy rates are up around 94%, compared to an industry average of about 88%.

We focused on improving the operational platform, and we’re at the point now where we’ve begun to develop again, and we’re looking for new opportunities.

SHN: How does the Ashby Ponds development fit into Erickson’s new strategies? What does the pipeline look like for new projects or additions to existing communities?

AK: Our Ashby Ponds development fits very well into Erickson’s strategy. It was a community that was in the development process when it was purchased by Redwood/Erickson Living. We purchased it, as it exists today with about 600 units, and the potential to build out to 1,500 units.

We started the next building that’s about to open [Ed. note: Red Robin View opened on April 4, 2012 and is pictured below], so it’s really a demonstration of Erickson Living’s commitment to continue to develop out our existing campuses, and we’re very excited about its success. We built 80 independent living units, and about 90% of them have already been reserved. It’s going to be a smashing success.

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[In the pipeline] In addition to those units at Ashby Ponds, we have 75 units under development at our Maris Grove campus outside of Philadelphia.

We’re constructing two new ‘extended care’ (nursing home, assisted living, and memory care all in one building) facilities on our Eagle’s Trace campus in Houston, and on our Highland Springs campus in Dallas. We’re planning to launch two more extended care facilities next year, one at Wind Crest, in Denver, and one at Ashby Ponds, in Virginia.

We’ve got a pretty brisk pace of development going on right now, and in addition, we’re in the market place looking actively for new sites as well for opportunity to acquire new communities.

SHN: What is Erickson Living’s development philosophy?

AK: The philosophy is very similar for the rationale behind Redwood acquiring Erickson Retirement Communities; we’re looking for communities that have a great culture, great location, and the potential to be operationally and financially really strong.

A lot of these communities are in bad capital situations, and because of the nature of their debt situation, they’re being held back.

We’re in a position where we see ourselves as a solution for great communities that are over-leveraged and are trapped in broken capital structures. We’re a good partner, because we can come in, help fix the capital structure, and help a community achieve its potential.

That’s what Redwood saw in Erickson: a great company with a great product and culture. The problem was the over-leveraged capital structure, and once you solve that problem, the communities flourish.

SHN: One of the reasons cited for Erickson Retirement’s bankruptcy was too much development. What’s your reaction to that, and how does Erickson Living plan to prevent a similar situation from happening?

AK: One of the focuses of Erickson Living is to be conservative and prudent in development. We want to make sure there are strong market fundamentals, a strong demand for the product. We also want to have the flexibility to localize a product to each market. That’s one of the changes we’re making.

The old Erickson model was basically a large 1,500 unit or so campus, and that’s great for some markets, but it may not be the solution for all markets. What we hope to do is really tailor our products to the local preferences and what’s locally feasible. No more one-size-fits-all approach.

There’s a second aspect: The old Erickson Group grew very fast, but it grew very fast taking a lot of debt. We’re in a position now, with Redwood’s partnership, where we’re not going to finance the majority of our growth with leverage. When we develop, we’re going to use a conservative approach to debt and leverage that doesn’t put communities in jeopardy with too much debt.

Overall, we want development to be conservative and prudent; we’re looking for localization and market customization; and when we do develop, it’s not going to be developed under the auspices of over-leveraged.

SHN: What is your financing relationship with Redwood Capital Investments?

AK: Redwood is our capital partner. It owns Erickson Living, and is a holding company for other assets, as well, although Erickson is by far its largest investment.

The relationship [between Redwood and Erickson] is really important for the industry: Redwood has capital it wants to deploy in senior living. We very much believes that the demand for this product in the senior living industry is going to be very successful in the long-term.

Redwood is a long-term investor, not a buy-and-flip investor. That’s very important in this industry; it’s a patient investor, it doesn’t have a five- or seven-year horizon. What we’re interested in is investing in senior living properties that will build value for the long-term.

That’s critical to senior living. People would be more hesitant to move into a community if they think it’s going to be subject to flipping by a series of investors over the years.

SHN: What are some markets Erickson is considering for expansion?

AK: We are very interested in growing in markets in which we are currently present. There’s tremendous economies from having multiple projects in the same market. We really look at growth opportunities in our own markets. Our communities have a tremendous reputation for high quality and good value.

[In some communities, Erickson is] adding more units to existing projects (like Ashby Ponds), and we’re looking to develop and acquire brand new communities not related to ones that we have, but in similar markets to where we already exist. This offers greater efficiencies on marketing and operating.

We’re also looking at expanding some new markets.

SHN: Do any of your communities have outreach programs for seniors living in the surrounding area? Have you implemented home health-type programs, and have they been beneficial in attracting area residents to your communities?

AK: From a marketing side, we have a tremendous outreach to local seniors. If they want to move into a community, we’re helping them stage their homes, price their homes, and we’re facilitating that transition from their home to the community. With this real estate market, that’s been really critical to our success, serving at the individual level to help make that move.

On the health side, we are evaluating using our existing communities as medical hubs for the surrounding communities. We have Erickson Health Medical Group, with approximately 100 medical providers and over 60 physicians that work exclusively for the residents of our communities. We’re on the cutting edge of geriatric care management, and we’re leading in best practice on the care management side. We’re still formulating that strategy; we’re exploring the potential of taking that infrastructure and using it as a base, and adding to it to create ancillary services.

SHN: Given the state of the economic environment, what kinds of trends is Erickson seeing for its incoming residents?

AK: Just about every community has seen a little bit higher ages, and more needs-based moves. People are living longer independently and people have delayed move-ins because of the economy. But we’re really seeing a benefit now with the economy turning—people who delayed moving because of economy, or until they developed health needs—what we’re seeing in the industry, you’re getting some of the pent-up demand that was sitting on the sidelines of the recession, as well as more traditional age.

For example, with our new Ashby Ponds development, we’re getting a slightly younger population than we’ve seen before, as well as a needs-based population. The average age of entry had been about 78, 79; for our Ashby Ponds site, it’s been more around 75.

[On aging in place] Aging in place is not a new phenomenon. The greatest competition anyone has in senior living is peoples’ homes. It’s not new. Our charge has been to really show [prospective residents] the benefits of aging in an appropriate place, and how successful they can be in senior living. We need to demonstrate success in terms of establishing financial security, ensuring residents that he or she won’t run out of funds, along with the benefits of socialization, as depression and isolation are one of the major health issues for the elderly. When seniors move into these service-enriched communities, their opportunities for social engagement improves dramatically. Finally, there is a growing  consciousness among the population about the importance and benefits preventive health care and health management. We do this better than anyone; through our geriatric medical practice, we manage our residents’ care.

SHN: What is Erickson Living’s entrance fee model?

AK: It’s a 100% refundable entrance fee, due to a resident or family on re-occupancy. That’s been very successful and a distinguishing feature of Erickson’s market share.

There may be different markets where we may want to have a different approach in terms of different refundability models in the future; we may look into customizing products to local demands.

Entrance fees are still the best deal out there for seniors looking for retirement security. They’ve held their value very well compared to people who bought a condo or single-family home that’s gone down 30, 35% in value in the past three or four years.

Think about it: with entrance fees, you don’t have to pay a transfer tax, closing costs, or real estate commissions when you’re selling. They’re professionally marketed when you leave; it’s totally different from selling a condo, which can present major inconveniences for seniors and their families.

SHN: Baseball season is upon us. Will you be rooting for the Baltimore Orioles, or the nearby Washington Nationals?

AK: Since Erickson Living is based in Baltimore, we have to go with the Orioles. We have a lot of enthusiasm for the Orioles, but it’s very, very hard to be an Orioles fan… we’re much happier with our outlook on the senior living industry!

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