NHI CEO: ‘Odd’ Deals Dominate Market, CCRCs’ Unexpected Performance To Be Discussed For Years

With senior living occupancy lower than he’s ever seen it due to Covid-19, National Health Investors (NYSE: NHI) President and CEO Eric Mendelsohn has had to become a more empathetic leader — while still safeguarding NHI’s business and securing its future

But Mendelsohn is feeling more optimistic than he was during the last earnings call for Murfreesboro, Tennessee-based NHI, a real estate investment trust (REIT) with about 160 senior housing and 75 skilled nursing facilities (SNFs) in its portfolio.

In addition to rising vaccination rates and improving sales metrics, Mendelsohn noted that continuing care retirement (CCRCs) have been “rock solid” during the pandemic.


“I predict they’ll be talking about CCRCs for years to come, and what happened during the pandemic — it was completely unexpected,” he said.

And, while banks are still “skittish” and deal flow is down, he is scoping out potential investment opportunities for NHI in a market where “odd” deals are predominating.

We are pleased to share the recording and this transcript of the SHN+ TALKS conversation with SHN+ members. Read on to learn about:


— When Mendelsohn believes occupancy might return to pre-pandemic levels

— How large regional operators can become

— Why CCRCs have performed well during Covid-19

— Current deal flow and his outlook on 2021 M&A activity

The following has been edited for clarity.

[00:01:55] SHN Editor Tim Mullaney: On your earnings call in late February, you said you were cautiously optimistic, but also that there was a lot of uncertainty about the future. Are you feeling any more certainty today, specifically about whether senior living might have hit a bottom related to Covid-19?

[00:02:23] NHI CEO Eric Mendelsohn: It’s funny. [I’m feeling] slightly better than I was a month and a half ago and here’s why. On the earnings call, we detailed very specific metrics that we were watching, which include internet leads, phone calls, drive-ups, walk-ins or, in this case, talk-ins, and also something called sales, which is an affirmative commitment on someone’s part to move into a building. Those are all metrics that we get from our operators. As you might expect, during the pandemic, they have been down. Since mid-February, they have been steadily climbing — the leads first, which is a forward indicator, and then the sales following thereafter.

Both of those metrics have been improving. I’m not ready to call it a trend, but I can tell you that that’s probably the best good news we’ve had in a year of watching things go straight down. That’s why I say it feels slightly better.

In my position, I have to be paid to be an optimist, but personally, I’m a pessimist. I like to call myself a realist, and I don’t get excited about things until they’re firmly established. I’m not getting excited yet, but I am sleeping better. I know that’s a question later on, but that is helping me sleep better.

[00:04:10] Tim: Are you seeing attractive senior housing investment opportunities? What kind of deals are crossing your desk?

[00:04:44] Eric: I like to say that the odds are good you could do a transaction, but lately, the goods have been odd.

By that, I mean we’ve seen abandoned buildings, buildings that recently had a certificate of occupancy issued and never opened. That’s unusual. We’ve never really seen much of that. Now, we’re seeing more of that.

You can’t get the backstory out of a broker. They’re not allowed to tell you, but just imagine what the circumstances would be that a developer or a joint venture will develop a building in a market, finish it, probably with the bank holding a gun to their head, and then try and sell it empty, unopened. That’s a little oddity.

We’re also seeing a lot of memory care buildings. Memory care has been hit the hardest in the pandemic because it’s very hard to get memory care residents to be socially distant, to wear masks. It’s hard to get them to do much of anything that needs to be done during a pandemic. That has taken a terrific toll on memory care buildings and there’s just a lot of them available for sale. That’s primarily what we’re seeing.

There are some what I call “outliers,” where you’re seeing some buildings that have done very well. They’re in pockets of tranquility and low Covid. They want a ridiculously low cap rate. Maybe a five cap rate, [when] we would normally pay six and a half or seven cap rates. That type of multiple on your return is what we call price to perfection.

