After ‘Horrible Experiences’ with Some Banks, Sunshine Retirement CEO Bullish on Expanded Portfolio

Sunshine Retirement Living has been one of the fastest growing U.S. senior living providers in recent years, expanding a middle-market model with roots that trace back to Holiday Retirement.

A good portion of that growth came during Covid-19, and the effort was “extremely difficult” in many regards, including with certain banking relationships, Sunshine CEO Luis Serrano said during a recent SHN+ TALKS experience.

He called out one bank in particular that did not grant forbearance on a construction loan, reduced the loan term, and tried to impose other requirements. Ultimately, the loan ended up in technical default and Sunshine paid it off.


The positive news is that occupancy is on the rise, Sunshine recently introduced a new wellness-focused memory care program, new communities are leasing up well, and Serrano is bullish on every segment of the senior living continuum, from senior apartments through memory care.

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

  • How Sunshine’s operational and development models support more affordable rates
  • Sunshine’s workforce initiatives to strengthen recruitment and retention
  • Serrano’s background with companies such as Boingo, and where he sees opportunities for the senior living industry to improve
  • Why Sunshine has a Chief Happiness Officer and the benefits of the role

Bend, Oregon-based Sunshine operates a portfolio of 42 communities across 18 states.

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The following has been edited for clarity.

[00:02:09] Tim: Can you start us out by briefly sharing the history of Sunshine? There are ties to Holiday Retirement?

[00:02:23] Luis: Yes, that’s correct. My late wife was on the board of Holiday Retirement, and the family was involved with Bill Colson and his partners. When the company was sold in 2007, we started thinking about starting our own management company to manage some of the assets that we did not sell in that transaction.

Around 2009, Sunshine Retirement Living was born, a joint effort between my late wife and I. Now, for the last seven years, I’ve been managing the company by myself basically.

[00:03:03] Tim: Sunshine serves the middle market largely, correct, which has become a goal for a lot of providers recently. What are Sunshine’s average rental rates?

[00:03:16] Luis: That is correct. That was always the focus of Sunshine, of the assets, the communities that we operate, or even the new developments that we are creating, [which] also are targeting that middle-market.

The prices that we offer our residents in IL, independent living, range from $2,000 to $5,000 all-inclusive depending on the location, depending on the type of unit. In AL/memory care, they range from $3,900 to $7,500 all-inclusive, including levels of care, et cetera.

[00:03:51] Tim: Can you share some of the key ways that Sunshine operates to support buildings at those price points?

[00:04:11] Luis: That is always the fun part. Mainly, we focus on the core aspects of care and not on the fringe benefits or ultra-luxury components. We focus on what we believe is important to the residents. We create a happy home for the resident with quality care and services, and that’s it.

Our customers don’t really care about the golf course, the stocked wine cellar, Swedish spa, or French cuisine. They want consistently good food, caring, loving staff, and clean buildings and clean units. We focus on the essentials, and that’s how we can keep the prices more affordable for the middle class.

[00:04:52] Tim: This is a question from an audience member. Are there care charges in addition to those [rate] numbers that you just shared?

[00:05:02] Luis: We have different models but the range that I gave you for assisted living memory care are all-inclusive.

[00:05:09] Tim: That’s rent plus care could come in around $4,000/$5,000 a month?

[00:05:13] Luis: That’s correct. We also have a model where we charge a basic rent for the unit, then we have different levels of care, depending on the needs of the resident. Obviously, those prices start lower, and they increase as the need increases as well, but the ones I gave you are all-inclusive.

[00:05:31] Tim: I’m sure we’ll have more questions about how the communities operate.

I think what’s maybe been the most dramatic news to come out of Sunshine recently is the growth of the portfolio, so I want to turn to that.

I know the numbers aren’t entirely up to date, but just to give people an idea of the scale, Sunshine rose from number 67 to number 40 on the Argentum largest providers list. between the last two editions of that. Can you talk about how you’ve accomplished that growth? Has it been mainly through development or acquisition? One deal? Several deals? How’ve you grown?

[00:06:18] Luis: Yes. We actually operate now closer to 4,100 units and 42 communities. I believe we would be ranking right now around 36, 37 in that ranking. We just took over seven communities in the first half of 2021.

Most of the growth, there’s two components. On the one hand, we had a partnership with another company to grow the memory care side of the business. That partnership ended when we took over all the management of those communities.

