| While stormy economic conditions buffeted the | | | | another 18 percent to 692 in 2010. And finally, |
| business last year, indicators now point to smoother | | | | AdCare Health Systems, based in Springfield, Ohio, |
| sailing ahead. As businesses in nearly every U.S. | | | | remains a smaller provider at 231, but that reflects a |
| sector struggled to stay afloat last year, assisted | | | | 38 percent increase over the prior year, and the |
| living was the buoy in the choppy waters. Steady | | | | company recently announced raising $2.5 million to |
| demand for quality services helped keep companies | | | | fund acquisitions. |
| stable-even if accompanied by a hiatus from major | | | | More Stable Times Ahead |
| mergers and acquisitions. | | | | "The fact that we'll be able to point to this time |
| As businesses in nearly every U.S. sector struggled to | | | | period-the worst economic downturn in our |
| stay afloat last year, assisted living was the buoy in | | | | lifetimes-and say that our industry weathered it |
| the choppy waters. Steady demand for quality | | | | pretty well and even continued to grow is significant," |
| services helped keep companies stable-even if | | | | says Granger Cobb, president and co- CEO of |
| accompanied by a hiatus from major mergers and | | | | Emeritus Senior Living. |
| acquisitions. | | | | The past two recessions hit assisted living hard, and |
| Now, as economic forecasters allude to the end of | | | | many providers at the start of 2009 were concerned |
| the "Great Recession," companies like this year's | | | | that the stalled housing market, depleted stock |
| Largest Providers are poised for growth, some of | | | | market earnings, and high unemployment among the |
| which is already underway. Forty-two of those | | | | adult children of potential residents could cause |
| companies (60%) that made the 2010 list report | | | | occupancy rates to plummet. Instead, after modest |
| increases in licensed assisted living resident | | | | 2008 rate declines and a rent growth slowdown to 2 |
| capacity-though much of that growth was in | | | | percent from 2.9 percent in 2008 and 4 percent in |
| single-digit percentages. Another 16 of the top 70 | | | | 2007, the needs-based component of assisted living |
| companies maintained their size, while just 12 | | | | seemed to trump economic concerns. Move-ins could |
| reported losses. | | | | be postponed but only for so long. |
| Here's a look at Assisted Living Executive's 2010 | | | | By second quarter 2009, signs of stabilization began |
| Largest Providers, and the business environment, | | | | to emerge, followed by a slow but upward trend, |
| transactions, and trends that landed each company a | | | | says Robert G. Kramer, president of the Annapolis, |
| spot. | | | | Maryland-based National Investment Center for the |
| Top Players Hold Steady | | | | Seniors Housing & Care Industry (NIC). While national |
| In 2009, no assisted living providers merged nor | | | | unemployment still hovered at a troubling 10 percent |
| acquired any other complete company. However, | | | | in January, Kramer says he's cautiously optimistic |
| while most deals were small, the year did produce a | | | | about the future, especially since the industry saw its |
| few large portfolio acquisitions and considerable | | | | largest absorption rate in the third quarter of 2009 |
| reshuffling. The biggest gains and losses were among | | | | since the first quarter of 2006- 1,400 assisted living |
| the biggest players and occurred through simple sales | | | | units in the top 30 urban markets and slightly |
| and acquisitions. | | | | stronger in the top 100 markets. |
| For the first time since Assisted Living Executive | | | | Those statistics suggest that the overall picture is |
| began compiling this annual Largest Providers list, | | | | much rosier for assisted living than for other real |
| Sunrise Senior Living, based in McLean, Virginia, no | | | | estate sectors, including multifamily, hotels, and |
| longer sits at No. 1. The company, now No. 2, had no | | | | offices, Kramer notes. "Basically, we are seeing |
| new building starts and sold off about 9 percent of | | | | operators holding the line with regard to rates," he |
| its assisted living capacity (about 2,896 units) last | | | | adds. "We certainly are seeing more concessions out |
| year. Its biggest transaction was a portfolio of 21 | | | | there, but at the same time, those concessions tend |
| communities in 11 states to Milwaukee, | | | | to be very much market-specific, property-specific, |
| Wisconsin-based Brookdale Senior Living for $204 | | | | or even unit-specific." |
| million, but Sunrise also sold smaller portfolios to | | | | Still, move-in delays due to economic factors have |
| regional providers, such as Baltimore-based Brightview | | | | amplified a trend already developing |
| Senior Living (The Shelter Group), which purchased | | | | pre-recession-residents tend to be older and frailer, |
| two of Sunrise's New Jersey communities. | | | | says Jim Moore, president of Moore Diversified |
| The Sunrise downsize has made Seattle-based | | | | Services and author of "Strategic Forecast," published |
| Emeritus Senior Living the nation's largest assisted | | | | in Assisted Living Executive's January/February 2010 |
| living provider. Emeritus acquired 2,221 new licensed | | | | issue. The result is heightened opportunity in |
| assisted living units and grew by 7 percent in the | | | | dementia care, which is even more needs-based than |
| past year, and it's very likely that Emeritus will not | | | | assisted living, he adds. Indeed, a number of top 70 |
| only maintain the top spot next year, but expand | | | | operators reported having converted independent |
| significantly in 2011. The company's partner, | | | | units to assisted living or assisted living to memory |
| Blackstone Real Estate Advisors, is pursuing the | | | | care. |
| purchase of 134 communities operated by Sunwest | | | | As for new construction, buildings already in the |
| Management, which is in Chapter 11 bankruptcy. | | | | pipeline continued to open, but few companies |
| Under a preliminary agreement, Emeritus would | | | | launched new developments, and by January 2010, |
| manage the properties with the option to invest up | | | | the number of new building starts had fallen to the |
| to 10 percent of the equity in a joint venture with | | | | lowest point since NIC started tracking senior housing |
| Blackstone and Columbia Pacific Management, an | | | | trends. No companies went public in 2009. |
| entity controlled by Dan Baty, Emeritus chairman and | | | | Forecast for 2010 |
| co-CEO. | | | | Access to capital will remain the primary challenge for |
| Brookdale Senior Living maintained its No. 3 ranking, | | | | development in 2010, although new properties |
| but also grew by 3,808 residents, or 15 percent, in | | | | financed before the recession will continue to open |
| 2009. Sunwest Management, last year's No. 4 | | | | through the third quarter of 2010. But the lack of |
| company, comes in at No. 7 this year with 9,186 | | | | new properties isn't necessarily bad news for |
| assisted living residents, a 43 percent drop. The | | | | assisted living. |
| company will disappear completely from the 2011 list | | | | "We're going to go through a period of very little |
| if Blackstone or another entity receives court | | | | new product coming online, but if that coincides with |
| approval to buy the remainder of Sunwest's portfolio. | | | | pent-up demand and a recovery in the economy, all |
| In terms of percentage growth, the clear winner is | | | | should bode well for occupancies and rent growth in |
| Solana Beach, California-based Senior Resource | | | | assisted living," Kramer says. "Outside of external |
| Group, another beneficiary of Sunwest's financial | | | | economic factors that we don't have any control |
| woes. The company picked up management | | | | over, the greatest risk to assisted living is |
| contracts for 41 properties in 11 states, under the | | | | overbuilding." |
| name LaVida Communities, when institutional investor | | | | Fannie Mae and Freddie Mac will continue to be |
| Lone Star Funds of Dallas acquired the properties in | | | | dependable sources of permanent 10-year financing, |
| the first big deal of 2009. Senior Resource Group | | | | but when it comes to construction loans, developers |
| catapults from No. 55 to No. 11, having grown its | | | | have few options. Some very limited HUD 232 |
| assisted living resident capacity more than 500 | | | | financing will be available, but more likely, the few |
