Owner-operator tries to solve the middle-market puzzle.
By Jeff Shaw
Jerry Finis never really intended to get into seniors housing. It just happened.
As a multifamily developer in the 1990s, he undertook an adaptive reuse project of a vacant Catholic high school in Joliet, Illinois, about 45 miles southwest of Chicago. Local planners wanted affordable seniors housing rather than family housing.
Nearly 20 years after the completion of that project, Finis now oversees 28 seniors housing communities featuring just shy of 2,700 units as the CEO of Pathway to Living. The company is headquartered in Chicago and focuses exclusively on the Midwest. Pathway offers a mix of affordable and market-rate units, with a strong focus on supportive living and assisted living.
Previously known as Pathway Senior Living, the developer, owner and operator recently rebranded to remove “senior” from its name, as so many companies have done in recent years.
Seniors Housing Business spoke with Finis about the rebranding effort, affordability in seniors housing and overdevelopment concerns within the industry, among other topics.
Seniors Housing Business: Walk me through the formation of Pathway and your involvement in the company.
Jerry Finis: Our company has evolved over a long period of time. Like a lot of folks in the seniors housing space, we got started by working on a couple deals on the real estate side. Over time it morphed into a stand-alone organization.
We were developing, owning and managing multifamily properties. We really got started doing affordable seniors housing, using the affordable financing techniques available in Illinois such as tax credits. We opened up our first senior apartments in the fall of 1998 and opened our first assisted living property in January 2000.
SHB: What drew you to seniors housing?
Finis: There was no grand plan. We were in the apartment business and started on a project to renovate an old, abandoned Catholic high school in Joliet. The town government didn’t want any more family housing, and pushed us toward seniors housing.
That first building was 57 affordable units and came with all kinds of restrictions attached to the “affordable” designation. There was an adjacent building to the high school — the priory, basically the dorm for the priest and the brothers who taught at the school.
The investor required us to do something with that building or tear it down. That’s when we heard about supportive living. It’s basically a Medicaid waiver program in Illinois, which allowed us to expand our services to include assisted living and offer more units.
From the outside, the old high school doesn’t look that different. These are brick buildings, so we didn’t change much. Interior-wise, though, we basically brought a Bobcat in and cleared out the building from the outside walls in.
We still own and operate that community.
Building a portfolio
SHB: What’s the current size of your portfolio and development/acquisition pipeline? How does that portfolio break down along the continuum of care? Do you own your properties or exclusively operate?
Finis: For the most part, we’re owner-operators that develop and acquire, sometimes through a joint venture.
We have 28 open communities offering approximately 2,700 units. About 2,400 of those units are either assisted living or supportive living. The remainder are the affordable apartments that we develop adjacent to our assisted living.
In the market-rate assisted living buildings we also offer memory care. Illinois is currently in the process of expanding the supportive living program to include memory care.
We have ownership interest in 85 percent of those units.
SHB: Do you prefer development or acquisitions?
Finis: Development takes a long period of time. It’s a long-term approach. You could easily lose over a year just to pre-development, the period from the time you find a site to breaking ground.
The nice thing about new development is you can build it exactly as you want it. With an acquisition, you have to modify the building at times.
Frankly, there’s a lot of new development in a lot of markets. So you have to be very targeted with what market you’re going to be in and why.
SHB: How concerned are you about overdevelopment?
Finis: As a general trend, there’s some concern. It’s probably the biggest concern when several new buildings are leasing up at the same time. The total quantity of units is not the problem. But if there are 30 buildings leasing up in one marketplace, that’s a problem. Of course, a few years down the road, the demographics are going way up for the age cohorts that will need seniors housing. There’s a little bit of oversupply now, but perhaps not in the future. It really depends on the marketplace.
SHB: Pathway’s communities are all located in the Midwest and highly concentrated in Illinois. Do you have any plans to expand geographically?
Finis: We currently operate in Minnesota, Wisconsin and Illinois, and we’re in the process of acquiring a project in southwest Michigan. We also have a market-rate project in pre-development in La Grange, Illinois, a near-western suburb of Chicago. For now we’re focused on the Midwest.
What’s in a name?
SHB: Why did you rebrand from Pathway Senior Living to Pathway to Living?