We also have a development and construction side of the business. We’re vertically integrated. We developed four buildings over the last three years. It’s been basically a combination of joint ventures with other developers and our own development as well.

[00:07:17] Tim: Can you talk about the joint venture on the memory care side a little bit? You were in a joint venture in standalone memory care buildings?

[00:07:23] Luis: Yes. That is correct. We partnered with a very well-known family in the space, Jerry and Cody Erwin. We had a great partnership with them and it worked really well for many, many years, almost a decade. Ultimately, we parted ways. Each of us went in a different direction. Now, we operate and control all the assets out of that partnership.

[00:07:49] Tim: How big is that standalone memory care portion of the portfolio?

[00:07:53] Luis: I believe we developed around 40 buildings, 40 communities, of which we sold some, our partners kept some, and we kept the bulk of it.

[00:08:06] Tim: Got it. A lot of this growth was happening in the midst of COVID-19. I’m curious what it was like to be in an expansion mode in the midst of the pandemic.

[00:08:17] Luis: Well, not great, frankly. It has been really, really rough on many levels, operationally, emotionally, dealing with regulations. It has been extremely difficult. I’m happy that we’re past the worst, in my opinion, although with the delta variant, it seems like there’s some concerns moving forward as well.

[00:08:43] Tim: Then how about future growth plans? Are you still in growth mode or are you going to hit pause for a little bit? What’s the near-term horizon look like?

[00:08:54] Luis: We are keeping our eyes open for opportunities. Right now, all the plans that we have for growth are new developments. Acquisitions, they’re on hold. Not necessarily out of concern for the future outlook of the industry, which is not our issue. The issue really is, I want to take care of my team.

My team is, I don’t want to say burnt out, but they’ve gone through a lot. The last thing I want to do right now is to throw them more work. I just feel that, right now, we’ve got to give my team a breather, let them get comfortable with the situation, and not throw more developments, more openings at them. As a leader, as a CEO of the company, I think part of my job is to make sure my team can withstand the situation and I think it’s time to give them a break, frankly.

[00:09:50] Tim: As you’ve been growing, have there been particular types of markets that you’ve been targeting for new development, whether there are specific cities and states that you can name check, or characteristics of markets that meet your model?

[00:10:05] Luis: Yes, historically, we have focused on tier-two cities. The reason for that is, land is also cheaper, and we can deploy the model that we have for both memory care and IL. Big cities like tier-one markets, which I know a lot of the banks and the venture capital, private equity firms love, it’s hard for us to deploy in those markets because, in my opinion, it’s not the model for us. You have more of a higher, upper class in those markets and there’s also more lower [income consumers], from a socio-demographic [perspective]. We don’t fit well.

We go to middle America. We go to tier-two cities that have a wider range of middle class [consumers]. Those are the type of markets that we focus on.

[00:11:04] Tim: We got a comment from an attendee that the numbers on the rates seem a little high for middle market. I know that they are, I think, under the average rates, but are you thinking about ways to bring them down even more. For instance, Medicare Advantage plans that could subsidize in cost of care, things like that?

[00:11:27] Luis: When you ask me for a range, I give you the extremes, right?

[00:11:31] Tim: Fair.

[00:11:32] Luis: $7,500, we’re talking about, probably our most expensive building in New York, which is an expensive market, and the resident that has all the levels of care. That is the most extreme of our pricing for memory care. The average price for our residents in memory care is probably around $4,500 a month, which is for rent, food, housekeeping, incontinence care, sometimes we have to hand-feed the residents because they cannot do themselves, activities, et cetera, transportation. I think it’s a very, very aggressive and competitive price.

[00:12:14] Tim: Yes, $4,500 memory care I think is way lower than the average. I think, especially on those higher levels of care, staffing costs have been the biggest driver of expenses, and the hardest thing to solve in order to charge those sort of middle or middle-market price points. I’m imagining in this tough labor market, that’s even more the case as wage levels are rising.

Can you talk about that labor component a little bit? How you hire, what kind of wage rates do you pay, and is that becoming harder given the current situation?

