Laser-like focus on nurturing relationships helps Florida-based owner make its mark in seniors housing.
By Mark Yontz
Building relationships in the business world has been occurring since the dawn of commerce. But when it comes to owner/operator relations in the high-stakes world of real estate investment — where so much rides on the success of multi-million dollar transactions — many industry executives, like Steve Mauldin, acknowledge that cultivating and sustaining quality relationships can make or break a deal.
Mauldin, president and CEO of both CNL Lifestyle Properties Inc. and CNL Healthcare Properties Inc., is a big believer in the value his companies derive from building enduring relationships.
So far, their strategy has served the companies well in the seniors living community marketplace, especially when one considers the successful acquisitions and positive results both of these real estate investment trusts (REITs) have reported in recent years.
“Our focus is on developing partnerships with proven operators, and we spend a lot of time on building these relationships. Given this, we strive to be good partners with all of our tenants, as these partnerships are critical to our success,” says Mauldin, who has overseen these Orlando, Fla.-based companies since 2011.
Mauldin also holds the title of group president of fund management with parent company CNL Financial Group, which is a private investment firm that has provided global real estate and alternative investments since 1973.
Since its inception, CNL Financial Group has formed or acquired companies with more than $28 billion in assets; taken four REITs full cycle; closed a fifth REIT to new investments; paid more than $13 billion in distributions to 490,000-plus investors; and invested more than $7.4 billion in seniors housing and healthcare assets.
Rigorous due diligence
Given these levels of investment, identifying properties for potential acquisition is not a process that is taken lightly at CNL. In fact, according to Mauldin, a lot of work goes into deciding whether or not a property is a viable addition to the portfolios of either CNL Lifestyles or CNL Healthcare. Not surprisingly, he says that a good market with solid supply and demand principles and properties that have the potential to remain relevant over the long term are two critical benchmarks they consider right away before investing.
“We have an internal investment committee made up of senior management, and every acquisition is submitted to the board of directors for approval. We go through a very rigorous investment and business planning process,” explains Mauldin, who was president and CEO of Crosland LLC, a multi-billion dollar Charlotte, N.C.-based real estate development and asset management company, prior to joining the CNL companies.
CNL Lifestyle Properties, one of CNL Finan-cial Group’s investment offerings, owns 144 different “lifestyle” properties. Currently, its portfolio includes golf clubs, marinas, water parks, ski resorts and senior living communities — all of which are income-producing properties that are either leased on a long-term, triple-net lease basis, or operated by a qualified, third-party manager after being acquired.
Though closed to new investors since April 9, 2011, CNL Lifestyle Properties continues to not only actively manage and reinvest in its current portfolio, but also acquire new properties as long-term investments when good opportunities arise.
CNL Lifestyle Properties added its seniors housing component in 2011. Today, this non-traded REIT owns just under $500 million worth of property; about 21 percent of its portfolio, by property count, is seniors housing. “Our seniors housing assets have performed quite well for us, and we expect to add to the portfolio in the future,” says Mauldin.
Currently, the CNL Lifestyle Properties’ seniors housing portfolio is made up of 30 properties in 14 states across the nation. Its total holdings, however, consist of 145 different properties in 37 states and two Canadian provinces.
“For seniors housing, our geographic focus is the continental U.S., and our strategy in this segment is propelled by individual markets and market fundamentals,” says Mauldin. “But we also pay close attention to the age and position of the properties.”
Mauldin says the company’s success in the senior living marketplace is a credit to the ongoing oversight provided by CNL management teams in each sector. He also believes the long-term success with any asset is reliant upon the quality of its owner/operator relationship. This is why building relationships with proven operators around the country — such as Maxwell Group Inc., Prestige Senior Living LLC, Trinity Lifestyles Management and MorningStar Senior Living — has been an important strategy for both CNL Lifestyle Properties and CNL Healthcare Properties.
“In CNL Lifestyle Properties, we’ve principally bought stabilized assets out of the gate with good occupancies going in, but our asset management team is very proactive in making sure our tenants have the capital they need to keep those properties fresh in the marketplace, which, in turn, helps attract residents,” says Mauldin.
“In most cases, we’re the sole owner of the real estate, but we try not to approach it as the typical landlord/tenant relationship,” explains Mauldin. “CNL personnel are not the ones operating the assets once they are acquired. Instead, we rely on our tenants and managers at the property level to provide the operational expertise.”
Although having “constructive and collaborative” partners is critical to making the owner/operator relationships work, he emphasizes that the industry expertise CNL is able to bring to any deal is just as important.
“In large part, we believe our success is driven by our management team,” explains Mauldin. Its seniors housing team collectively has more than 100 years of industry experience. “We’ve built a team of deep industry expertise, including people who have hands-on experience running retirement communities. And because we invest in some pretty unique, non-core sectors, we feel this deep industry expertise is critical and also helps make us a more proactive owner.”
CNL Lifestyle Properties reported increases in both revenues (6.3 percent), and cash flow (1.6 percent) for its senior living holdings in the third quarter of 2013 when compared to third quarter 2012.
Even the 92.4 percent overall occupancy rate at the end of the third quarter of 2013 for seniors housing communities in its portfolio was higher than the average national occupancy rate of 89.3 percent during the same period, as reported by the National Investment Center for the Seniors Housing & Care Industry.
“These results show steady and meaningful progress for CNL Lifestyle Properties — all driven by the good work of our tenants,” says Mauldin.
While CNL Lifestyle Properties focuses more on acquiring stabilized properties, it does work with its partners to update amenities and make capital improvements as necessary. CNL Healthcare Properties, on the other hand, looks more toward properties that “might need help” or that offer “value-add scenarios,” says Mauldin.
Narrow focus
Established in 2010, CNL Healthcare Properties is a non-traded REIT that has a strategic focus on the seniors housing and healthcare markets. This includes current investments in assisted living, memory care, independent living and continuing care retirement communities, as well as medical office buildings, specialty hospitals, ambulatory surgical centers, and inpatient rehab and post-acute facilities.
“We just eclipsed $1 billion in assets, but our investments are much more narrowly focused than those of CNL Lifestyle Properties,” says Mauldin in describing CNL Healthcare Properties.
As of mid-February, CNL Healthcare Properties had 69 assets in its portfolio, 43 of which were seniors housing properties spread across 25 states. “Seventy-one percent of our invested dollars are in seniors housing,” says Mauldin.
In December 2013, CNL Healthcare Properties spent approximately $302 million to acquire 12 seniors housing communities in Idaho, Montana, Nevada and Oregon with a combined total of 1,404 independent living, assisted living and memory care units. This represented CNL Healthcare Properties’ single largest acquisition to date and its first significant investment in the Pacific Northwest, but its growth doesn’t end here.
In February, CNL Healthcare Properties acquired four seniors housing communities in Washington for approximately $88.3 million. Combined, these four communities (located in Vancouver, Yelm, Auburn and Longview) have 457 residential units, comprised of 136 independent living units, 297 assisted living units and 24 memory care units — all of which will be managed Prestige Senior Living LLC under a long-term management services agreement.
Also in February, CNL Healthcare announced its investment of approximately $33.5 million in a 152-unit seniors housing and healthcare facility in Tega Cay, S.C., which is 20 miles southwest of Charlotte, N.C. Located on more than 12.5 acres, with six planned buildings totaling about 175,000 square feet, the community is being developed by the Maxwell Group. It will feature 80 assisted living units, 24 memory care units, and 48 units offering skilled nursing and short-term rehabilitative services. This represents the fifth development in which CNL Healthcare Properties has made a capital investment.
Looking ahead
While these holdings may appear to outsiders to overlap with those of CNL Lifestyle Properties, Mauldin says the internal process CNL has in place eliminates that potential pitfall when making investments. “There’s some potential for overlap, but there are some differences in strategies between the two companies,” he emphasizes.
“CNL has a consolidated investment team that serves all funds, which helps determine [the best fit]. It’s usually self-evident early on as to where a property’s home should be,” according to Mauldin. “Given this, we’ve had very few allocation issues because of the very detailed allocation process we employ when making acquisition decisions.”
With assets all over the country, Mauldin says the decision-making process for adding properties to the CNL Healthcare Properties portfolio is similar to how the team identifies and acquires assets for CNL Lifestyle Properties.
“The long-term viability of the real estate is important,” says Mauldin. “We dig into all the usual statistics as a part of the evaluation process, but we ultimately ask ourselves, ‘Is this a good place to deploy our shareholders’ capital?’”
CNL Healthcare Properties has yet to dispose of any assets since its inception in 2010.
Because of the unique mix of properties in its portfolio, CNL has dedicated teams of experts who work with particular property types — whether it be ski resorts, waterparks, marinas, medical facilities, or senior living communities — across its investment platform, helping the companies develop strong relationships with key operators in each sector.
In short, CNL Lifestyle Properties and CNL Healthcare Properties are similar, with each relying on the same business philosophy, which Mauldin believes will benefit both REITs moving forward.
“Our business approach is very relationship-oriented and sector-specific, so that will help us. We’re in the growth mode and expect to remain there. This means, though, we need to remain flexible and anticipate the changes in seniors housing.
“Making sure we’re evolving and reacting is important,” concludes Mauldin, “because our mission is to take a forward look at a dynamic environment.”