It’s been a big year for Invesque. Since its founding in 2015, the Carmel, Indiana-based firm has amassed a nearly $2 billion portfolio, and made a signature acquisition in 2019 by purchasing the Commonwealth Senior Living operating company and 20 properties.
This rapid growth is no accident — Invesque Chairman and CEO Scott White places such a premium on speed of execution, the company has come up with a saying: It’s moving at the “speed of White.”
But while White wants to quickly seize opportunities and address challenges, he is also willing to be patient. In fact, he believes that the senior living industry can be too guilty of taking a short-term perspective on challenges like oversupply.
There’s one long-term issue of particular concern to him: labor. He believes that the senior living industry has not “dug its teeth” into this major challenge, and doing so will require visionary leadership and industry cohesion. Unfortunately, the workforce situation may have to get worse to prompt the kind of dramatic action that is needed.
These are just a few of the ideas and insights White shared recently on the Senior Housing News podcast, Transform. The conversation ranged over a number of other topics, from middle-market opportunities to memory care to some of the backstory behind Invesque, which was started by a number of former executives with post-acute developer Mainstreet.
On the origins of the Commonwealth acquisition:
The Commonwealth transaction was really a fun, fascinating one for us. It should be almost a poster child or plug for the NIC conference. I know the NIC conference gets a lot of people on both sides of the fence — [some] saying they like it, and others saying it’s just speed-dating, you can’t get anything done. I’m actually fascinated by the NIC conference. In our shop, we like to move fast. We have a saying that we “move at the speed of White,” given my last name. The beauty of NIC is you can really immerse yourself and in two or three days, you can get 25, 30, 35 meetings in, easily. Are they all going to go somewhere? No … but it’s fast, efficient, you know what works and what doesn’t work.
So, back in the fall of ‘18 — last year’s NIC — we’re introduced to [Commonwealth CEO] Richard Brewer and his team that started the company. That started the dialogue. We’re very fortunate in that there are members of our team that knew Richard and knew the bankers … so it wasn’t the first time we were introduced to Richard and his team. But it was the first time we formally met and started a dialogue that ended with our acquisition of both the operating company and the PropCo this year.
On acquiring both OpCo and PropCo, and aligning interests:
We very deliberately decided to not elect REIT status when we went public in 2016. Part of the rationale was, it gives us greater flexibility to do transactions just like this.
So this transaction fit very strategically with what we’re trying to accomplish. It gave us some really solid real estate in the Mid-Atlantic region and one of the best operating companies in the industry. Every deal has to work for both sides, and the beauty of this transaction, and I think what gave us a little bit of an edge in the end, was we were able to acquire both the real estate and operations. The sellers were looking for a full solution. They were looking to exit both the real estate and management company, and we’re able to come along and offer a one-stop shop. It wasn’t, well, we’ll buy the real estate and find someone else for the operations, and we’ll buy it all and then have to sell off the operations.
We were excited to have a management company.
We acquired 100% of the operating company, and we have created an incentive program for the senior executive team at Commonwealth to earn back a minority stake in that operating company. We feel very strongly about aligning interests for long-term success. We think the best way to do that is for us to share the ultimate ownership of that, but for today, we own 100% and we will always — or at least for the foreseeable future — own a majority of that entity.
On transitioning Greenfield Senior Living communities to Commonwealth:
When I talked about the strategic rationale for us acquiring Commonwealth, one of the things that was beautiful about this was that we already own assets in the same geographic region, While we are relatively geographically agnostic, we also realize if you own an operating company, you want to have that critical mass.
We had some discussions with Greenfield prior to the Commonwealth acquisition about them downsizing some of the operations they had in our portfolio. These are not turnarounds. They’ve been operating a while … they’ve been doing fine. But the timing was somewhat fortuitous, in that we’d had those conversations … and along comes Commonwealth with great overlap in terms of regional focus.
So, we transitioned a handful of those buildings from Greenfield to Commonwealth. We also had the opportunity to transition a couple of buildings to Heritage, another operator in our portfolio, who also had very clear geographic overlap with the Greenfield portfolio, which made it a very interesting opportunity for us to create value — to take assets that were performing but that we think could perform better, put in a strong operator and, in the case of Commonwealth, an operator that we own. So, our ability to collect the fees that we would otherwise be spending, [and] the ability to grow our relationship with Heritage, that has been spectacular.
On occupancy trends and the “broad brush” on oversupply:
Our SHOP portfolio occupancy has been very consistent, at about 88% for the last five or six quarters, maybe longer. Most of our senior housing portfolio is in secondary markets.