[00:12:51] Luis: … Well, you are correct. Staffing right now is the single biggest concern for Sunshine, and I believe for the industry in general. Occupancy actually is progressing very positively ever since the older community got vaccinated between January and the beginning of March. We haven’t had any issues with occupancy. The occupancy keeps steadily growing month after month, which is very positive. It just reflects, in my opinion, that there’s a big need in the community, in the country, for our services. Staffing is definitely the biggest issue right now for our business.

[00:13:50] Tim: Got it. I want to talk a little bit about capital markets. I know this is an issue that has been top of mind for you. Can you talk about how the relationships have been with capital partners through the pandemic and availability of capital as you grow?

[00:14:14] Luis: Yes. Interesting question.

We are an owner-operator. We’re a family-owned business, so we don’t have third-party equity … From that point of view, it’s easy, right? It’s just family funds.

On the debt side of the business, the capital markets are still open. It’s just a little bit harder to navigate. We have strong relationships with most of our lenders. We actually closed a large four-community package refinance in the middle of 2020, right in the middle of COVID, and the key is to have great lenders that become your partners. You’ve got to develop this mutual trust.

I have mentioned, for example, the relationship we have with Synovus or CIT as great partners for us. Another bank that has been fantastic to work with, for example, is Bank of New England. They proactively, without us even asking, offered us six months interest deferment and one-year COVID waivers. They trusted us. is doing well. We opened literally in the middle of COVID and so it was very scary for us and for them, but thanks to the relationship we’re now basically covering this service. We’re making money and everybody’s happy.

On the other side of the coin, we had some horrible experiences with some banks.

I’m going to give an example, Fifth Third Bank. We had a construction loan with them on a memory care community in Wisconsin that we opened in December of 2019, right before COVID started. We’ve reached occupancy of 63% in 18 months, which is really good for a memory care community in COVID times. We were breaking even already financially, so we were very happy with the performance of the community despite the strong headwinds.

Keep in mind, through COVID, there were a lot of regulations that prevented in-person visits. We couldn’t transfer people from other communities. We couldn’t transfer residents from hospitals to the community. There were strict quarantines, et cetera. Anyway, we reached out to Fifth Third Bank multiple times over a month requesting some … forbearance, but no response. Ultimately, what the bank did was, they attempted to increase — not only they didn’t give us forbearance, they attempted to increase the interest rate. They’re trying to put a floor on the interest rate. They reduced the loan term by two years. They tried to increase the guarantor liquidity levels, et cetera.

Ultimately, the bank called a technical default on the loan and we were forced to gather our funds and pay off the loan in three weeks, not time to refinance, nothing.

I guess my point is, the banking relationships are critical in a business like ours, and having good relationships is a difference between a successful business or not.

My message to other operators, of course, is: you’ve got to make sure that you understand who you’re getting in bed with when you sign a loan, because you need them as a partner, and if they’re not a good partner, it’s going to be a bad situation.

[00:17:41] Tim: Yes. Thanks for sharing that. I think that’s a great anecdote. I’ve heard about people generally talking about both the good relationships and bad relationships. I think it’s really helpful to hear specifically what can happen when things go south. That’s helpful to hear I think for everybody, and that’s crazy you had to pay off a loan in three weeks like that.

Generally, I think you mentioned the performance in that [memory care] community was pretty good, all things considered with the headwinds. Looking across the whole portfolio, how is occupancy starting to recover? Are leads coming back? Are you seeing any setbacks now that Delta is starting to surge?

[00:18:27] Luis: Like I said, occupancy has been growing since March steadily. We had a fantastic June. July was a little slower overall, but still positive.

I don’t know what the future is going to bring. I’m not too concerned about delta from a clinical perspective, in the sense that we see the numbers on the graphs of cases through the roof, but in our communities, we get one case, two cases. Most of our residents are vaccinated. I would say 95% of our residents are vaccinated, and so the incidence of delta in the community is very, very limited. It’s not really affecting the community.

What I’m more worried about is government regulations. I’m concerned about the health authorities of the government, state and federal, imposing new regulations on us that could really crush the business. For example, preventing us from getting residents from hospitals or preventing us from showing the units to prospective residents. Those are my concerns, not really the clinical aspect, which hasn’t had an impact so far.

[00:19:41] Tim: Are there any particular states that you’re more worried about than others in terms of having a clampdown?

[00:19:48] Luis: Yes, but I don’t think I’m comfortable disclosing them.

