Former Ascension Living President Danny Stricker launched Chapters Living last August, and in the time since, he has been putting the pieces together on a long-term strategy.
Stricker, the co-founder and president of the St. Louis-based senior living operator backed by Green Street Real Estate Ventures, is poised to close the acquisition of a seven-community portfolio with about 500 units of assisted living and memory care in four states.
Building a burgeoning operating platform hasn’t been easy in the light of the industry’s ongoing headwinds, but Stricker is pleased with what he has assembled so far. He noted that, with a market that is tilting toward buyers of communities, this is an opportune time to launch an acquisition-focused company like Chapters.
“I will tell you that we’ve probably assessed more than 50 opportunities, mostly in the Midwest,” he told Senior Housing News in his return to the Transform podcast. “And we’ve landed on these initial ones. We followed a rigorous process and really liked the story of each of them.”
While Chapters’ first acquisition will be solely assisted living and memory care, the operator plans to delve into the active adult asset class as well. And the whole focus will be on the Midwestern markets. For Stricker, the key will be to stay true to the vision and now growing for the sake of growth.
On the genesis of Chapters Living:
I’ve been blessed to be in this industry for over a decade now. It’s always been a dream of mine, to start something new. But, finding the right time to do that has been a journey. We believe that this time of recovery and some distress in the industry is a very opportune time to start Chapters Living. And we’re not organizing ourselves to be every senior living solution, we’re being very focused on two niche components.
We’re really lucky to have a great relationship with a local St. Louis organization in Green Street Real Estate Ventures and two principals in particular
So we definitely spent some time to get to know each other and work through structures to form Chapters to understand what their resources can bring and what we can start. Having a senior living affiliation has been a goal of theirs and it’s been a dream of mine to partner with a group also out of St. Louis that focuses on memory support and assisted living as well as active adult on the other end the of the continuum.
So finding that relationship, and that partnership, getting the structure figured out, was a great experience. And we officially launched on August 15.
On building a team:
My connections are with Principal Kevin Morrell and Founder and CEO Phil Hulse – the two principals are remarkable and they are taking a chance and investing in something new. On the broader team is Luke Pope CFO Luke Pope, COO Toby Martin and Chief Counsel James Heffner.
And at Chapters Living, we will close on the portfolio sometime in the next 90 days. The portfolio will consist of seven communities in four states totaling about 500 units and So, we just hired several of our initial team members as our initial portfolio that will be closing on here over the next 90 days, which will be about 500 units amongst seven communities and four different states.
We hired Becky Kaufmann as our senior VP of quality of life and memory support. I’ve known Becky for quite a while; she’s a nurse by background but really has that holistic view of quality-of-life care. She will be leading the charge in our memory care.
And then we hired somebody new to the industry that has a great finance background in Tyler Brady. Tyler has a background in public accounting with EY accounting. He is diving in to learn the industry and is building or And, and he is diving right in and learning the industry quickly and building out our ERP platform.
On the upcoming portfolio acquisition:
We believe this is an opportune time to work on finding portfolio opportunities to bring into the mix. These communities all have different stories and the organizations that are selling all have unique needs.
I will tell you that we’ve probably assessed more than 50 opportunities, mostly in the Midwest. And we’ve landed on these initial ones. We followed a rigorous process and really liked the story of each of them. I will be happy to talk about them in more detail once the ink is dry on the various deals. But we’re excited and believe in each of these communities for our initial launch.
On the company’s active adult/assisted living strategy:
We have an active adult development that we are working through in St. Louis. It will be our first active adult launch assuming everything goes well.
We believe that active adult is a golf cart away from life. Our model of active adult with be highly focused on the amenities surrounding it, and ideally, co-located with other development/redevelopment so that our residents can fully utilize the amenities around them that they otherwise would not have.
We’re also looking at the affordability of active adult. When we are able to combine the multifamily and hospitality development experience that Green Street has with the independent living and senior living background that Chapters has, we believe that we have a pretty unique combination there that can make us a leader, particularly in the Midwest.
So, we’re starting our first one and we’re working through the details, design and performers and getting that model as right as we can for our first one.
On the biggest challenge to launching Chapters:
Look at the interest environment and what has happened since we started Chapters Living – from August to now. That’s been a challenge. We’ve had some phenomenal capital partners for these first three portfolios that we were able to work through to make sure that everybody feels good about the opportunity.