| percent, to 4,897. | | | | projects that launch will do so because of |
| Big Movers | | | | relationships with local lenders. |
| For the next Largest Providers percentage spike, | | | | Indeed, The Arbor Company, based in Atlanta, lacks |
| look to CRL Senior Living Communities, which enters | | | | the cash to develop properties on its own, but |
| the list at No. 57, thanks to more than doubling its | | | | thanks to a partnership with Formation Capital, Arbor |
| assisted living capacity from 502 to 1,019. Also on the | | | | will manage two new properties scheduled to break |
| growth path, Frontier Management expanded by 64 | | | | ground this fall, says COO Judd Harper. "We feel |
| percent, from 828 to 1,358 licensed assisted living | | | | much stronger and more optimistic about the |
| units, thanks to seven new management contracts | | | | assisted living occupancies in today's slowly |
| and two new buildings. Frontier Management jumps | | | | recovering economy, but are optimistic about |
| 15 spots from No. 57 to No. 42. Watch this Western | | | | independent living's rebound in the future," he adds. |
| regional provider to grow further next year as | | | | "As people get jobs, they no longer are going to be |
| several more new buildings open. | | | | able to care for a parent at home." |
| The fourth-largest list jumper is Carmichael, | | | | A bright spot in the acquisitions arena, private equity |
| California-based Eskaton Senior Residences and | | | | entities are beginning to eye assisted living as a |
| Services, rising 12 spots to No. 56. The company | | | | desirable sector again, and the major REITs in senior |
| reports 1,036 licensed assisted living units (up from | | | | housing are well-positioned to invest again, Kramer |
| 732 last year) due to either expansions or applications | | | | notes. Emeritus will be a company to watch thanks |
| for additional assisted living licensing. | | | | to the Blackstone deal, and while it only plans one |
| Only seven other providers report gains of 20 | | | | new building in 2010, the company actively will be |
| percent or more in the past year, and among them is | | | | looking for other acquisition opportunities at |
| Bradley, Illinois- based BMA Management. Because of | | | | attractive prices. |
| its focus on the affordable market, the company | | | | "If a company has liquidity, cash flow, and a |
| continues to benefit from accessible financing sources | | | | reasonably healthy balance sheet, it will be in a great |
| not available to traditional providers. BMA | | | | position because there are opportunities right now," |
| Management's assisted living resident capacity jumped | | | | Cobb says. That advantage isn't just for big |
| 27 percent in the past year as the company opened | | | | companies like Emeritus, but also for regional and |
| six new communities. In 2010, the company moves | | | | even small mom-and-pop players with targeted |
| up the list by three spots, coming in at No. 21. | | | | expansion plans, he adds, noting that "interest rates |
| Other companies that increased their licensed | | | | have not changed that much over the last couple of |
| assisted living capacity include Capital Senior Living | | | | years, but the amount of equity and coverage ratios |
| Corporation (No. 20), which grew by 25 percent, and | | | | you have to have in place has become more |
| Bonaventure Senior Living (No. 23), whose assisted | | | | stringent, as well as the underwriting." |
| living capacity surged by 21 percent to 2,595. | | | | Fanwood, New Jersey-based Chelsea Senior Living |
| Assisted living capacity for Carlsbad, California-based | | | | leveraged a strong relationship with a local lender to |
| Integral Senior Living (No. 24) rose 24 percent. | | | | purchase a former Sunwest property in New Jersey |
| Benedictine Health System (No. 41) grew by 20 | | | | last fall and is actively looking for more deals, says |
| percent, and Brightview Senior Living (No. 52, up from | | | | Roger Bernier, president and COO. "Some people are |
| No. 62 last year) expanded by 29 percent, thanks to | | | | likely to see their debt maturing and be unable to |
| the Sunrise deal, which added 240 residents. Another | | | | refinance," he forecasts. "Ultimately we'd like to grow |