[00:19:56] Tim: Got it. All right. I want to talk a little bit about some of the specific programs that Sunshine has that I think are pretty interesting. One of them is the Sunshine Travel program. Can you just describe what that is, how long it’s been around, how many residents take advantage of it?

[00:20:17] Luis: This is something that we took from the original Holiday model, and it’s mainly for independent living residents. It basically is, we have some units in every one of our IL buildings that residents from one can travel and spend months or a couple of weeks in another one of our buildings anywhere in the country. I think it’s a very cool idea.

It frankly made more sense when Holiday had a building in every corner of the country. We only have around 20 IL buildings, so it’s not as exciting, but still, some residents take advantage of it. Not many, but some, and it’s a cool thing to talk about and keep in the back of your mind as you’re moving to one [of our] communities. It’s almost like a club where you go around some of the 18 states and spend some time in each of them.

[00:21:17] Tim: Do you have dedicated units that you set aside for that [program], or is it as availability allows that they can go somewhere?

[00:21:23] Luis: In every community, we have a couple of units that are available for my employees, the regionals, when they go travel, myself when I go into the community, and those are the units that we make available. They’re furnished and we make them available for this program.

[00:21:42] Tim: I know we’ve already talked a little bit about memory care specifically but I know, I think it was back in December, that you announced an expansion of the memory care wellness program. Can you describe what that entailed and why you undertook it?

[00:22:01] Luis: We’re very committed to empowering our residents to live the best days in our memory care communities.

This wellness program, we gather all the things that we were doing in different communities and we created a program [so] that we do it across the board. We created a more systematic approach to the wellness program.

It’s based on collaborative care. The community teams work closely with the residents and their families and provide person centered services that are unique to the needs and the desires of each resident. Obviously, we cannot do this 24/7, all the time, but we try to do it for every resident a large amount of time.

This approach allows us to meet each person where they are in their journey while they’re still with us. For example, one of the things that we’re really big on is the Montessori care philosophy. Maria Montessori stated, “What you do for me, you take from me.” This is especially true for residents that stay in our communities. Most communities that are not part of the Sunshine Group, they become task-oriented. They focus on the things that need to be done for the resident. We try to turn that around as much as we can to focus on the person and let the resident take the lead on what they want to do.

What ends up happening when you have a task-oriented approach is that the resident gets lost. We flipped that and we allow residents to participate in much of the daily routines of the community.

For example, they set tables, they fold linens … We will help, and they like to give back to the communities. A lot of residents were very involved in the community and they miss that. As much as they can we try to help them with that.

I’ll give you an example. One of our communities in Georgia, in Evans, a couple of the residents wanted to say thank you to the first responders. We organized an event for them where they were hosting the first responders at the community. We had the sheriff’s department, we had the fire department and they were opening the door for them, they were serving them coffee. They were writing notes, thank you notes to them, and that sense of fulfillment on personal work, it really helps them have a purpose and makes the feel of the community much better as well. It’s a win-win for everybody.

[00:24:39] Tim: Terrific. We do have a question from the audience. This is about the senior apartments, curious to get more information about what that is, and if you see this as similar or different than the active adult rental model that has become more prevalent in the last couple of years?

[00:25:15] Luis: We don’t have too many of the senior apartments, just pure senior apartments, not independent living. It’s very successful for us.

It really is an independent living community without health services. We provide just basic services, we don’t provide meals. We provide an environment where seniors are in the same area. They’re very active, they’re very dynamic, they’re very independent. We have some common areas that they can enjoy, and we provide some housekeeping, we provide maintenance, but it’s less service-oriented. It’s more just apartments.

[00:25:51] Tim: Is that an area that you see growth in? I ask because we’ve seen a lot of people get into the rental active adult space and see a lot of opportunity there to serve this younger demographic of older adults.

[00:26:06] Luis: I frankly think there’s opportunity in every area. I think this is a great area for growth. I think you’re right, [but] I think independent living, there’s a lot of growth as well, and memory care and assisted living as well. I mean, if you look at the population pyramid over the next five years there’s going to be another — based on my own calculations, I’ve done my own models on this, by 2023/24, there’ll be another million seniors with Alzheimer’s in the country. I believe there’s opportunity in every sector of the senior industry.

[00:26:43] Tim: Another question on that from the audience. Can you talk about the pricing on the senior apartments? Is that comparable to prices that would be in a multifamily building?

