When CA Ventures launched Anthology Senior Living 2018, Justin Dickinson figured the new company’s president, Ben Burke, wouldn’t be going anywhere for a while.
In 2021, Dickinson joined Waterton, the parent company of Pathway to Living, to ultimately lead the senior living operator after the departure of co-founder and former CEO Jerry Finis.
Then, earlier this year, Burke left Anthology to start his own active adult venture, leaving a leadership vacancy with the company. Not long after, Dickinson realized it was his fate to rejoin his former employer; and in October he became a “boomerang employee” with Anthology by returning to lead it as president.
“I was approached with an opportunity I really couldn’t refuse, to come back to CA, which is a place that’s near and dear to my heart,” Dickinson said during a discussion at the 2022 Senior Housing News BUILD conference in Chicago. “It made sense for me to come back to the platform — I couldn’t be happier.”
Chicago-based Anthology operates a portfolio of about 46 communities in 16 states. The company plans to grow that number with seven communities currently under construction and another six projects expected to close in 2023.
Dickinson takes the reins at Anthology and its portfolio ahead of a year that could be a tough one for senior living developers due to runaway costs and other headwinds.. But, he still feels optimistic about the future of senior living given the opportunities on the horizon and the good nature of the work.
“There are a lot of negatives that we’ve talked about as an industry,” Dickson said. “But at the end of the day when I lay my head down, I think about how people need care and we provide care. That’s what we do as an industry.”
Surviving the ‘storm’
Like other senior living developers in 2022, Anthology is having difficulty financing deals. As the practice colloquially known as extend and pretend comes to an end, capital providers’ patience has “waned to its absolute maximum,” resulting in a “perfect storm” of conditions, according to Dickinson.
“Lenders and equity partners are just putting their hand up and saying, ‘Enough is enough, we can’t fund anymore capital calls, we have to get the bad loans off our books,'” Dickinson said.
He added that even Anthology, a vertically integrated company with deep relationships with respected institutional equity investors, is finding it difficult to capitalize deals at this point in 2022. One of the company’s capital partners is Harrison Street, which formed a joint venture with Anthology to develop two additional Boston communities and a third project in Boynton Beach, Florida.
At the same time, rising interest rates and cost inflation are putting pressure on senior living operations and metrics. With such a large percentage of its portfolio on a floating-rate schedule, Anthology is “highly sensitive” to interest rate increases.
“Any time [Jerome] Powell gets on the microphone, it has a significant impact on our operations because it puts upward pressure on occupancy,” Dickinson said.
When interest rates were at zero, an operator’s effective borrowing rate was 3%, meaning they needed to hit an average occupancy of around 60% to cover operational expenses and 70% to 75% to cover debt.
Now, with all of the cost pressures eating into margins, operators must reach occupancies of 85% to 90% on a floating rate basis to get the same result.
“You’re getting whacked with inflation, you’ve got super high pressures on occupancy, and you’ve got capital partners that are just throwing their hands up,” Dickinson said, “It’s a tough environment right now.”
On the day of Dickinson’s appearance at SHN’s BUILD conference, inflation slowed to 7.7% in October which is down from the 8.2% increase in September and the year-to-date high of 9.1% reached in June, according to the Consumer Price Index.
Although all of that is a source of pain for Anthology and other senior living developers, those conditions should serve to slow down construction. And even while the pain continues, it bodes well for future supply-demand dynamics, Dickinson said.
“Who’s going to survive this storm, I think, is the question,” he added. “But we have to believe that things are going to get better.”
‘Tremendous amount of opportunity’
As he alluded, Dickinson owes his optimism to the supply-demand dynamics underway in the industry.
“There’s going to be a tremendous amount of opportunity coming into the market within the next very near term — it’s already here,” he said.
The opportunities Dickinson sees today are in distressed assets that companies like Anthology can acquire at a deep discount and turn around. He also sees a bright future in affordable senior housing, and he added that Anthology has 10 such acquisition deals under contract or soon to be under contract.
Anthology communities have an average of about 130 units, and offer services in independent living, assisted living and memory care. The company typically dedicates 60% of their space to residential units, with the remaining 40% to common areas with amenities..
The company typically picks sites that are visible to senior living decision-makers, often prospective residents’ adult children.
New developments will help the company deepen its footprint in markets where it already has a presence, and that Dickinson believes will create operational efficiencies at both the corporate level and the community level in markets including Philadelphia, Washington, D.C., Boston and parts of Florida.
With a parent organization as well-diversified as CA, it stands to reason that Anthology would venture into multigenerational/university-affiliated projects. But, despite looking into the possibility, that kind of project isn’t on the horizon any time soon.
“CA is diversified in their food groups and senior living is very distinct and different,” Dickinson said, adding that active adult is also not an asset class Anthology will be entering into in the near future.
However, there is one adjacent product type that has caught his eye: behavioral health. He has in recent months worked with consultants in an effort to learn the space and brainstorm how it could fit into what Anthology already does.
“I think the times of going to Malibu to be treated for [substance use disorders] is over,” Dickinson said. “Patients and payers are looking for a more affordable option, which means their backyard.”
To make it work, an operator and developer would need to be partnered with an approved payee, according to Dickinson. For now, he remains laser-focused on fine-tuning Anthology’s operations and its current pipeline, which could still grow beyond the six deals yet to close.
Although conditions are tough now, Dickinson believes that the incoming baby boomer generation will ultimately serve as a “saving grace” for occupancy and revenue. And that is an outcome he is preparing for as president of Anthology.
“Despite these macro real estate things, which are scary and not fun to talk about, the bottom line is people need to be taken care of,” he said. “We do it well as an industry and that’s not going to change, it’s going to grow. So, how do we position ourselves for that?”