Developer, owner and operator applies Japanese work philosophy to seniors portfolio
By Jeff Shaw
Managing Editor
For four years between 1999 and 2003, MBK Senior Living fell silent. The Irvine, Calif.-based company owned and operated only one community and was completely inactive on the acquisitions and development front.
A subsidiary of Japanese business giant Mitsui & Co., MBK was formed in 1996 to manage the parent company’s seniors housing portfolio, which totaled 600 units at the time. MBK trimmed down to one community in 1999 and opted to stay on the sidelines for a few years. The company ultimately decided to fully commit to the seniors housing sector in 2003.
When it came time to start building and buying again, the company called on a former employee — Terry Howard — to assemble a new team and portfolio as the company’s president.
Since 2004, when MBK started building and acquiring properties again, Howard has grown the company from one community to 18 overseen by 36 corporate-level employees. The communities are generally higher-end, with monthly rents ranging from $2,600 to $4,800 for independent living, $2,700 to $5,000 for assisted living and $3,100 to $5,700 for memory care. Occupancy across the portfolio averaged 92.2 percent in 2015.
Seniors Housing Business spoke with the industry veteran and sought-after speaker to discuss the challenges of running a successful seniors housing company, the threat of overbuilding and how his parent company’s theory of Yoi Shigoto — “The Good Work” — fits into senior living.
Seniors Housing Business: Can you give us a little more insight into who Mitsui is exactly and the genesis of MBK?
Terry Howard: Mitsui is one of the largest trading companies in the world with over 450 subsidiaries operating in over 66 countries around the world. It’s business units include areas that cover energy, machinery and infrastructure, chemicals, food, textile, logistics, finance, medical healthcare, and of course, real estate.
MBK Real Estate is the wholly owned U.S. real estate subsidiary of Mitsui. Within MBK there are two separate real estate divisions: homebuilding and senior living.
In 1990, Mitsui became part owner of a Southern California real estate developer that happened to have 600 units of senior living as part of its portfolio. When Mitsui bought into that developer, that’s when it really entered the senior living space. Mitsui was a 50 percent joint-venture partner in that investment.
SHB: How did your career evolve during that period?
Howard: I oversaw that portfolio from 1990 to 1995, at which time I left to help grow a seniors housing management company. Shortly after, in 1996, is when Mitsui and that developer parted ways. Mitsui became the 100 percent owner and changed the name to MBK Senior Living.
Mitsui was the investment arm. MBK hired a management team internally to grow the business. Then, in late 1999, Mitsui divested all but one asset and stayed on the sidelines until 2004. I came back at that time to restart the growth.
Since 2004, MBK has acquired approximately 20 assets and currently owns or manages 18 communities comprised of over 2,100 units of independent living, assisted living and memory care. We’ve grown our in-house management team from just me to 36 corporate associates who support our owned and managed properties.
Growing the portfolio
SHB: What’s currently under development and where?
Howard: Our current geographic focus is the Western United States. MBK is also targeting Texas and selected East Coast markets. We are currently developing a 74-unit assisted living and memory care building next door to our 163-unit independent living and assisted living community in Santa Rosa, California. We continue to aggressively seek new development opportunities in California, where there is supply/demand equilibrium.
When the Santa Rosa community is completed, we’ll have 19 communities and close to 2,200 units total.
SHB: MBK both develops its own properties and acquires existing properties. Which of the two activities is driving your growth strategy, or is it a 50/50 split?
Howard: Acquisitions have certainly been the core driver of our growth and business plan in the past 10 years. We seek Class A and B assets where we can create value through improved occupancy and expense reduction. We often will reposition an asset through capital improvements or the conversion of units into more high-demand service levels within a given market.
For example, we are currently involved in converting two of our independent living buildings to include assisted living and have also converted assisted living to memory care to better serve market demand where appropriate.
Our equity is either sourced internally through Mitsui or in a joint venture with HCP, our preferred partner on selected deals.
That said, we are trying to become a little more balanced with new development going forward. We’re looking at two specific sites in Southern California. But they’re off-market deals, so I don’t want to be more specific than that. Southern California is our core focus for ground-up development.
SHB: It looks like nearly all of your communities offer assisted living, about half offer memory care and a handful provide independent living. What led you to that mix? Do you have any interest in offering skilled nursing at any time in the future, or otherwise changing the mix?
Howard: We currently own or manage 831 independent living units, 1,041 assisted living units and 261 memory care units. Our preference is certainly to buy assets that currently provide a full continuum of care, or have the potential to do so, with the exception of skilled nursing.