[00:26:51] Luis: Yes, they’re pretty comparable, correct.

[00:26:55] Tim: I’m wondering, is it a little higher than multifamily? I think that’s what we’ve typically heard.

[00:27:01] Luis: I don’t think so … I don’t think we charge a premium, it has to do more with the area. Your comps really are not independent living. Your comps are multifamily, if that’s what you’re asking.

[00:27:17] Tim: Yes, I think this is a topic that has been of interest because the act of adult rental product does typically charge a premium and there’s a big question about whether that premium is really worth it, or if I could just go to a multifamily, pay lower rent and bring services in myself.

[00:27:31] Luis: There’s an advantage of being together, seniors being together in one area. There’s socialization advantages, but ultimately seniors and customers are not stupid, right? This is my opinion.

You can’t charge a big premium for services that you’re not providing. If you’re providing other services that they see value in, they’ll want to pay a premium. If you’re not, they won’t. Simple as that.

[00:28:01] Tim: I’m curious about your approach to the continuum of care. I know you’ve done obviously these standalone memory care buildings that we’ve talked about, I know the Holiday model traditionally was standalone independent living. Looking at your portfolio today, do you have buildings that have a mini-continuum or a full continuum? Do you like that?

[00:28:21] Luis: We do. We have three communities that have the continuum of care, and it works really well. I think lenders also really liked that model in the sense that they feel is less risky, right? You have a little bit of a market for everything and one side of the business fits the other.

They’re harder to manage because you now need a different skill set for each of the different areas, but it’s doing well and we’ve been very successful at it. It’s a model that I like as well, yes. It just requires more space, it requires different staffing, et cetera, but it’s a positive model in my opinion.

[00:29:02] Tim: You said there’s three continuum care buildings in the portfolio?

[00:29:07] Luis: Yes.

[00:29:07] Tim: Are all the other buildings standalone? IL standalone, AL standalone, senior apartments, standalone memory care?

[00:29:14] Luis: Yes.

[00:29:15] Tim: Looking ahead now to the rest of 2021 and into 2022, what are you most focused on? Are there any new initiatives that you want to get underway? Or is that more making sure that you’re blocking and tackling, driving occupancy, et cetera?

[00:29:52] Luis: For us, the biggest focus right now is to improve or enhance everything around memory care. We launched the MIND diet in our communities … I think it’s more important in memory care. This is the Mediterranean DASH intervention for neurodegenerative delay … a Mediterranean diet that is good for the heart as well as for the brain. There’s some studies that show that it slows the progression of Alzheimer’s and dementia. We’re trying this across the board in our communities.

We’re also doing more adoption of technology-driven therapies. For example, the virtual reality goggles that we’ve installed in every one of our memory care communities. Our residents can take, we call it bucket list trips around the world. Scuba diving with sharks or [exploring] rain forests, or things like that. It’s fascinating how much they get involved with this, and how much they really like it.

We also have installed sensory spas in every one of our communities. Some seniors get really agitated at times, they don’t understand the world around them, things stop making sense to them, so it’s really disruptive for their — they get a little anxiety.

We have these spas that reduce the stress, reduce the confusion for them. It provides a quieter environment with a focus on pleasant sensory sensations. We provide these weighted blankets that feel like they’re hugging, they’re getting hugged, sensory oils that remind them of their youth, soothing music, et cetera. We’ve seen that this type of treatment reduces the need for medication to reduce anxiety in most cases. This is what we’re focused on right now.

Obviously, staffing is the big issue. We’re launching several initiatives to retain employees and to attract better employees. One of them is providing what we call the Sunshine career path, My Sunshine Path. It’s providing a way for every position in the line staff to get somewhere. You start as a level one, and you can progress in your career and go somewhere … you just need to get educated, you need to get training, you need to hit some milestones and some goals, and you obviously get a better salary as you progress in this path.

I feel like, as an industry, we need to do better to attract employees. I’m also really on my knees praying that the government stops expanding the unemployment benefits, which is basically killing the need for a lot of people that used to work for us to work. It’s really killing us. From here, I don’t know who’s listening, but please stop that ASAP. Thank you.