[00:06:57] Tim: In these situations where a developer or a new investor in the space got freaked out because of Covid, and they’re abandoning a building before really giving it a shot, but people who know the industry might see an opportunity there — are you seeing those types of opportunities, or do they tend to be things that you would steer clear of at NHI?

[00:07:43] Eric: I agree that those do look like opportunities. We haven’t seen as many as you would think. NHI does dabble in those types of transactions. Because we’re paying a regular dividend, the way we approach a deal like that is to do it as a loan. We would do some sort of creative financing with an entrepreneur or an operator who would put in a little bit of equity. We would give them a loan with a reserve and they would make interest payments while they’re turning around the building.

Maybe the interest payments are negative amortization. By that, I mean the interest payments would be artificially low, say, in year one and maybe half of year two until the building gets stabilized, and then there would be catch-up payments to pay the deferred interest. Once the building is stabilized, we would have a purchase option. I call that our loan-to-own program. The purchase option is important to us. We don’t just want to be a capital provider that’s transactional.

We want to have a relationship with our operators. It’s good for the operator to have an exit strategy because the operator probably is raising equity from friends and family and they expect a return as well. If we’re able to buy a fully-stabilized building, everybody gets their money back with their return and we get a stabilized building. That’s how we would approach that. We’d love those kinds of opportunities.

[00:09:36] Tim: We’ve been hearing in our reporting that the M&A opportunities might be a lot of onesie-twosies, mom-and-pops who now want to retire or get out of the business because of all the challenges they faced in the last year. We’ve also seen portfolio deals, and a lot of those came from Healthpeak. What are you seeing in terms of portfolios versus smaller deals?

[00:10:03] Eric: This is not an optimal time to be a seller, obviously. Typically, those smaller deals, there’s some element of distress. Maybe lower occupancy. Maybe Covid just was the last straw for these operators and they’re throwing up their hands and ready to retire or move into self-storage or something less hands-on.

[00:10:45] Tim: In terms of volume, are you seeing that pick up?

[00:10:53] Eric: I’d say the volume is muted. We’re probably getting 60% of the deal flow we would normally get.

[00:11:02] Tim: How are you sourcing deals? I know you’ve talked in the past, you really like off-market, talking to your existing operators, finding opportunities to grow. Is that still where you’re getting most of the good opportunities or is it a mix?

[00:11:23] Eric: Great question. We actually have a page in our supplemental where we color-code where the deals come from every year. If it’s orange, that means it’s a referral. If it’s green, that means it’s a new deal. It changes year to year, Tim, but I would say that we have good relationships with the brokerage community. Oftentimes, that’s a source. We have good relationships with operators who are out there acting as our eyes and ears in the smaller markets and developing sources of their own.

I can tell you, plenty of times, an operator will bring us a deal they got from a broker and we have the very same deal and we’re like, “Yes, I want to talk to you about this deal,” and they say, “Yes, I want to talk to you about– Oh, it’s the same deal.” Okay, so that will often happen, which is fine. We’re on the same wavelength, which is a good indicator.

[00:12:34] Tim: What about the lending environment? Do you think lenders are starting to come back and be able to underwrite a little bit more confidently?

[00:12:50] Eric: Not yet, not yet. We’ve had discussions with a lot of lenders and they’re still very skittish. I know one very successful banker who spent most of the season skiing because her phone wasn’t ringing, so she might as well go skiing. I think that’s fine. I think there will be a lot of pent-up demand for financing. I think that there are borrowers who have had to extend loans that are uncomfortably close to breaching some sort of covenant and other banks that are anxious to get those loans recycled. I predict that in the next six months, the banks will open up and that the bankers will be very busy.

[00:13:56] Tim: Let’s get into some of the senior living operating questions, starting with Bickford, your largest senior housing tenant. You announced recently you granted additional $3 million in rent deferrals for the first half of 2021. What’s happening with Bickford? Did they take a bigger occupancy hit than they expected to start the year?

