Changemakers: Adam Kaplan, Founder & CEO, Solera Senior Living

Adam Kaplan has a keen sense of the history of senior living, having grown up in the industry. As Founder and CEO of Solera Senior Living, he is drawing inspiration from the entrepreneurs who created the sector while also pushing hard to move senior living forward.

Since starting Denver-based Solera in 2016, Kaplan has pursued a focused strategy to take on complex, luxury projects with innovative developers. He has taken a different approach to gaining scale than many other operators, in an effort to create a platform that can run efficiently while being more geographically dispersed.

While striving to elevate what a senior living community can offer, Kaplan is also a changemaker who is trying to address pain points that are common in the industry, from misalignment between operators and capital partners to recruiting and retaining top talent from hospitality and other sectors.

Through the Changemakers series, Kaplan discusses the journey he has been on with Solera and where the company is headed next, and shares his insights from years of working in and analyzing the industry, including on the finance side with Merrill Lynch and as a leader with one of the largest U.S. operators, Senior Lifestyle.

As you think back on your career in senior living, what changes have you driven that you’re especially proud of?

Adam Kaplan: Many of the changemakers [in this series] are the pioneers who paved the way for people like myself. I don’t see myself as a changemaker, I see myself as somebody who has been fortunate enough to build on a foundation that was put in place by the incredible senior living entrepreneurs who came before me.

That said, the industry today is still led by many of those pioneers. While we’ve attracted a lot of talent to the industry, I think we’ve done a pretty poor job of attracting talent into operations as the industry matures. Many entrepreneurs have come into the industry through startups in technology, services and media, but the same cannot be said for operating companies.

When I left Senior Lifestyle, I decided it was time for me to spread my wings and start my own business. I knew that there was a path for me to build an operating company because there were so few people in a position to do that. That’s partially because you need so much capital to do this successfully.

Not only do you have to be skilled at running a property, but you also have to be very savvy with evaluating deals and capitalizing transactions. To get a deal capitalized, you need the institutional background and track record. It’s very challenging to do that.

What was your vision for Solera when you started the company?

There were a couple of cornerstones in our strategy.

One was to focus on urban infill locations or first-ring suburbs and build a product where people aspired to live. I was tired of hearing a lot of the old-timers and pioneers say, “No one moves into senior living unless they have to.” That was only true when the product was stale.

If you look at the make-up and architecture of our portfolio, you’ll see that we don’t own or operate anything built prior to 2012. It’s tempting to go and buy older, vintage assets at a heavy discount, but we’ve remained very disciplined and very focused on who we are. That is the next generation of senior living.

What has been important to me is really coming up with a brand strategy, to be a hospitality provider within senior living. We’re focused on that higher-end luxury segment.

Whereas historically, a lot of operators have said, “OK, we’re going to have a geographic strategy. We’re going to go in and build five properties in Denver. We’re going to build five properties in Chicago, et cetera,” my strategy was, “Let’s either develop, or let’s acquire, or let’s manage properties that are newer built and more focused on customer service. Let’s do that regardless of location.”

That was a big change and even today, people are constantly questioning me on that strategy. They’re saying, “Well, how are you going to do that successfully? You need to be able to get in a car and drive to your buildings.” What I’ve been saying to people is, “No, we need to build core competencies.”

We launched this company with a development focus. In the next nine months, we will open three more buildings, in Evanston, Illinois; Kensington, Maryland; and Austin, Texas. It’s about picking great locations with great demographics. 

Then, instead of looking for your traditional stick-built, seven-acre site with surface parking, we went after stuff that was really complex. We went after projects where the traditional senior living developer would say, “No, you can’t make it work. You cannot get those deals to pencil. You can’t compete with multifamily.”

We pursued those sites knowing they would be more complicated, but we also knew we wouldn’t have to compete against other senior living developers. We built much more contemporary buildings that the 55- to 70-year-old cohort adult influencer would want to live in themselves.

That’s what we’re seeing in Denver, and that’s why leasing has surpassed our projections, even through COVID.

Building the right design is important, but it’s only one piece of the equation. The resident experience itself is equally important, and we’ve created something unique with dining venues, open kitchens and a lot of natural light complemented by indoor-outdoor spaces. Fitness studios, massage rooms and spacious apartments with in-unit washer/dryers —  a lot of thought has gone into, “How do we elevate our designs?”