[00:33:06] Tim: We saw Sienna Senior Living, the Canadian operator, recently start an employee stock ownership plan. I’ve been talking to some other people in the industry who are interested in moving toward more profit sharing or opportunities for certain employees to earn equity in a company or to buy equity in a company. I know Sunshine’s obviously privately held, but have you thought about going down that road at all, profit sharing, or some employee ownership incentive?

[00:33:42] Luis: We do have that. We have a profit-sharing program for executives in the company. We do not have it for line staff, never thought about that from that point of view. I’m not sure if I’m a big fan of that. I think the line staff, they have more acute needs than a long-term provisioning plan. They want money on the table today, not tomorrow, I think. I’m open to considering it if my team says that’s the way to go.

[00:34:19] Tim: I’m curious about your background. You came from telecoms, you spent eight years at Boingo. I think you bring a perspective of someone who had a career in a whole other industry.

I guess I’ve got two questions. One is, as someone who has that outside perspective, do you see things in senior living that you think as an industry could be improved, or done differently, or in a more professional way? Then secondarily, do you have thoughts about what needs to happen to bring more people in from other industries, especially at the leadership level?

[00:35:04] Luis: Good question. To the first one, of course, everything can be improved. I think the industry has done well adopting some technologies like, to keep the residents safer, like sensors, wristbands for falls, things like that. We’re implementing a lot of those in newer buildings, newer communities.

Yes, there’s always room for improvement … The challenge is retrofitting the existing buildings for that technology in some cases, and two is, I think the industry needs to get to a little bit of a healthier place before [providers] start focusing on that, especially at the middle-class, middle tier level. Then your second question was about–?

[00:35:55] Tim: How to attract other leaders from other industries into senior living?

[00:35:59] Luis: Right. Yes, I hear it all the time that senior management for senior living is, they grew through the ranks, they don’t have a lot of like an MBA type experience.

It’s not a very sexy industry, and that’s why I think it doesn’t attract the Harvard MBA types. In my opinion, and based on the experience I have, my best team leaders, my best executives, my best employees are the ones that have a heart. They don’t need an MBA. They need to have a heart, and you can’t really train for that. That’s something that you either have it or you don’t.

I have worked with very, very smart, accomplished people that would never cut it in senior living. They wouldn’t have what it takes to look at and take care of other human beings. I look more at the heart than at the brain when it comes to senior living. I surround myself with people that really care about the seniors and that — they have a motivation, they have a vocation to be in this industry … I think that there’s plenty of professionals that have a heart that work in the industry, and I’m very proud that a lot of them are working for my company.

[00:37:19] Tim: You mentioned it’s not a very sexy industry. Do you think there are ways that it’s becoming sexier or that it can become sexier? I’m thinking about more of the high end I think is where we see it, flashy buildings with high-end amenities, feels very posh, and that does seem sexy to me. That’s a bigger challenge in the middle market. Do you think there are ways to increase the visibility and sexy factor of senior living?

[00:37:54] Luis: Last February, we opened a community in Fountain Valley, California … It looks like a five-star hotel. It’s a gorgeous building … At the end of the day, it’s still senior living and you still are taking care of seniors. Again, to me, the key is to attract people that really want to do that, and the building side is more sexy, the Monopoly type of a job, where you’re just buying buildings or selling buildings or developing, there’s still plenty of very professional highly educated individuals there. I don’t consider that senior living.

To me, senior living is the business of operating the communities, managing employees, and taking care of the seniors.

[00:38:48] Tim: Then you also brought up technology. Obviously, you’ve got the background at Boingo. Can you maybe elaborate a little bit on what you see as promising technologies?

One thing I’ve heard coming out of the pandemic is that the pandemic really drove the adoption of the consumer-facing tech, like engagement [technologies], so residents can digitally connect with their family and friends, but that it didn’t necessarily drive tech investment on the operational side to create things like staffing efficiencies, and that’s really needed.

[00:39:27] Luis: Yes, as a company, I don’t know about other companies, but we are investing heavily in software to improve our processes and procedures and become more efficient on the back end.

I’m not going to name names, but we implemented software that allows us to keep track of the staffing and communicate with the employees in a more efficient manner real-time. They have access to schedules, they can trade shifts. Our executives can look at how well we’re tracking with the budget in terms of number of hours overtime … That we just launched last year, end of last year.

We are implementing a solution for procurement to allow our executives and administrators to really manage the expenses better to the budget, knowing what expenses are coming, accruing the expenses better. They can see in real-time where they are.