I think the other challenge is staying true to how we assess the opportunities for acquisitions. It’s very easy to see right now that there are a lot of opportunities for acquisitions in our space and it would be easy for us to say “hey, we’ve got an initial launch of 1,000 units.” So, staying true to how we assess opportunities all the way through the market testing, market research and the underwriting model.
I’ve often been asked about how big we’d like to be. You know, we don’t have an artificial target of a specific size. And that’s just me being honest. What we want to do is to make sure that we find the right opportunities for the Chapters brand. For us, our main focus is in how we invest in our associates. We will continue to pressure test where that’s working and then grow from there.
If that leads us to only having 10 communities and we operate extremely well and we have the brand strength and trust of those local consumers in the markets, that’s great. If that leads us to have 50 – wonderful. So, it’s really just sticking true to making sure that we are growing appropriately and continuing to assess the right opportunities to acquire.
We’ve certainly had opportunities to have way more than 500 [units] out of the gate.
On the opportune time to develop:
If we would have started Chapters purely for the money, we wouldn’t have 500 units. All of the opportunities we have as we’ve worked with capital partners, lenders and investors are because they believe in the mission and what we’re trying to solve.
And it’s hard right now to make sure that the finance part of this all works. Yes, there is a value-add opportunity with what we’re doing. But, I will tell you, if we were just focused on the math and ROI as our core strategy, we would be struggling.
What we’ve really focused on is having the right economics in place and explaining our plan whether it be a turnaround, restabilization effort or whatever it may be. We’re talking about how we’re investing in our associates, how we’re investing in the programmatic pieces of how we’re going to care for our residents. And obviously, for us, that means a big focus on memory support.
That’s really what has allowed us to have what I think is a very high-quality and great markets for our initial portfolio.
On operating in the Midwest and operational structure:
We think the Midwest, in total, is on the cusp of significant development and growth compared to the [East] Coast. I’m reading a book right now called “The Rise of the West” which has incredible research. It speaks on startups and where money is being invested. The Midwest is certainly a growing market.
St. Louis is great because it’s so central. It is easy for us to get to Kansas City, Chicago, southwest Missouri and northwest Arkansas. It’s an easy flight to Texas and an even easier flight to Colorado – which isn’t the midwest, but it’s easy for us to get to those types of strong markets.
One thing that we are doing with our initial acquisition – six of the seven communities at least – is entering a market with at least two communities. One thing that happened during the Covid-19 pandemic that we benefited from when I was at Ascension was having communities close by so that when staffing and other challenges presented themselves, we could organize our resources to get to those communities faster. That’s something that I’ve taken with us as we’ve started Chapters and looked at opportunities – we really want to enter the market with at least two.
The lone standalone community in our initial acquisition; we are already looking at some potential acquisitions that will complement that community in its market.
So, one thing that I’m really passionate about is the executive director role. We will have one in each community. They will have the title of chief experience officers.
I think that our industry, at large, and for a lot of reasons, has ended up having executive directors being in the middle of community and corporate. You know, our philosophy is to have a very flat organization that maximizes their gifts and talents to drive the experience for existing and new associates so that they have a phenomenal experience compared with their previous employer or entering the industry.
So, we focus on how we can make sure that we launched that as best as we can and customize each experience for them.
For our revenue generation, we focus on how to continue investing in the right activities and quality-of-life programs for our residents to extend their length of stay and also to distinguish ourselves when families tour our communities.
So, we are investing heavily in our chief experience officers to drive the culture and the performance for Chapters Living.
I am a huge believer in centralized back-office stuff, but decentralized decision-making.
On his path to senior living and past mentors:
I studied business psychology and definitely had different plans other than senior living. I wanted to save up additional money to buy an engagement ring – and this was 2007, so the job market wasn’t great.
I got a job from 4 p.m. to midnight, Monday through Thursday at a 16-unit residential male behavioral health house. So, I was there passing medications, cooking food, and cleaning the rooms and the house. And it was mostly elderly gentlemen. It just never felt like work to me. I got really lucky that I found my passion at such a young age. Also, I was able to buy an engagement ring, and my wife and I have been married 15 years as of January.