Our finishes are much more contemporary, in line with what you would expect if you were to walk into a Four Seasons, or a Montage, or a country club that was just renovated.

But you also have to integrate that with your operations. That’s something that not a lot of people do well in this industry, because the different stakeholders are often siloed. We’re able to align the operational program with the design, and that’s where the magic happens.

Hire a strong management team, which filters down to the frontline staff, in tandem with investing in technology in the right spots —that’s how you increase engagement and improve health care outcomes.

Can you talk a little bit about how you develop those core competencies to successfully manage a portfolio that’s more geographically dispersed?

If you have a geographic strategy, you have to be more opportunistic. You say, “OK, let’s go do a couple of deals in a tertiary market.” In a tertiary market, you’re going to have a lower price point because you can’t capture the same rent. “Now let’s go do assisted living and memory care, or let’s do independent living only. Let’s go do a high-end deal in the city.” What does that sound like? It sounds like a hodgepodge of stuff. It’s really hard to hire people who are good at all of that.

They’re probably either going to be passionate about a certain segment, or they’re just going to end up migrating towards the mean. Regardless of the strategy, it will be hard to maintain different standards for each location.

Instead, we have two different brand strategies, for the most part. Our growth strategy to date has been development, which encompasses a high-end hospitality-driven product.

We also acquire, own and operate. The properties we’ve acquired and the properties we manage are newer properties in good secondary markets. The expectations are different for those properties than they are for the properties we’re developing. It’s a lot easier for our operations team to support those communities because they know exactly what the expectations are.

We have our “developed asset” portfolio, and we have our “classic collection.” We can define the standards and the expectations of the development portfolio assets. In the classic collection, we don’t have to migrate towards the mean, and we don’t have to be good at everything. We can be very disciplined and focused on what we’re good at, and go and execute on it. To pull this off, you need strong leadership teams.

You can’t do what we’re trying to do if you have to micro-manage an average executive director, an average sales director, and an average health and wellness director. Obviously, [in that case] you need to be within driving distance, and you need to be touching those buildings multiple times a week. 

We’re seeing more of that personal touch and connectivity post-COVID, and we’re still touching those buildings routinely, because they are only a short drive from the airport. We don’t have anything that’s more than a 30-minute drive from an airport. Today, we have five operating communities, and three properties in pre-leasing that will open in the next eight months. We have elected to focus on bigger communities between 100 and 175 units.

That’s very different from other operators that operate properties with 40 or 50 units.  They’re a lot smaller, so it becomes more inefficient from a management perspective. Architecting the portfolio is really important, and if you ask around about the best operators in the industry today, I think people would point to the operators that have thoughtfully architected their portfolios. I do believe there’s a common thread. Those are the operators I put on a pedestal.

Can you talk about a time when you tried to execute a change and things didn’t go according to plan? How did you pivot, and what did you learn as a leader?

When I started the company, I knew I would be taking calculated risks.

One of the things we did to grow the company was selective third-party management for groups that had one property. We decided that going forward, we want to focus on properties that we own and operate, or selectively managing for more institutional investors who understand the space.

If somebody has one investment in senior living that’s not going well and they’re calling on an operator to help turn around performance, it gets much more complicated. Not only are you focused on turning things around, but you’re also educating them on the industry. That’s a massive investment, and it decreases the efficiency of your operations.

I knew picking the right partners was going to be crucial, and we’ve been really thoughtful about who we work with. We’ve also been very lucky for the most part, in terms of picking great development partners and great equity partners.

We have seven development deals with six different development partners, and that’s inefficient because each company we’re working with has to learn the space. Then on the equity side, it’s been a similar strategy. We’ve been fortunate to have several deals with some of the most sophisticated, most experienced investors in senior living, but we’ve also worked with some family offices. Some of it worked out really well, but for us to be successful going forward, we have to be more efficient.

If we work with a one-off investor as a third-party manager, it creates misalignment, and that is one of the biggest issues in senior living — the misalignment between equity and operations. You have to thoughtfully architect your portfolio.