A lot of the issues we have in the industry is the executive directors at the community level are a little bit blind during the month as to what the expenses are going to be. At the end of the month, they see the results, great or not great, but there’s nothing they can do at that point. We’re trying to create more visibility into the business for the day-to-day administrators that are working on the business. I feel like there’s a lot of opportunity on that front.

With regards to the experience for seniors, there’s really two big buckets in my opinion. One bucket is safety. How can we keep residents safer? I think that there’s a lot of companies, a lot of startups are focusing on that area. The other bucket is the experience. The fact that you’re 90 years old, your body is frail, there’s not many things you can do, providing some kind of relief for the brain to be happy in terms of virtual reality or sensory spas, or I think the next level, in the future, like I told you, [I] envision that you can connect some electrodes and you can just navigate into a different reality where you can go back to the past, and it helps you maybe bring some memories that you don’t remember are there. I think those are the type of things that I think we’ll see over the next years.

[00:41:39] Tim: Interesting. Can you talk a little bit about health care partnerships or referral streams? I think that’s another thing coming out of the pandemic. I’ve heard that it puts senior living on the radar throughout the health care continuum as more of a health care setting than maybe it was in the past, and it might help drive closer relationships with payers, with health systems. Are you finding that at all? Is that something strategically that you’re interested in?

[00:42:08] Luis: We have tried that and we have partnered with a couple of groups that provide this referral system from hospitals, from rehab centers, et cetera. What I have found is, it works sometimes. It depends on the people involved. I don’t think it works across the board.

I think if you find some partner where you develop a relationship, it’s still a relationship business. Even though the backend systems are integrated and all that, you go through all that work, if you don’t have anybody at the other end really making the effort to make it work, it won’t work.

… This is not my area of expertise, but there are some legal issues, and large hospital groups have a hard time referring anybody to anybody. They just don’t want to assume the liability. There’s some regulations around it that I don’t understand that prevent them from doing that. I think it’s challenging, frankly.

[00:43:09] Tim: I want to talk a little bit more about the middle-market model which we started talking about. One question I had was, you mentioned you have a vertically integrated construction/development arm. I’ve heard from other groups that are targeting the middle market that it is really important because you need to be able to control the construction costs closely and have that control end-to-end in order to create a building where the cost is at the right point and then it operates the right way.

Would you second that? Can you elaborate at all on the benefits in having that vertical integration?

[00:43:47] Luis: 100%. 100%. This comes from the experience we had with Holiday. I was not very involved in that company at all, but I had a very good understanding of what they were doing from my wife. That was so successful because they control the construction, they control the cost, they control the architecture. In my opinion, that was the key to the success. That, and the fact that they were able to provide good heart to their operations.

We have two components of their success. We’ve had this experience personally where we have our own construction company. We developed this building in South Carolina, Maple Brook Terrace in Greenville, fantastic building. We love it. It’s great. It opened last August, so less than a year ago, and it’s already at like 65% occupancy. It’s great. I wish we had done more of those. The construction costs were lower than what we budgeted. We ended up having a couple of million dollars excess in the loan that we can now use for operations if we were to need it.

The other side of the coin is, we have another building where we hired a third-party construction company and we literally were $2 million over budget and there’s nothing you can do. You can end up in a fight where, obviously, it’s an unpleasant situation for everybody involved. I honestly believe that controlling the construction is key to the success of the project.

[00:45:36] Tim: I think this is interesting because your groups and other ones, Clover comes to mind, are trying to serve the middle market at a more affordable price point through new development and tightly controlling that process.

But I see some survey results that the most popular strategy for trying to grow in the middle market is repositioning older existing buildings. Is that something that you have tried at all personally with Sunshine? Do you think that it’s a play that could work? Are you skeptical of it?

[00:46:12] Luis: I haven’t necessarily tried that. It could work. I don’t see why it wouldn’t. It depends on the cost you come in. If you acquire an asset at a discount and then you can invest into upgrading it and making it attractive for residents, I don’t see why it wouldn’t work. It’s just not something we’ve done.

[00:46:37] Tim: Got it. Interesting. Another question I had was that you’ve got a Chief Happiness Officer? What is that role?