As many senior living providers experienced during the last downturn from 2008 to 2010, standalone independent living can be more susceptible to occupancy challenges and rental rate pressure during periods of economic uncertainly or overbuilding.
SHB: Why do you shy away from skilled nursing?
Howard: We’re more interested in the private-pay models. Our management company is not built for skilled care. It’s all about matching our resources and talent with the experience of independent living, assisted living and memory care.
There’s also that government reimbursement piece in skilled nursing that we don’t have an appetite for.
Doing ‘the good work’
SHB: What is MBK’s general strategy? What makes you different from other operators out there?
Howard: From our initial onboarding of new associates to continued training at both the property and home-office level, we seek first to understand what the resident’s needs are and then build a care plan and customized approach to exceed expectations.
We just completed a two-year journey with the Ritz Carlton Leadership Center to assist MBK with programs and training to deliver higher, more consistent levels of quality and service to our residents and families. Our value proposition is providing consistently high levels of service.
A lot of people say they’re customer-centric and resident-driven. The reality is we put a lot of teeth into understanding why every single person comes to our door and what his or her needs are, and then we customize solutions.
SHB: Would you describe MBK’s seniors housing product as luxury?
Howard: I certainly consider us higher-end. That’s supported by the quality of assets we buy and the rates we charge.
SHB: MBK’s website touts your espousal of Yoi Shigoto, a Japanese work philosophy, as part of your affiliation with Mitsui & Co. Can you explain what Yoi Shigoto means in practice at MBK?
Howard: Literally translated, Yoi Shigoto means “the good work.” It emphasizes that doing good is not only the pursuit of profits, but also adding value to the business by solving customer problems and finding solutions to their needs. We thought it was a nice way to bridge the culture of our parent company, which is Japanese, with our own culture, which is distinct and different because we’re a U.S.-based company.
At the property level, we also reinforce “the good work” by supporting local, community-based organizations in need. This includes seeking out opportunities for our associates and residents to share their knowledge and passion in assisting local communities. Examples are providing support to abused mothers and their children, teaching children how to read and fundraising to support the Alzheimer’s Association, flood victims, wounded warriors, or other worthy causes.
At the home-office level, we include a Yoi Shigoto activity at each leadership retreat. These activities have included making improvements to a shelter for abused women and their children, building playhouses for underprivileged children, building bicycles for children and working at local food banks as a group.
Overbuilding causes workforce shortage
SHB: I saw an interview with you from over 10 years ago when you joined MBK. In that piece, you made the point that the most difficult aspect of seniors housing is attracting and retaining good staff. Is this still true, and how do you address that challenge?
Howard: I would still cite that issue as a major challenge. From wage pressures to employee turnover (which accelerates your training costs), these issues have been compounded by a shrinking unemployment rate and new supply coming onto the market.
MBK has always focused on finding those workers who have “the right heart” for serving seniors, as our business is not for everyone. We employ a variety of screening, assessment and interview tools to make sure an associate is choosing the industry and us for the right reasons.
SHB: What are other challenges today facing seniors housing developers, owners and operators?
Howard: One of the challenges of all who are seeking higher-quality assets is the availability of those types of assets. It’s still a relatively small pool of properties being traded in the market compared with other sectors. Just finding the right assets to buy is a challenge.
From what I’ve seen in the last year, the No. 1 concern is overbuilding. We see it in Texas, and we see it in Denver. I think Phoenix is on the verge of another wave of overbuilding. We actively compete in both the Denver and Phoenix markets.
The No. 2 concern would be talent — the availability of caregivers, nurses, executive directors, sales and marking directors. As more supply hits the market, you have more operators competing for the same small pool of talent.
That puts pressure on wages as well. If multiple people are trying to compete for the same caregiver, the person that pays the most is typically going to win. That’s part of that cost escalation.
SHB: What would people be surprised to learn about you?
Howard: For people who know me, there are very few surprises. I’m a transparent guy and really work hard at treating others the way I would want to be treated.
I guess one of my claims to fame is that I got a golf scholarship to Belmont University, a small college in Nashville. Unfortunately, our team was so bad, the school eliminated the program after my freshman year. It’s a great school and Nashville’s a wonderful place, but we were really bad.
Even so, that’s the school from which I graduated. I started my career at American Retirement Corp. in Nashville shortly after I graduated. That’s how I started.
Brookdale purchased the company in 2006 and Bill Sheriff, the CEO of American Retirement Corp. at the time, became CEO of Brookdale.