I have twice brought on someone that was successful with me in another company, but I didn’t do a great job of assessing why they were successful in my past life, or how that would translate to our organization. We are a growth company, there’s no denying that. We don’t have all the systems and processes in place that the large operators have.

Have you exited third-party management contracts because of the potential inefficiencies around working with so many different investors, or is this something you’ll do going forward?

We are in the process of exiting one of our third-party management relationships. We are also actively working on becoming more efficient to streamline our development partners and our equity partners.

As a start-up operator, did you have to take on those one-off management contracts because the more established operators already had the market concerned in terms of working with more institutional owners?

In the early days, I was having conversations with development companies or equity investors, and what I picked up on quickly was, “Hey, we have these [operator] relationships. We work with them in these markets.” I saw a similar story on the debt side, too. “Once you get a few deals done, and you start building out your track record, then talk to us, and we’d be very interested.” 

What they were looking for was, established your track record. Instead of trying to convince those groups otherwise, I was looking for groups that had a culture where they would embrace innovation and had a history of investing with entrepreneurs, where they looked at the space and they said, “Boy, we really value senior living. We ought to be in senior living, but we need the right partner. We can’t work with a big operating platform, because the senior leadership, the decision-makers aren’t going to be engaged in our deal.” Where I could look them in the eye and say, “You will have my personal cell. You can text me, you can call me, anytime you want. This is going to be the most important deal to me,” and I could follow through on that. 

I’d look at some of the development companies like McCaffery Interests, who you guys have interviewed, or HPI Partners, or Alterra Property Group. These are best-in-class developers in their respective markets. They have innovated within the real estate asset classes which they have focused on previous to seniors. They’ve brought that same level of innovation into senior living. It’s more inefficient for me, but at the same time, it’s also pushed me to be better, because I’m extracting from each partner what has made them so successful over their 20-plus year track records.

Now, we’re just at a point where we’ve matured, where we need to be more efficient, but it was extremely valuable as well as as a win-win. It was beneficial for them, because they had unrestricted access to me and my team. Then we had the benefit of working with these best-in-market partners. Again, now we have to mature and we have to evolve and so we have to think about, how do we become more efficient in our model?

I’ve also heard from other industry stakeholders that there’s a lack of quality operators. Do you agree?

Yes. It’s a massive issue. Most [investors] are dissatisfied with the pool of operators.

All that matters to me personally is how I’m building Solera into the best platform. What we’re doing is unique because we’re focused on attracting the best talent and developing that talent at Solera. Most operators are managing to a 30-day cycle, and it’s the investors’ fault, to a degree. Whether it’s a relationship with a REIT or a relationship with an opportunistic investor, the investors want high performance now.

If you’re focused on development as opposed to third-party management or acquisitions, it opens up a culture of innovation. You cannot do the same thing that has been done for the last 30 years in this industry, and that’s why I’m passionate about development.

During COVID, I said, “We are going to hire people from hospitality.” We did an amazing job following through with that. We have a sales director from the hospitality industry, a number of executive chefs and sous chefs, a business office manager, and an executive director, all from the hospitality industry.

We have hired four people out of Denver University’s hospitality management program. One of them moved right into a business office manager role, and she’s also an executive director in training. Another one was hired as a housekeeping supervisor and he recently started assisting with business office management and recruiting. He was just offered an opportunity to move to Austin where he will take a business office manager role and become an executive director in training.

There are so many great examples where we brought people in from hospitality to help with all the new buildings we’re opening. We’re looking at a balanced attack of industry veterans and skilled outsiders, and a balanced attack is critical. That means we still have the benefit of all the things we do well in senior living while making sure those new considerations have a real seat at the table.

We also have people who are going to challenge the status quo by bringing best practices from other industries to senior living, which we need. Developing talent internally is equally as important, and we have to do that through a proactive talent management strategy. Whether it’s done through a health care management program or a hospitality management program, recruiting people, putting them in the right positions and investing in their success is critical. That is very tough to do in an industry where we tend to run lean and have a lot going on in the day to day. We have to invest in their success, otherwise they will flounder, they will leave, they’ll be disengaged and we’re right back where we started.

