The SHB Interview: Jeremy Cole and Brooks Holstein

Experienced commercial developer partners with veteran seniors housing operator to build a robust pipeline.

By Jeff Shaw

There are several common refrains about seniors housing: 

• New players are constantly entering the sector, enticed by seniors housing’s high return on investment and resistance to recessionary forces.

• Those new players must partner with an experienced operator in order to succeed in this complicated field.

• Medium-sized, regional operators are the most likely to succeed as they have scale that outshines mom-and-pop shops, but have tighter quality control compared with the behemoths of the industry.

That type of partnership is what Biloxi-based commercial real estate developer LifeCare Properties sought when it decided to work with Jackson, Mississippi-based operator Blake Management Group (BMG).

Blake is a regional seniors housing operator founded in 2007 with around 20 locations throughout the Southeast. The executives of LifeCare and its predecessor companies have been developing retail and hospitality projects for 50 years.

The two companies announced last year that they were forming a $225 million joint venture to develop 10 new seniors housing properties totaling about 1,000 beds over five years. The goal is to leverage LifeCare’s deep development experience with Blake’s operational success to push each other to new heights.

The first two projects in the venture — in Waco and New Braunfels, Texas — are currently under construction with an expected delivery in late 2020.

Seniors Housing Business spoke with Blake’s CEO Jeremy Cole and LifeCare’s founder and managing member Brooks Holstein to discuss the venture’s goals, and what their plans mean for the seniors housing industry as a whole.

Seniors Housing Business: What led to this venture happening? What did the two companies see in each other?

Cole: Our executive director at The Blake at Flowood (in Flowood, Mississippi) has family relationships with the CFO of LifeCare, and that CFO’s grandmother is a resident with us at The Blake at Flowood. A family conversation over Thanksgiving dinner led to a conversation with a LifeCare executive, which led to a meeting.

We liked that LifeCare has a lot of hospitality experience. Brooks is a second-generation hotel, restaurant and real estate developer, and we had a lot of similarities in the way we look at culture, people development, customer service and hospitality.

LifeCare has been, from the very first phone call, extremely open and excited to learn about senior living. They’ve been great partners to understand and enhance what we do. We’ve really enjoyed collaborating to build the new BMG community that they will design and build.

Holstein: We have an extensive background in retail development starting in 1980 when I was a real estate manager for a then-emerging hamburger company called Wendy’s. So we stayed focused on retail in earnest until about 2016 when we really saw the decimation of retail expansion. We felt like the industry was on decline based upon the consumer spending habits, weaker balance sheet and unsustainable corporate debt for retailers. We knew we were going to find another sector.

We had an introduction to the management team at Blake. We spent over six months getting to know each other, getting to understand each other’s culture. We each agreed at the end it was a fantastic fit for both companies.

Our platform is built on the use of equity from the limited partnership of my wife’s family. We like to control the projects. We don’t particularly care for having investors with different investment goals and criteria than we have. In the first two projects with Blake, we self-funded the equity and secured debt for the construction loans.

We try not to use other people’s money because other people tend to want a great deal of control. With our expertise and the expertise of Blake, that’s all we need to make a successful relationship and project.

SHB: Give us the nuts and bolts of how the joint venture between Blake and LifeCare works.

Holstein: Blake’s model is structured very similarly to a luxury hotel venture, where a developer provides the equity, secures financing, oversees all phases of development, with the input and participation of the operating partner. Once the project is completed, Blake has a total turnkey management role. 

LifeCare owns the building, owns the improvements, but Blake makes all the management decisions from budgeting right down to front-of-the-house office.

Cole: And we have joint interest in the overall economics of the community. We’re happy to say that we have a very fair share of the upside.

SHB: The announcement mentioned that you’re using this partnership to expand Blake’s geographic reach (currently throughout the Southeast). I see the first two communities in the partnership are in Texas. Where else are you looking to go?

Cole: Our other two development partners — Cardinal Ventures and Quality Senior Living — are always looking for opportunities in the Southeast. With this joint venture we’re looking to expand throughout the Southwest, and perhaps in the Mountain West and Midwest.

SHB: Why those markets?

Cole: We have partners that look at demographics and where seniors are not only living or moving, but where other operators have high occupancies. We think there’s a lot of opportunity in those three regions.

Holstein: There was a lot of research that prioritized a list of six to 10 markets that held the greatest potential. 

Blake has strategically developed a model that takes four to five communities to justify an area director that would oversee the management, and would have the executive director of each community report up to the area director. 

Creating efficiency

SHB: The two Texas properties have identical renderings and unit counts. Are you planning to build on a template for these properties? If so, is this an effective way to manage development costs (and theoretically, by extension, rents)?