[00:14:31] Eric: In the earnings call, we try to be very transparent in that. Yes, we’re discussing further deferrals with tenants. I also said in that earnings call that 2020 turned out to be better than anyone expected. Most of that was a result of the government subsidies, the CARES Act, the PPP loans.

Those were extremely helpful to everybody. Now, so far, it doesn’t look like any other type of aid is going to be here. The last bit of aid was November, December. Since then, occupancy has continued to go down, to February, which is when we had that earnings call and when I was so dour about occupancy. Here are our operators, including Bickford, at the lowest occupancy I’ve seen since I’ve been in the business. This is worse than the recession from 2009 to 2011.

I tell people that that recession was an economic recession. This recession was a healthcare recession. You had a recession caused by a viral pandemic that directly affected residents in our buildings. It was a completely different situation. I’m getting ahead of myself here, but it will take time to recover, probably 18 to 36 months in recovery time. That’s what’s going on with Bickford.

[00:16:49] Tim: Another big operator for you is Senior Living Communities, and they stood out for being an outlier. They’ve increased occupancy, at least they had in the December to January time frame. How did they do that?

[00:17:25] Eric: CCRCs [continuing care retirement communities] have done better during the pandemic and that was a complete surprise to everybody. We also have other CCRCs with Life Care Services, LCS. We have one in Issaquah, Washington and another one on a loan in Scottsdale, Arizona. We don’t report the numbers on those because it’s a smaller investment compared to SLC. I can tell you, they have done just as well and have been rock solid during the pandemic.

Why is that? Well, I have a couple of theories. One is it could have to do with the architecture. Those buildings are massive and the units tend to be bigger. A typical assisted living unit might be 400 to 500 square feet and these are more like one-bedroom apartment, 700 to 1,000 square feet with full kitchens, balconies, dens. They’re more like luxury apartments and, frankly, an easier place to stay quarantined.

The other thing, maybe, is that … CCRCs are typically what we call buy-in communities. A resident would have to pay between a half-million to a million dollars to move into some of these communities. That self-selection process of people who can afford that amount means that those residents are usually younger, healthier, and more educated. I feel like they are being more rigorous in their adherence to safety protocols, both as residents and as operators.

Those two things together have been very helpful in terms of those buildings staying healthy, not having big Covid outbreaks. One other bizarre twist that the pandemic created that nobody could have figured out: these CCRCs, as I just mentioned, you often have to have a buy-in, half a million or a million dollars. That means you have to sell your home. Who would have predicted the housing market would have gone crazy and that people would be leaving cities and buying homes in the suburbs like crazy?

These residents, many of them that are moving in, sold their homes like that. That includes Connecticut. We have a building in Connecticut. The residents, their real estate in Connecticut was languishing for years. Nobody wanted to live there. Everyone wanted to live in Manhattan. Now, that has reversed itself. I predict they’ll be talking about CCRCs for years to come and what happened during the pandemic. It was completely unexpected.

[00:20:42] Tim: Early in the pandemic, we definitely were anticipating and talking to people who said that they thought independent living would take a big hit because it’s less needs-based, and that people were going to move out because they didn’t want to be in those communal settings.

[00:21:06] Eric: Let me distinguish between CCRCs and pure independent living, which has been affected adversely because of the pandemic.

CCRCs start with independent living, [but they] also include assisted living, maybe memory care, maybe skilled nursing … Independent living standalone, like our Holiday portfolio, which we have reported on, did not do so well, it was hard hit, and had no regulatory framework to fall back on to keep residents locked down and safe and to keep outsiders from visiting. It was a very difficult situation and it’s just getting better now because of the vaccinations.

[00:22:07] Tim: As operators are trying to drive occupancy back up and recover NOI, is there anything you’re seeing out there that you think are best practices or innovative ideas, or anything that you think, “Don’t go down that road if you’re an operator?”