How do we build great operating companies? In my opinion, we do that by attracting great talent, investing in their growth and creating great cultures. That is something a lot of companies say they do, but it is something that very few companies do well. If we do that, not only will we perform in the short term and mid-term, but we will develop the next generation of leaders as well. Hospitality does a great job of this and we don’t, so we have to look at what they’re doing right and try to replicate it.

You will find tons of naysayers in the industry who don’t think this is achievable, but it’s becoming more realistic and people are taking it seriously. We have a lot to be proud of in senior living, but we need to be on the offense to get the right people to join us. We need to invest in them so that they don’t boomerang back into hospitality, and I have a lot of conviction in this strategy.

That to me is the solution, and you need good equity partners who see value in that. It has to be a partnership between the operator and the capital so that you can build a culture that focuses on how to position yourself for success in the future. Putting the right talent in a high-performing culture is the key.

Changemakers tend to be risk-takers. Do you agree with that statement? How do you describe your own appetite for risk?

If you’re going to innovate and bring forth change, you have to be courageous, self-confident and you have to have an appetite for risk. If you don’t, you’re going to go work a corporate job and take a paycheck. If you want to do something different, there are going to be doubters. There’s going to be a lot standing in your way and a high potential for failure.

I started my career on the finance side of the business at Merrill Lynch, so innately, I’m more conservative than a traditional entrepreneur.I think that shines through in the way that we think about our growth strategy. We’re not just trying to scale, we’re trying to be the best. I don’t get caught up at conferences when somebody asks me, “How many properties do you have? How many units do you have? How many employees do you have?”

My focus is on being the best with every single property we’re involved with. I understand there’s a significant amount of risk in what we’re doing, but as you build a foundation with multiple revenue streams, it gets de-risked. Every time we do a development deal or an acquisition, there is risk. The same can be said for when we decide, “Okay, we’re going to do something different than what’s established. We’re going to invest in a new technology. We’re going to invest in a new partnership. We’re going to make a design decision that’s different than what has been done in the market. As a result, we’re going to have to yield higher rates of return.”

We’re going to do something different from a staffing perspective because the staffing climate is so challenging. That’s what it’s going to take to attract and retain the right people. There’s a lot of risk involved in that.

I think a lot about how to minimize the downside of any risk we take, but I think we’re very good stewards of our capital, and only take risks that are appropriate.

As someone who is drawn toward innovation and change, how do you maintain focus and keep faith in your vision for Solera, when there is a lot of noise about other new opportunities like middle-market senior living or Medicare Advantage?

I try to stay aware of what’s going on in the industry.

I’m certainly aware that there’s a lot of people thinking about the middle market. I’m aware that there’s a shift away from urban settings. I’m aware that there are a lot of people looking at this as a health care industry and wanting to invest more resources into health care partnerships and health care competencies. It’s important to be a good listener and understand why these trends have surfaced. 

That said, I never want to get caught up in what’s trending. I’ve been around this business for 38 years. I have developed my philosophies and they continue to evolve.

We certainly pivot as needed based on what’s working in the market, and we’re seeing a lot of success with our development deal that opened November 20th, 2020, as well as pre-leasing on our new developments. I have a lot of conviction in the course we’re on, and if we continue this course, we will be successful.

I just want to conclude with the fact that health care is important. We want to partner with providers who are experts in health care. We want to identify those providers and align with them. We want to coordinate care with those providers and put systems in place to consistently deliver high-quality care to our residents, and provide peace of mind to our families.

All that said, assisted living and memory care have very different profiles of residents. In assisted living, it is about the experience, the relationships with team members and other residents, the programs, and the food. In memory care, it’s about the quality of services and the level of engagement. 

I have never been told that someone had a great experience at one of our communities because we did such a good job of delivering their meds. I never heard anyone say how much they appreciated that our staff got them dressed every morning. These are basic expectations. 

What people care about is our ability to make the years they have left as fulfilling, rewarding and engaging as possible. And how do we do that? We hire compassionate people who align with our values and deliver great customer service.

We equip them with the right resources to give our residents an incredible experience. I’ll acknowledge that I view the industry through a different lens. I think I’m pretty connected to our properties, our operations and our position in the health care system. We are a hospitality company. That’s what we are at Solera, that’s our job, and if we execute on that, we will have very happy residents.

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