There are a handful of mentors that I still keep in touch with and can just talk differently about challenges that I’m having or what they’re doing on certain situations. Just having that solid set of people that I can go to and look up to is so valuable.
If you’re a young leader listening and are looking for additional ways to grow, definitely lean on your mentors and what I’ve learned. I’ve become a mentor to a couple people. It’s just as enjoyable to help others and pay it forward.
On how tech is impacting senior living:
So we’ve spent about 20 to 24 hours looking into various technology platforms from the finance and rep cycle and the ERP side all the way through to the electronic medical record and family engagement portals, staffing portals, etc. So, I think we’ve got a fresh and exhaustive view of technology and here’s what we prioritize.
First, we look at, how do we want our associates to experience technology? And what do we want it to solve for them? And we started from that lens, and we said, hey, we want a simple platform that ensures that it allows them to focus on revenue and associate engagement and retention.
So we viewed our hiring platform, our ERP platform from that lens. So how do we do single-entry ordering? And all the way through the payable side? How does that then seamlessly go into the financial statements?
Or how do we input a name one time, and it carries through the whole system on the sales side to the nursing side? So we identified the simple problems we wanted to solve, and then we assessed them all through that lens. And the technology options and senior living are vast, we probably could have doubled our time and seen different platforms.
On the state of the industry in 2023:
Right now, there is some continued hangover from the pandemic. We’re all continuing to try to work through what is the normalized new and the operational challenges that are here to stay.
I don’t think there’s a perfect answer to that it’s a, it’s an, we’re still learning from that. I think, at large, people have figured out how to rise above it and continue to drive their occupancy in the right direction.
If you look at the quarter-over-quarter macroeconomics of occupancy in our industry – everybody’s starting to see a nice rise, particularly in assisted living and in memory care. There are a lot of challenges in predicting three and four months from now with things like food pricing, for example.
So we are looking at how to make sure we’ve got enough planning to ride those waves. I will tell you we look at markets and how we rate their strength. In no particular order, we are looking at the growth of the influence of the adult child and what pocket markets, in particular, are they growing in. One thing that we have focused more on thought is what is the occupancy immediately surrounding the community that we’re looking to acquire. We want to see strong occupancy. We want to see the broader market is starting to utilize our services again.
We’re also doing a lot of homework on if there is new construction in about a 10-15 minute drive around the community.
And when we look and we see at large that we’re not seeing a whole lot of new construction starts, I think that’s part of the rise that we’re seeing in same-store occupancy.
I read in NIC report that new construction levels are the lowest levels since, I believe, 2013. We certainly see that across our geography that we’re going into as it relates to new construction. So I think part of the occupancy recovery trends that we’re seeing is also a result of some absorption occurring in the existing inventory as opposed to so many new fills per quarter.
On resident rates and digital marketing:
As part of our market due diligence, I’ve also participated in looking at the top two competitors per community. And there are a lot of different views and how people are putting the right structures in place.
We definitely see definitely the level of care. Levels one to three is common, and one to five is becoming more common from what I’ve seen in the markets that we’re looking at. So, we’re seeing a lot of additional fees beyond medication and incontinence, I’ve seen wheelchair or I’m sorry, electric wheelchair fees. I’ve seen a whole plethora of fees. I can tell you our strategy is to have two levels. And within that, it’s all-inclusive.
And within that as well, if you are self-performing certain tasks such as your own medication administration and others, well, then we are factoring in how do we give credit for that to the back to the family to the residents. So we’re kind of flipping it a little bit to say, hey, here’s our all-in deal, we want this to be easy for you, we want to make billing easy, we want to make everything very seamless for the resident or the family member that’s, you know, managing the financials for our residents and trying to incentivize that partnership.
And that transparency, we will be posting our rates on our websites. So a little different approach may be to talk to the average person, within your family networks and others. It’s probably pretty tough for them to figure out what it really costs to be in assisted living and memory care. I think that’s a challenge.
We are spending a lot of time right now on our digital presence. Specifically, we’re focusing a lot on the individual community sites.We’re investing in the tech that makes sure that when you’re looking for a solution, that our community page specifically comes up.
We’re being very text-light. Our video is a similar kind of scroll and experience to find information like say scrolling on your phone on TikTok or something like that.
Eventually, we’ve said “hey look, our website is our initial experience for our customer, so how do we make sure that it’s seamless and easy?