Holstein: In our experience, the development of a prototype not only allows you to control cost, quality and timelines, but it also extends over into building on the brand identity. When someone sees a Blake community developed by LifeCare, they will know it’s from both of us. We think that adds value across the board.

We spent six to nine months taking ideas from two prototypes of the preferred developers of Blake, combined them and brought in our own design and architectural team and built what we thought was an ideal prototype that could be used across multiple states.

Cole: These early joint decisions, operator and developer together, make a real difference. Our developers represent our advisory board. The operations team has a seat at the table while making decisions. I’m not sure we can do it any other way. 

That was a big part of these joint venture discussions. LifeCare understood market selection, development and construction deeply, but they were very willing to learn what they do not know about senior living. When interests are aligned in programming, and operations are considered in both the market selection and design process, we find success. We find it imperative to have those interests aligned.

Holstein: We interviewed and hired one of the top senior living interior design firms in the country — Banko Design out of Atlanta — to help us regionalize the feel of the interior, to get more of a residential feeling that feels very familiar to our potential resident. The net effect has been fantastic in our view.

SHB: Seniors housing is currently overbuilt, according to the NIC numbers, driving occupancy down. How do you plan to develop in a way that won’t exacerbate that problem, and ensure your new communities succeed?

Cole: First and foremost, we take this trend very seriously, both in live operations and in development. We are making decisions on where we are going and market selection based on this risk. We’re being very deliberate and considering every overdevelopment risk possible before we decide on a market.

Secondly, in previous markets where someone has developed on top of one of our existing communities, we still deeply believe it comes down to the people that you hire, the culture you create and the services you deliver day in and day out. That’s our competitive advantage. 

Each market we go into, we’ll either be the nicest community in the market or close, and we’ll be at a price point that’s highly competitive to all products in the market. 

Holstein: There’s a fundamental component that gives Blake an advantage: The company is private. There’s no requirement of meeting growth benchmarks that other public companies have to meet. If a market is not ready, premature or oversaturated, they simply don’t have to develop.

The brilliance of Blake’s management is the C-Suite. They have so much experience, and they collaborated with us in looking at markets. If there were indicators of operational weakness or softness in rent, we would bypass that community. 

We don’t want to just grab market share in an over-competitive market. We’d rather find an underserved market that meets a Blake community demographic profile, and get the most dominant site we can in the market. 

It’s a bit of a new step for Blake. We’re trying to find retail or hotel locations at dominant intersections. We pay a lot of money for very good sites.

SHB: LifeCare’s other main partnership is with COMVEST Properties, which is largely a retail developer now looking to get into seniors housing. Is there anything you’re able to learn from COMVEST’s retail history that you can now apply to seniors housing?

Cole: Construction is not easy. When we start our preleasing and marketing efforts 15 months out from resident’s Day 1 we are selling and proposing a vision of senior living that some need right now. To communicate a timeline and deliver on a timeline for construction is extremely important for senior living. I’ve been in scenarios where, due to delays, we’ve had to rent hotel rooms and work with competitors because seniors have needs right now. 

The value that I see LifeCare adding is that in other industries the company has worked in, the penalties and the construction diligence are extremely high. The company has developed for Walgreen’s, Office Depot and Starbucks. Being late is not an option.

The second thing that comes to mind is LifeCare’s background in customer service. When you open up a community, you have 110 units, 110 showers, 110 rooms that need to be fully operational. They understand through hotels and retail the commitment that we are giving to our residents when they move in. 

The learning curve for customer service has been nonexistent with LifeCare.

Holstein: I formed COMVEST over 15 years ago as a retail development company. It basically is a real estate research and service company and its exclusive client is ourselves. 

We’re used to approaching the development process with a very different, entrepreneurial look. We will invest heavily in our entitlements during due diligence, not wait until late to make significant capital investment. We’ll have $400,000 to $500,000 in architectural fees, but we’ll literally be able to start construction within days of closing on the property. 

We’ve never had a failed project that we started but didn’t get built. That was just an expectation of the retailers. We learned to get very comfortable with the right consultants, architects and surveyors that we can rely on to help us make relatively aggressive entitlement decisions.

We also have a wide breadth of banking and lending relationships. We’re continuing to try to expand those as we go further west or toward the Midwest. Having established banking relationships is critical to the senior living sector.

The average Walgreens was a $5 million total development cost, with an equity cost of up to $1 million. Every Blake community is a $25 million project. It’s a very different profile for the lender.

SHB: How are you handling that step up?

Holstein: We went back to an existing lending relationship that had financed the last Walgreens we did. Coincidentally the lender also had been doing construction financing for one of Blake’s other partners.

The lender had the advantage of in-depth knowledge of the development skills of Blake. They had seen firsthand the way that we precisely overmanage our development. We are totally micromanagers when it comes to making sure we don’t overlook a critical aspect of a project.