I think that there’s a broad brush oversupply statement in the industry, I think there’s a broad brush declining occupancy theme … I realize there is a strain in the system with the supply/demand imbalance. I think if you look at specific markets, it might not be as bad as everyone painted with a broad brush.
With that said, I also remind people that we’re in the real estate business, and real estate ownership is a long-term asset class. We don’t acquire assets, nor do we set out to build this portfolio, to focus on occupancy quarter to quarter. I’m very clear with our constituents on that, our shareholders, our team. Yes, occupancy matters in a successful portfolio, but I’m more interested in long-term occupancy trends and not necessarily quarter-over-quarter.
Do I think we’ve hit a bottom? Maybe. I don’t think I’m astute enough, to be honest, to be able to say … What I am saying is that we all know that there is demand coming, whether that’s two years out or 10 years out.
With that said, real estate lasts many years. I expect to own these assets 10 and 15 years from now, where I think you’ll have better supply demand in balance. We actually think 2021 is probably a turning point. But, our guess or my guess is really as good as anybody else’s.
On labor challenges:
Labor is one of our biggest problems, there’s no doubt about it.
We need to think about, how do we create a buzz and interest and excitement and enthusiasm, a career path for young people, for young adults thinking about where they’re going in their career?
It’s funny, because as I talk to so many people in our business, myself included, you ask how did you get into the business, and 98% of the time I hear, “by accident.” Either your parent was in the business, or by accident.
What I think we need to change is get to a point where [you hear], “I was intrigued by it when I was in high school, when I learned about it because of influences in my community. I learned about the aging demographic, and I learned about helping people.”
I think fundamentally, we as an industry haven’t really dug our teeth in and said, “How do we change this? What do we do?”
On whether he thinks workforce challenges will get worse before getting better:
I fundamentally do … everybody talks about the supply/demand imbalance and the coming wave of baby boomers, but excuse me, that’s just going to create greater stress on the system.
What not as many people are talking about is the aging of the workforce. Those that are currently administrators, those that are currently working in facilities, those that have spent a career maybe as owners of assets, those people are starting to think about retirement.
So, what is it going to take [to address the challenge]? It’s going to take leadership, it’s going to take a visionary, it’s going to take someone that really grasped this and said, you know, here is where I’m going to make my mark on the industry. I think it’s going to take some more time. I think everyone is dealing with short-term issuess of occupancy, of reimbursement and so on and so forth.
Look, every single job — my job, your job — no matter what or who it is, has good and bad, there’s no doubt about it. But I show up to work every day and view the world through the lens of, this is the most amazing opportunity … how do we get more people to show up to work every day in our industry to say, this truly is an amazing opportunity? Whatever I do, wherever I fit in … I’m adding value and making the world a better place. This is what we need to figure out.
On challenges in memory care:
We have a partnership with [memory care operator] Constant Care, and in our portfolio of Constant Care we have very strong coverage, very strong occupany, 90-plus percent. We continue to grow that portfolio. We recently announced the addition of three new properties. I think in a memory care setting — I shouldn’t just say memory care because this applies to all senior living — but in memory care, in the right market with the right operator and the right product, which I generally think is a smaller product, quite frankly, there is absolutely a model that succeeds.
On recent struggles of some transitional care product developed by Mainstreet:
We think about short-term post-acute — it’s part of our portfolio — in the exact same language I used to describe memory care … I think at the right price in the right market with the right operator, we have seen those assets succeed.
I think where they’ve hit some obstacles is potentially where they were very expensive real estate developments that maybe had the wrong operators or maybe were in the wrong market. I think that’s a broad brush you could paint across the portfolio. You could say the same about long-term skilled nursing, you could say the same thing about senior housing, memory care, whatever the case may be, I don’t think I’d make that specific to short-stage, transitional post-acute facility. I think with the right operators and the right markets, those can succeed, you just have to make sure you get in at the right price.
On what he would want to talk about with other industry leaders he respects:
Trying to figure out how we fix the long-term labor issue in our business. I am a big believer in giving people the opportunity to succeed. I’m a big believer in education and providing the right educational platform. I think one of the big things that we as an industry need to figure out is, how are we going to attract the right people to our industry? How are we going to retain the right people in our industry?
You challenged me before, [saying], “So why is nobody fixing it? I’ve heard this before, and you make a good case, but why is no one fixing it?” I don’t know the answer to that. I would love to really brainstorm with some of my peers in the industry and say, “What can we do, instead of showing up at every conference and talking about it, or having headlines in the news about this being an issue, what do we fundamentally want to do to fix this? How can we fix it?”
Click below to listen to the complete episode: