Longtime multifamily developer joins the seniors housing sector with an aggressive development pipeline.
By Jeff Shaw
The Wolff Company began developing seniors housing just two years ago, but the company has wasted no time launching projects.
With an annual target of $300 million to $400 million in seniors housing development, the private equity firm with a rich history in acquiring and developing multifamily properties has already completed three senior living communities. In addition, The Wolff Company has eight communities under construction and nine in early planning stages.
Since the company only recently made the transition from building standard multifamily product, The Wolff Company focuses mostly on independent living. Rents range from the low $2,000s to over $5,000 per month, depending on the market and unit size. A luxury offering, The Wolff Company seeks to be in the “upper quartile” of rents in any given market.
The portfolio is largely concentrated in the West: California, Oregon, Washington, Nevada, Colorado and Idaho. Although there may be future geographic expansion, the company is currently content to focus on Western states.
Although the company is open to acquisition opportunities, its main focus is on ground-up development of luxury independent living properties.
“Currently, it’s easier for us to provide our residents with the experience we think they want through development,” says Tim Wolff, the company’s chief development officer. “Additionally, our belief is that the acquisition markets are generally priced too aggressively today.”
Founding the Wolff pack
The Wolff Company’s history began nearly 70 years ago in 1949 when Alvin “Pappy” Wolff founded the Alvin J. Wolff Company using a $1,500 loan. Based in Spokane, Washington, the company quickly became a regional leader as a residential real estate broker, eventually switching over to development.
Two generations of the Wolff family later, the company has moved its headquarters to Scottsdale, Arizona (though it still maintains an office in Spokane) and is organized as a private equity investment and development firm. Alvin’s son Fritz was CEO for several decades and now serves as chairman emeritus at the company. Grandchildren Fritz Jr., Jesse and Tim now all hold C-Suite roles.
“Beginning in the 1990s, our current leadership team expanded our geography and evolved from a family business that primarily invested our own capital to a more institutional platform that invests via a number of discretionary private equity funds that we control,” says Tim Wolff.
“Our family legacy is one of our biggest assets, but make no mistake, this is no longer a family-run business,” continues Wolff. “It is important to all of us that we put the best people in the right jobs to build and run a great business. A number of Wolff family members participate in the leadership of our business, but today more than 75 percent of our leadership team members don’t have the last name Wolff.”
The company hired Mike Milhaupt in 2014 to serve as vice president of development to lead the seniors housing team, and development of the first community began in 2016.
Milhaupt started his development career in 1983 with Robertson Homes, which developed more than 25,000 multifamily units throughout the United States. Prior to joining The Wolff Company, he spent more than 20 years at First Centrum LLC, where he was a partner. First Centrum was one of the one of the largest owners of seniors housing before the owners sold off the bulk of the portfolio and retired.
Given The Wolff Company’s deep experience in the traditional multifamily sector, only independent living will be offered at the first wave of communities.
“The Wolff brothers had been thinking about getting into seniors housing for a long time and were not comfortable in the assisted living or memory care space,” says Milhaupt.
Leveraging Its Strengths
Being an older company, The Wolff Company’s executives have a distinct advantage entering the seniors housing sector because they already know the markets.
“We had to learn seniors housing and all the nuances, but we understood the jurisdictions and the entitlement issues,” says Milhaupt. “There’s a learning curve to any area, particularly those that are more complicated. We already knew that and have very experienced people.”
With deep experience in major Western U.S. markets, the company believes it has the resources and knowledge to succeed by overcoming high barriers to entry in those areas.
“We’re as cognizant as anyone of the dangers and concerns of overbuilding,” says Milhaupt. “That’s why we focus on Northern California, Seattle, Orange County and Los Angeles. It’s just simply too expensive for overbuilding to easily occur.”
“Developing in the California and Seattle markets takes a long time, a lot of money and a lot of horsepower to get through the entitlement process,” explains Milhaupt. “That keeps some competition away.”
The company isn’t looking to stray too far into healthcare just yet, preferring instead to focus more on the standard multifamily aspects of seniors housing.
“Our current communities are focused on a healthy, active lifestyle with exceptional food and beverage and robust wellness offerings,” says Wolff. “They are low-acuity communities that feel like a very comfortable country club.”
Standard offerings include flexible meal programs, transportation seven days a week, and a wide range of activities. The company is targeting younger seniors than in standard seniors housing, with a current average resident age of 77, compared to a national average of 84, according to ASHA.
Because the residents skew younger, The Wolff Company is also building more two-bedroom units (between 30 percent and 40 percent of the total units) to appeal to more couples.
“We’re attracting more couples than we expected,” says Milhaupt.
However, Milhaupt hinted at future plans that could include more assisted living-style offerings. The buildings are specifically designed so that up to 20 percent of the units could be converted from independent living to assisted living. The company accounted for future changes such as adding handrails and using backup generators.
“Our thought is this: As folks age in place, if they want to stay there, that’s an option,” says Milhaupt. “We don’t underwrite our developments that way in deciding whether to go forward with a project, but it is an option at a later date.”
Units are not designed to flex back and forth, though, adds Milhaupt. Once a unit is converted to assisted living, it is meant to stay that way.
Changing the approach
One feature that drew The Wolff Company to the seniors housing niche was the overall penetration rates. Although much improved in recent years, the penetration rate for independent living among households headed by a person over age 75 is still only 6.1 percent, according to recent NIC data.
Today’s low penetration rate presents an opportunity. There is a vast well of seniors who may eventually embrace the independent living concept, but who haven’t taken the plunge just yet. The Wolff Company believes it can capture some of those residents.
But that doesn’t mean it’s a foregone conclusion. The company’s goal is to build a great product and always be willing to adapt to meet residents’ needs and desires.
“We’re taking the long-term view. It’s not get in, get out,” says Milhaupt. “Let’s build a brand; let’s perfect it. We understand the lease cycle. There will be changes, and we’re willing to be in it long term.”
The company understands its place as the proverbial “new kid on the block,” says Milhaupt. Despite the aggressive development pipeline, The Wolff Company has no intention of becoming massive.
“I don’t think we’ll ever be on the national scale of Holiday Retirement. That’s not our goal,” says Milhaupt. “But if I didn’t believe we were in for the long haul, I wouldn’t have joined.”
What’s more, Tim Wolff believes his company has something to offer seniors housing. As an outsider looking in, he sees issues with seniors housing right down to the language used. In fact, he would’ve preferred not to use terms such as independent living, assisted living or memory care at all.
“One of our frustrations with the existing business is its vernacular,” says Wolff. “All of the above labels are based on how sick someone is, not how healthy they are. We think that is the wrong way to begin the conversation about helping people live happy and healthy lives.”
“The industry has been generally slow to adjust to the desires of the residents of today and the future,” continues Wolff. “A movement has begun with great work being done by groups like ASHA, but it will take a great deal of effort to truly shift the industry to properly serve its future residents. Our hope is that new product and an enhanced dialogue will help evolve the industry to serve the resident of the future.”
Building the capital
Although The Wolff Company markets itself outwardly as a developer, the company is, in fact, a private equity firm that plows its investors’ capital into new developments.
“At its core, The Wolff Company is a real estate firm that delivers products and services to our residents,” says Wolff. “We are very fortunate to have a close-knit group of committed investment partners, which include family offices, endowments, pensions and other institutions.”
The company’s first fund — Wolff Real Estate Partners I — was launched in 2010, supported mostly by high-net-worth individuals in Silicon Valley. Once the company proved it could provide healthy returns, more institutional investors joined the fray, including major colleges and investment funds.
Minimum investments are “very high,” according to Milhaupt. For the company’s last fund, the minimum investment was more than $10 million.
Although it operates as a private equity firm, The Wolff Company has no current plans to sell off its seniors housing developments and plans to hold them long-term.
The Wolff Company brands all of its communities, usually under the “Revel” name. The company’s multifamily operations branch operates its age-restricted portfolio, but Clearwater Living is used as a third-party manager for all independent living buildings.
“We liked the people at Clearwater, and liked the fact that it wasn’t a huge group that we were a small piece of,” says Milhaupt. “We’re hoping we can be an important part of their growth, and vice versa.”
At the end of the day, The Wolff Company believes it can play a part in improving the state of the seniors housing industry.
“We’re not saying we have all the answers. We’re trying to make improvements in a sector where we think we could improve the product,” says Milhaupt. “Our best attribute may be that we’re not so involved that we simply say ‘Well, we’ve got to do it this way.’ That’s not how you get better as an industry.”
Although he doesn’t have a crystal ball, Milhaupt worries that seniors housing companies are putting too many eggs into a single basket when it comes to seniors. He understands companies are looking forward to the “silver tsunami” — the demographic wave of Baby Boomers reaching the target age for seniors housing.
However, he believes niche product will be the key. Rather than a tsunami, he predicts “100 different little waves.”
“There will be many niches,” says Milhaupt. “Product that doesn’t even exist right now will resonate with residents.
“It’s not going to be a one-size-fits-all answer. Anybody who counts on that to fill units is going to be mistaken.”