[00:22:40] Eric: I’ve noticed that the operators who are not using third-party referral sources have done better, and that the third-party referral sources are just conducting business as usual and not following up to see how long people are staying in buildings. It’s kind of a treadmill. I’ll probably get an angry call from [A Place for Mom spokesperson] Joan Lunden now, but that’s okay. I’m ready for it.

My advice is to develop your own lead sources, develop your own web page, spend the money on hiring search engine optimization analysts and search engine marketers. They’re not that expensive. They’re actually very affordable. Those people will pay for themselves quickly when you consider that for every third-party referral source lead, you’re paying $2,500 to $3,500. That bill comes due immediately, whether or not the person stays for a week, a month, or 10 years. They all get paid the same. Typically, those leads are not long-term residents. So, that would be my advice.

[00:24:35] Tim: I’m curious what you think about pricing pressure in the market. That’s another thing we’ve heard: some concern about the extent that operators might be using discounts and concessions to try to build occupancy and creating some price wars in certain markets.

[00:25:07] Eric: That is completely foreseeable and expected. We saw a lot of that coming out of the Great Recession. What I hope is that some of the lessons that were learned in the Great Recession are implemented. For example, give someone the first month free. Don’t lower their rent for their entire life or for years. There were a lot of desperate situations during the recession. That created a lot of problems later on when things got better, when things got more competitive. You had people who were stuck in contracts with residents that were long-term residents getting a great deal. I hope we learned from that.

[00:26:07] Tim: Going back to some of the rent deferrals that you’ve granted, there are some payback provisions in those, and I assume that you’re confident that your operating partners can meet those payback expectations. But it seems tough, if I’m an operator. I’m bouncing back from Covid-19, trying to rebuild my census, trying to keep current on rent, and then repay the deferrals.

Can you walk me through this scenario? Am I thinking about that the right way? What do you anticipate in terms of the timelines and the ability of paybacks?

[00:26:52] Eric: You’re thinking about it exactly the [right] way. Recognizing that some of those same operators are probably listening right now, I would say that is a conversation that we’ll have in the future. Whether or not these deferrals are paid back over a year, two years, three years, and at what rate is a good question. There’s other things of value that can be traded in lieu of rent.

There are other buildings that could be bought. There are buildings that have outperformed that have equity in them that could be accessed. We’re willing to be flexible. We’re willing to be reasonable. I would just say that what’s unique about being a triple net lease REIT is that that rent obligation doesn’t go away. It’s a conversation concerning a thing of value that will stay on our books as a receivable.

We’re not going to give that up lightly. I would also say this: that we take the hit as a public company on these rent deferrals. We don’t count it as rent paid if we give a deferral. We book the lower-paid amount or no-paid amount and take the hits immediately. Whatever amount is repaid and when it’s repaid, that is going to be an upside to our earnings in that year.

[00:28:56] Tim: Are you more bullish, less bullish, feeling exactly the same about triple-net leases now as you were before the pandemic, and why is that?

[00:29:30] Eric: I’m more bullish.

As the great philosopher Steve Monroe said, triple-net leases will come roaring back, because you want to lock up the upside in a building when it’s at its low point. You don’t want to sign a triple-net lease when a building is performing on all eight cylinders. You’d rather lock it in when it’s on four cylinders and capture that growth as you add performance to the building over time. I remind people that as a REIT, we’re a dividend-paying creature and we’re willing to forgo upside in return for certainty of payment.

By that, I mean when we underwrite our deals on transactions with tenants, we want them to make money. We want to have what’s known as “lease coverage.” That refers to the amount of money they’re making over and above the lease, over and above their management fee, over and above their capital expenditures. We want happy, successful tenants because they’re going to pay their rent. They’re going to be happy to pay their rent because, hopefully, the rent is reasonable to them. That’s why I think in this moment with buildings underperforming, triple-net leases will be part of the conversation.