Finis: As the seniors housing business is maturing a bit, I think seniors don’t want to be labeled as seniors. A lot of the industry has taken “senior” out of the name.
Seniors housing nowadays can go up and down the acuity scale, and up and down the income scale. It’s a much bigger marketplace than in the past. We say we want to do assisted living and memory care, but when the people in the area talk about it they talk about nursing homes. We say “no, that’s not it.”
We’re rebranding ourselves as a great place to live. We can provide services, but it’s more important to know that it’s a great place to live. Nobody wants to live in “the home.”
It’s been well received and we’re happy about that.
SHB: Do you avoid saying “assisted living” altogether?
Finis: On the sales end, we talk about the continuum of care and then adapt to the needs of that particular resident. It’s more about the broad senior living concept, without putting it in the name of the building.
SHB: What features define a Pathway community?
Finis: Surely when we constructed our first communities, which were in the supportive living world, the quality was as good as any being built at that time. The units were a good size, with a lot of common space, good materials and good design.
When you look at the newer buildings today, it’s hard to tell the difference between independent living and assisted living. They’re really one and the same, but one has services. Common spaces are large and varied, featuring multiple dining venues and focused on quality design. We spend a lot of time on designs and colors because it makes a big difference, but a lot of developments do that.
What really sets us apart is what we call the “VIVA!” culture. It’s the activities we offer, the life we afford these folks. It’s a very engaging environment. It’s a philosophy that really drives us from the employees and staff all the way through to the residents. That’s the big differentiator.
We might be the new shiny penny today, but two years from now we may not be. Where we really stand apart is services and the environment.
Filling the affordability gap
SHB: Do you still focus on affordability?
Finis: That’s one of our targets. We’re trying to figure out how to address that middle market. That’s a broad spectrum that’s hard to define.
If you’re building from the ground up, a lot goes into construction costs, which aren’t that different from market rate to luxury. On services we have to really figure out what you can or can’t do for folks, what services you can offer, so it’s not that different from the high-end property.
On building costs, we search very hard for quality land and we prefer wood-frame buildings. In Chicago, almost everybody around here requires steel and masonry, which are 15 to 20 percent more costly than wood frame structures. Other than that, maybe we build a little bigger with a few more units to create more operational economies of scale.
It’s more of an art form than anything else.
SHB: What’s something you wish more people knew about Pathway?
Finis: From a consumer perspective, I want people to know the culture that we operate under, from our employees to our residents. It’s one of those things you have to understand when you experience rather than hear about it.
Part of it is an industry issue. You don’t have that many repeat buyers. When somebody’s coming in, bringing in mom, that’s more likely than not the first time they’ve ever had to deal with seniors housing. It’s not like having a great experience at a Marriott Courtyard, so next time you’re traveling you find the Marriott Courtyard. That’s just not how they buy these services.
It’s our job when they come in and talk to us that we do everything we can to get them to understand our operating philosophy and what we do.
SHB: You have a strong passion for sports. What is the source of that passion and how does it transfer to the company?
Finis: I was on the football and track teams in high school and at the University of Illinois. I’ve always been involved in sports. You have to focus the mind and you’re in it for the long haul, which is what we are doing in this business.
SHB: Tell me about the Affordable Assisted Living Coalition (AALC).
Finis: That is a trade organization my business partner and I started back in the early 2000s. We realized that because Medicaid was a payer and a government program, you really needed a trade association to represent us when dealing with the program. It’s way easier to do it that way so it’s not a self-serving approach.
The AALC is really an Illinois program wrapped around the senior living industry. Having said that, it is different than the affordable assisted living we discussed earlier, which is more for the middle market without the subsidy that comes with the Medicaid program.
The real opportunity that we’re all trying to fill is this middle-market product and how to address the folks who could use seniors housing, but don’t qualify for Medicaid. It will be interesting to see how that shakes out over time. It’s a hard nut to crack to get construction costs to align to that. If you can get the right kind of product in the right kind of market, you can fill quite a void.
The industry has evolved and will continue to evolve. Assisted living will become higher acuity, growing over time as people move later in life. The challenge we have in the industry is trying to build our product so it’s more attractive to move in earlier rather than wait. That’s the nature of the beast.
That’s a big challenge, but the industry is working its way toward that.