| chart-jumper was Leisure Living Management, which | | | | by two communities per year, but it has to be the |
| vaulted nine places from No. 58 in 2009 to No. 49 this | | | | right deal for us to take a look." |
| year simply by adding 200 residents (22 percent). | | | | Much of the acquisitions action in 2010 is likely to |
| The vast majority of expanding providers, however, | | | | remain with distressed properties, however, and no |
| had gains of less than 10 percent. But a little growth | | | | one expects lots of high-end properties to come on |
| can go a long way when nearly 60 percent of | | | | the market this year, says Steve Monroe of Senior |
| companies on the Largest Providers list have fewer | | | | Care Investor. "High-performing properties are only |
| than 2,000 assisted living residents. | | | | going to sell if owners can get a good price, although |
| In another indication of assisted living growth, | | | | that may start to change later in 2010." |
| Independent Healthcare Properties, the smallest | | | | Still, wise operators should not be blinded by |
| company on the list at No. 70, only kept its 2009 | | | | attractive price tags so much that they forget to |
| rank thanks to an 18 percent capacity gain from 706 | | | | consider how well the acquisition fits into their |
| to 833. Most of the 2009-ranked companies that did | | | | existing portfolio and evolving demands of seniors |
| not make this year's list either maintained capacity or | | | | and their families, Moore cautions. "Senior |
| had very small gains. Another reason for higher | | | | psychographics are changing," he adds. "It's not so |
| numbers at the bottom of the list is attributed to | | | | much the World War II homemaker widow as |
| data from five providers not previously | | | | 80-year-olds who have been in the professional |
| listed-Spectrum Retirement Communities (No. 28), | | | | workforce." |
| Mountain View Retirement (No. 50), CRL Senior Living | | | | Another area of opportunity in 2010 may be new |
| Communities (No. 57), Welcome Home Management | | | | management contracts for owners and lenders who |
| Company (No. 64), and Elder Care Alliance (No. 66). | | | | may be unhappy with their current management, |
| Other than Sunwest, the company with the most | | | | Moore suggests. And for many companies, the |
| dramatic drop in licensed assisted living capacity was | | | | wisest move in 2010 may be just to sharpen internal |
| Northstar Senior Living, which shed 1,068 residents, or | | | | operations, he says. |
| 55 percent of its 2009 capacity, falling from No. 28 to | | | | Although Greensboro, North Carolina- based Bell |
| No. 67. Again, because of modest overall numbers, | | | | Senior Living is open to the right deal within the |
| decreases were most notable toward the bottom of | | | | mid-Atlantic states in which it already operates, the |
| the top 70 list. Grace Management saw a 30 percent | | | | latter strategy will be the company's prime priority |
| decline from 1,399 to 979 and dropped from No. 37 in | | | | this year, says President Steve Morton. "I'd say it's a |
| 2009 to No. 61 this year. Carillon Assisted Living, No. | | | | time to focus on operations, improve operating |
| 49 in 2009, decreased its capacity by 24 percent | | | | results including management and revenue streams, |
| from 1,024 to 775, removing it from the list | | | | and put together the necessary tools to maximize |
| altogether. | | | | and run communities in the most effective manner |
| Several companies that didn't make this year's list but | | | | possible," he says. "This is something we can do |
| may show up in 2011 include Trinity Lifestyles | | | | because we don't have five acquisitions or |
| Management, which nearly doubled in size to 480 | | | | development deals." |
| assisted living residents after picking up three | | | | Finally, unstable financial markets still make it unlikely |
| Atlanta-area EdenCare properties, formerly operated | | | | that any company will go public in 2010, but if |
| by Sunrise Senior Living. Wichita, Kansas-based | | | | conditions improve, Moore says, the two companies |
| Legend Senior Living has been raising its assisted living | | | | to watch continue to be Atria Senior Living Group |
| component steadily with new construction, expanding | | | | (No. 4) and HCR ManorCare (No. 10). |