[00:31:04] Tim: Before the pandemic, one thing we discussed was whether escalators need to be lower than they traditionally were as we were seeing some operators get into binds with oversupply being the big issue before the pandemic. I assume you stand by that. Where do you think escalators should be?

[00:31:22] Eric: We’ve been lowering them all along. We’re not waiting for anybody to lead the way on that. On a typical deal, our escalators could be between 1.5% and 2%. Maybe 2.5% if there’s a reason for that, but we haven’t done a 3% or higher escalator in a long time.

[00:31:52] Tim: And you give other approaches to incentivizing performance, earn-outs, and things like that?

[00:32:00] Eric: Right, similar to a home equity loan. If the asset appreciates some value, we’re open to accessing that value for the operator, writing a check to them for the value they’ve created. Of course, they’re going to pay rent on that check. We’re not volunteers here, so that’s how that would work. That has been a good way to incentivize operators to increase the value, work hard. It’s a win-win for both parties.

[00:32:36] Tim: You and I talked at ASHA back in January of last year, on the verge of Covid. I want to revisit some of the things we talked about in that conversation, and see what your thinking is today. One of the things you shared was that all operators at that point were facing certain headwinds like oversupply, which you just mentioned, and labor, which is still a big issue.

You were focused on ways that operators could find to bring in more revenue, thinking about bringing a pharmacy, a physical therapist, being better at Facebook, at advertising, electronic media. Do you think more operators are bringing in these types of services, especially in healthcare capabilities, as a result of Covid-19?

[00:33:24] Eric: It has been an all-hands-on-deck crisis the past year. Nobody’s had time to build out any systems there really. We’re just dealing with this pandemic. I stand by those comments, but I would say that people are going to be turning to those new projects and new ideas as things get back to normal.

We talk to most of our operators during the course of any given month. We have many update calls with them, sometimes weekly, depending on the need. They’re still dealing with the after-effects. When you think about it, there was no dedicated person to deal with applications on government loans. There was no dedicated person to deal with hiring all the extra staff and getting all the PPE. Really, it was an ad hoc, improvised way of managing through a crisis and a lot of our customers were stretched thin doing that.

[00:34:43] Tim: On the healthcare side, do you think more providers are going to be interested in doing things like creating an in-house pharmacy or becoming involved in a Medicare Advantage plan, because customers now are asking more questions about healthcare capabilities, and maybe the ability to more closely manage that was valuable in Covid-19?

[00:35:27] Eric: I believe so. I believe the larger operators will lead the way on that, the Brookdales, the Sunrises. I think you’ve heard some outlines of those systems now, and you just saw Brookdale do a big deal with HCA, the hospital company, to combine forces on their home health. I think that’s a good example of senior housing leveraging its footprint and its labor force to create synergies. I don’t like to use that word often, but to create synergies with a standalone healthcare provider, in this case, a hospital system.

You saw the same thing with the ProMedica deal with Welltower and how they’re trying to integrate the ManorCare footprint into the ProMedica healthcare system. It’s going to be exciting. I think in the next 10 years, a lot of work is going to be done, and those larger operators that are leading the way will seed the idea farm, and other operators will pick up those ideas and run with them. I know that both Bickford and Senior Living Communities are working on a lot of those projects right now. Bickford itself has a standalone pharmacy, and it does very well.

[00:37:01] Tim: NHI has been involved in growing some regional operating platforms recently. What do you see in terms of the future of the regional operator? Are they going to get bigger? How big can they get? Do you think they’ll be able to innovate in ways like we were just talking about, with this healthcare play?

[00:37:35] Eric: Great question. How big is too big? From where I sit, I would say every operator has its own unique management style and has its own unique way of managing scale. I have seen that the difficulty usually comes in managing buildings between 50 and 70. Once you get beyond 50, it’s really hard to hold the culture together and hold the cohesion of a management team together.