[00:46:52] Luis: Tim, it’s the first time anybody has asked me about this, and we implemented this position, I want to say, a couple of years after Sunshine was founded.

Yes, we do have a position called Chief Happiness Officer. His name is Dick Glaunert. He’s one of the original Sunshine founders, and he is a stakeholder in the company. He has an incredibly wide berth of knowledge about the senior living industry, and he also has a great heart and bucketloads of sympathy. Because of these two qualities, he is our company’s point of contact for any issues with residents or employees.

Our number one goal is to ensure residents are happy, so we thought that it was important to create the position to ensure that there was a senior executive that was responsible for precisely that, the happiness of the residents. Any resident or employee, but mostly residents, just pick up the phone when they have an issue and they call him. I’ve had this happen: “I don’t like the color of the pond. It’s green, it should be blue. Can we please change that?” We’ll do the best we can. He typically just goes out of his way to make it happen.

Most of the time, they are small things that the executive director, for one reason or another, cannot seem to be able to resolve. Sometimes, it’s not part of his job, but Dick makes it work for the residents, and the payback we get is immense in terms of referrals and goodwill, and the residents being on their tours and cheering for us. It’s a great idea, in my opinion.

[00:48:33] Tim: Last call for questions from the audience. We’ve got one. Again, going back to middle market, are there any operational practices that you follow that you think are maybe outside the norm of senior living that can support the middle market model? For instance, in dining, we’ve heard of more limited menus or just offering say a continental breakfast, things like that.

[00:49:02] Luis: We offer all-day meals, basically. You can come to the dining room any time of the day or night and we’ll make you a meal. It might not be a sophisticated souffle, but it might be a nice warm sandwich and a couple of eggs and potatoes. We do provide, I believe in all of our independent living locations, all-day menu.

[00:49:34] Tim: I’m just thinking of the staffing ratios. Is it in line, you think, with industry standards? Are you, for instance, using technology to cover roles that a full-time employee might cover elsewhere?

[00:49:49] Luis: On the independent living side, it’s very easy. That’s the easiest part because the staffing is totally simple. On the memory care side, we have some software that my team uses to, not only — When we get a resident, we evaluate the resident, it goes into the software, we input all that information on an iPad, it goes to a database, and it ranks the resident in terms of every need that they have, it comes as a number of points. This is pretty standard. Then, what we do is, in order to match the staffing … it’s not just the residents. We also use the number of points overall for the community to staff the building up appropriately.

A lot of communities outside of Sunshine, I think they just use the number of residents as a metric, as an input to determine the output, the number of employees required. We also take into account the acuity of those residents to take into account for the staffing, and we have some formulas to that effect.

[00:50:54] Tim: Then, one more question on middle-market, this is on the financial side, related to margins and real estate returns. We’ve heard that margins tend to be thinner on a middle-market model. If independent living is usually 35% or something, it might be lower than that, if assisted living is a little lower than 30% it might be lower than that, so it’s a finer line that you have to operate on. One question is, is that the case for Sunshine? Can you share any of those operating margin targets that you have? Then, on the real estate investment side, we’ve heard that returns are a little lower than for a higher-end product, and so it’s a volume play more than might be typical for the industry. Do you think that’s true?

[00:51:43] Luis: I can’t really comment on the industry, in general, but for my company, I would say the margins were very similar IL, AL, memory care. Right now, for over the past 12 months, the margins for memory care have decreased, because of the staffing issue. We provide a different quarantine area for some residents, a different one for others, the yellow, red, and green. Overtime, hero pay. That has taken a toll on the margin. I’m hoping and I believe that this will go back to normal as hopefully, at some point, we defeat COVID for once and for all. Or at least we can go back to a new normal where all those extra costs are not part of the business.

[00:52:38] Tim: On the real estate return side, any comment on that?

[00:52:44] Luis: I don’t think I can help you with that, sorry.

[00:52:49] Tim: All right. I know we’ve covered a lot of ground, but any other topics that we haven’t discussed that you’ve got on your mind?

[00:52:57] Luis: No … I encourage everybody to continue doing their job to keep our seniors safe and happy. This is the path we’ve taken in life. I think it’s a very rewarding career … We’re not building weapons of mass destruction. We’re taking care of people. I think that’s a reward on its own.

[00:53:29] Tim: All right. terrific. Well, Luis, thanks so much for joining us.

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