Armed with a $500 million investment fund, a new private equity group co-founded by Brookdale Senior Living’s (NYSE: BKD) most recent past-co-president and chief of operations re-envisions similar success as it plans to ramp up senior living acquisitions with its newfound partners in the coming years.
After embarking on a capital campaign last fall, Chicago Pacific Founders is about ready to close out its investment fund. Two-hundred and fifty million dollars in equity will be invested in senior housing, enabling the fund to acquire significantly more than a quarter billion dollars worth of senior housing with leverage. It has partnered with an established senior living management company with decades of industry experience.
Of the total $500 million raised, CPF plans to invest $250 million over the next three to four years to acquire senior housing properties, including those that are underperforming or distressed. Asset types on the firm’s radar include independent, assisted living, memory care and continuing care retirement communities (CCRCs), but not skilled nursing, says John Rijos, Chairman and CEO of CPF Living Communities.
“These will be all in-place acquisitions,” Rijos tells SHN. “We’re looking opportunistically for situations where we can take advantage of errors in the marketplace.”
Rijos, whose senior housing expertise harkens back to his role as co-president and chief operating officer of Brookdale from 2000 to 2013, attributes the namesake of the private equity firm—headed by ex-Accretive Health CEO Mary Tolan—to its dual headquarters in Chicago and San Francisco.
During his tenure with Brookdale, Rijos helped grow the company from just 16 communities to a count of 650 before his retirement in April 2013. Growing the company in those earlier years hinged largely on building out its management company, says Rijos, who intends to execute a similar strategy and practices in expanding CPF.
“Culture is a natural part of the business plan,” he says. “What we’re doing here, we plan on repeating from the first five years of Brookdale.”
With visions of replicating some of the early best practices at Brookdale, the fund will be the first of many as CPF looks to match its platform with a long-term view of the favorable demographics and fundamentals of the senior living landscape.
That strategy in mind, the private equity group recently purchased a majority interest in Minneapolis-based Grace Management, Inc., a company with 30 years of experience in the senior living industry that currently is managing 23 communities nationwide. The details of the transaction were not disclosed.
Grace is the likely management platform for the targeted CPF acquisitions, however, CPF is also interested in acquiring additional management companies on a very select basis, its leadership says. Communities will be sub-branded CPF Living Communities.
The firm has already made its first two acquisitions, a 76-unit independent living community in Belleville, Ill. and a 116-unit independent living community in Las Vegas, both of which were acquired from Wilmette, Illinois-based Cerulean Partners for an undisclosed amount. Both communities still have significant upside potential, Rijos says, with occupancy and rent growth and the addition of new assisted living units. Rick Shamberg, a consultant for both CPF and Grace Management and a partner at Cerulean, played an instrumental role in working with Rijos and Grace to put the deals together. Shamberg also intends to play a key role in working with CPF and Grace going forward.
The company’s focus will be on acquiring existing, undervalued senior living communities, but will also look to renovate and re-develop existing stock, and partner with highly credible developers to build from the ground up and leverage Grace’s expertise in managing new developments.
To start, it’s taking advantage of a specific phenomenon in senior living occurring right now: the free flowing capital and lack of experience that new entrants are bringing to the market.
“There’s private equity that’s coming into senior living—in some cases it’s smart money, but mostly its uninformed money from [investors] living on the deal cycle that don’t have a deep understanding of the business,” Rijos says.
Aside from senior living interests, CPF is also looking to spend a third of its fund investing in addiction recovery treatment centers, an area where the firm sees similar fragmentation characteristics and mom & pop operator presence as senior living. The group also plans to use a portion of its fund to invest in health care services such as physician groups and other private groups of providers.
“Our deal flow and pipeline is going to be more robust than most,” Rijos says. “We have a talented management platform and certainly a substantial amount of capital. Those together, along with our pipeline, are going to give us an advantage over other private equity [firms] that only have one or two of those components.”
Written by Jason Oliva