I’m hoping to be proven wrong, but having come from an environment where we had 550 buildings, I watched Emeritus get beat out in a lot of smaller markets by regional competition that had its finger on the pulse of the community. I’ve talked about this before. There’s no substitute for an executive director going to church in their community, going to the Chamber of Commerce, participating in the PTA. Whatever community contacts that executive director has in a regional is usually not going to be copied by someone, at least at Emeritus.

It wasn’t someone who just transferred in from another building across the country and is about to be transferred out in a year or two to a regional position in another part of the country, wherever that arises. That’s the way that works. It’s like any other Walmart, any restaurant business. If you want to be promoted, you have to take the next promotion wherever it is. That means you’re moving. So, you don’t put down roots and there’s no substitute for putting down roots.

[00:39:39] Tim: We’re seeing some large providers create these multi-brand portfolios. Do you think that’s fundamentally a different way of organizing a big company that might create more competition with more traditional regional operators?

[00:39:57] Eric: I think that’s smart. I think that taking a page from the hotel business that has stratified levels of service. Not everyone wants to stay at a Ritz-Carlton. Sometimes they want to stay at a Holiday Inn Express or a Marriott. I think it’s smart to stratify your portfolio based on the demographic you’re going after. It’s not a one-size-fits-all product. Why limit yourself to just one economic segment when you can cover more? I was happy to see that happening.

[00:40:44] Tim: Is it going to pressure your regional operators more if the big guys come into this space?

[00:40:51] Eric: There’s no reason a regional operator couldn’t do that. If you have a building in a market that is going after a certain demographic, whether it be high-end, middle market, lower market, just give it a name and a digital presence. That’s what’s so great about having digital marketing abilities, is you can have a web page with a different forward-looking look and feel for whatever brand that you’re marketing, but behind-the-page mechanics are all the same. That’s tailor-made for what you’re describing.

[00:41:42] Tim: Do you think there’s some pent-up demand, at least on the financing side? Do you think we’re going to see a flurry of deals coming to market in the coming months as we come out of Covid?

[00:42:02] Eric: You bankers out there in your ski chalets should get back to the office soon. I think that the deals will come once there’s some line-of-sight to stability. That may be just around the corner. I’m not calling the bottom and I’m not saying that we’re right around the corner yet. I think that [there are] a lot of people who’ve been sitting on the sidelines selling, or eager capital waiting to buy. Think about all the asset classes that have done well during the pandemic, the residential and the self-storage, and the research. All of that has gone sky-high in valuations.

Prudent asset management investment in institutional investors would dictate that you sell some of that higher-performing product and buy something that’s depressed and has greater value and greater upside. That’s us.

[00:43:21] Tim: There was a ton of private equity on the sidelines right before the pandemic. I imagine that they’re all eager to find a home.

[00:43:29] Eric: I bet they are.

[00:43:31] Tim: If you are on a Zoom call with the CEOs of all your senior living operators this afternoon, and you could only ask them one question, what would it be?

[00:43:43] Eric: That’s a great question. You could have asked me this a year ago, and it would have been the same. I would ask them, what should I be focusing on in my position? The operators have a completely different perspective than I do in my chair. If I want to be a good partner to them and if I want to anticipate what their needs are, I need to hear them tell me what I should be focused on.

[00:44:18] Tim: Any guesses as to the most common answer you would hear from them?

[00:44:22] Eric: Sure, right now they need a lot of help. One of the lessons that I’ve learned from this pandemic is that the skill of empathy is something that is in short supply, and I’ll give you an example. I’ve told you that in my entire career in senior housing I’ve never seen occupancy as low as it is now. I’ve never seen so many operators being so distressed. That leads to some very difficult, awkward conversations. How do you react to somebody who’s telling you that a company they’ve built up from nothing and that’s taken them 20 years to create is struggling and they’re worried it may not survive?

That person is going through some serious mental anguish. It’s often met with silence, which I don’t think is the right response. I think you need to be empathetic and by that, I mean you acknowledge the struggle they’re having, you be curious about it to see if there’s anything you could do to help and you just get it out in the open. You let them talk about it. It’s not an emotion, it’s more of a listening and conversational skill or exercise. It wasn’t something I was good at before the pandemic, but it’s something that I’ve had to learn and be good at to have these conversations and be a good capital partner.

[00:46:20] Tim: Do you think operators’ relationship with the REITs will have permanently changed after Covid?

[00:46:27] Eric: Some of them, yes. Was it Warren Buffet who said we don’t know who’s not wearing shorts until the tide goes out? There have been some difficult conversations. There have been some instances where people did not behave the way you think they should behave and all of that is noted and remembered. That goes on both sides. I’m sure that there are capital partners who haven’t been as flexible or as helpful as they could have been.

This pandemic, there’s no rule book for it. There’s no lesson. I ordered two books on the 1918 pandemic and read them just to see if there was anything that was similar. Other than a lot of people getting sick and dying and a lot of people not understanding what was going on because of various belief systems they had, there were really no lessons from the previous pandemic that applied here. The technology we have, the science we have, the communications abilities, and the transportation abilities that we have with so many people owning their own cars, everything is different, it’s a different situation, a different rule book.

[00:48:00] Tim: That makes sense. I think I’m going to try my luck on this question. I think it’s one you and some of the other REIT CEOs have been cagey about answering, but when do you think senior housing occupancy will return to pre-pandemic levels?

[00:48:19] Eric: Let me ask my potted plant here. What do you think? He says 18 to 36 months … That’s based on now being the bottom, if now is the bottom and we’re heading back up, that’s based on looking at the last recession and making some assumptions about demographics, which are better now. The recovery from the last recession took nine quarters. That’s two and a quarter years, so maybe we do better. Maybe we do a little better.

[00:49:14] Tim: An open question that was on people’s minds was about how quickly occupancy would bounce back and the extent to which demand might just be depressed because people are afraid of senior living. Are you pretty confident based on what you’re seeing in terms of the sales and marketing leads and the CCRC move-ins, that the demand hasn’t really taken too much of a hit?

[00:49:41] Eric: People have short memories, and I think the industry has learned some valuable lessons about hygiene. We had good virus protocols before, dealing with the flu. A lot of buildings were already good at managing the flu. This is worse than the flu, obviously. Not being able to visit was devastating to a lot of people and to a lot of buildings.

I think if you can convince the public that we’ve learned some valuable lessons, that there are some workarounds, like exterior visitation bubbles, and things like that, that we can get over that stigma that frankly was painful to watch, to be on the front page of the New York Times, the Wall Street Journal, the local papers, constantly, about senior housing being impacted by the pandemic, that was hard to watch.

[00:50:58] Tim: I’m curious about other types of senior living — active adult, or this middle-market product that’s being developed that is “independent living light,” — are you thinking about these types of products that are being created? Are you interested in investing in some of these areas?

[00:51:29] Eric: I love the idea of a middle-market product. I’ve talked about this before. I think it’s something that is in great demand and that is long overdue. Another word for it would be affordable senior housing. What does that look like? It’s in locations where land is less expensive. It is new construction that has less bells and whistles. It is services that are a la carte. It is a product that is ingrained with social services. Maybe there’s a caseworker that visits the building and helps with transportation or medical.

Finally, it’s something that has a greater sense of community where residents can help each other more. What does that look like? I know one building does communal meals every Friday. The building doesn’t provide meals that day, and all the residents take over the kitchen and cook together. There’s still a lot of work to be done on the middle market. I think, as a reach, we can play a role in that, whether it’s in financing it, whether it’s in illuminating best practices, what’s working in our portfolio, or frankly, if it’s a nonprofit, then REITs have a budget for charitable contributions. Let’s make a contribution. We have to do something.

[00:53:17] Tim: Even on the real estate side, are there things you can do? One of the strategies we’ve seen is partnerships between some of these independent living type communities and the local health system or hospital. Can you bring them together to create some of those systems and networks?

[00:53:48] Eric: I can tell you that NHI’s ability to bring in other healthcare providers is limited. We stick to our skilled nursing/senior housing formula. You’re absolutely right. There are other REITs that have hospitals, that have doctor groups that are in medical office buildings that they own. There’s got to be a way to get that cross-border cooperation that you’re describing. I would certainly be open to it if say a medical office building, or owned a medical office building across the street from one of our buildings and said, “Hey, we have a gerontology clinic, would you be open to our clinic holding an open house or coming into your building?” I’d be thrilled. That’s a great idea.

[00:54:58] Tim: What’s keeping you up at night right now from a business perspective?

[00:55:03] Eric: Government mandates are keeping me up at night. This is a funny time. You remember a couple of years ago, there were floods in Florida and the governor there mandated that all senior housing buildings needed a backup generator to run air conditioning and whatnot, which is a great idea, except I think his mandate was that you had to have it within six months. You couldn’t get a generator if you called up the Generac people or Cummings or Kohler, any of the people who made generators, it was very hard to get one within six months.

I worry about a mandate like that coming out of the pandemic, whether it’s required PPP, whether it’s required staffing, whether it’s required protocols, something coming out, that’s a knee jerk reaction, that we’ll have to deal with that either doesn’t make sense, isn’t equitable or didn’t have any input from the industry. I can’t help noticing that this trillion-dollar relief package completely omitted senior housing.

We’re often an afterthought, and we work hard with the Argentums of the world to try and let people know that we’re here and we need some help from the government, but I worry and stay up at night that that isn’t enough. They’ll come for us in a way that we’re not prepared for.

[00:57:02] Tim: There has been some Relief Fund money coming into the assisted living sector, and now there is more attention on assisted living and more likelihood of regulation. Do you think it’s becoming less of an afterthought, this part of the industry?

[00:57:28] Eric: That’s part of my keeping-up-at-night worries. I agree with the question that that could happen. Typically you need a framework like Medicare as a framework and they tie payment to outcome and payment to a regulation that has been promulgated and commented on. Other than some Medicaid subsidies in a few States, we don’t have a lot of governmental framework in assisted living. I’m optimistic that we won’t see that right away and as long as we can stay primarily private pay. I’m less concerned about that.

[00:58:19] Tim: What are your thoughts on skilled nursing and the state of the market right now?

[00:58:37] Eric: Skilled nursing has been the bright spot in this pandemic. I know some of the buildings have had some difficulties with Covid, but for the most part, they’ve gotten great support from CMS and other payor sources to help with pandemic expenses. I know that Ensign, one of our larger skilled nursing operators, actually flourished during the pandemic by treating Covid patients and willingly accepting them.

I know that was controversial and some governors got in trouble for that, but they’ve been able to work with it and manage through it. My overarching thought on skilled nursing is before the pandemic, people were worried about what they called stroke-of-the-pen risk. By that, I mean some CMS or other payor program unilaterally cutting payment terms. Now you’ve had the opposite of that. You’ve had unilateral assistance from the government in a positive way, so the reactions from the market could be skilled nursing becomes more valuable that cap rates go down because it is less of a perceived risk.

[01:00:14] Tim: Great. Thanks. All right. I’ll just leave you with the last word, if you want to take it, in terms of anything we haven’t talked about that you want to share, or just last words of last– final message to attendees.

[01:00:30] Eric: Well, this past year has been tough for the whole industry. We all recognize that. We’ve seen lots of good examples of humanity. I think that once we come out of this, we’ll be a stronger industry, we’ll be a better industry, and we’ll have learned from it. I’m very optimistic for 2021 and beyond.

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