Nearly two years ago, Insignia Senior Living CEO Milton Cruz was helping his San Juan, Puerto Rico-based company prepare for Hurricane Maria, a category 5 storm looming over the island. What he didn’t know was that he was about to experience the worst five months of his life.
Through power outages, oxygen and fuel shortages, Cruz — along with his wife, Insignia’s co-founder and president, Aileen Rosso — helped keep residents safe and secure. No Insignia residents died during the hurricane, which is said to have killed thousands of people in the U.S. island territory.
As tough as the hurricane was, it taught a valuable lesson in disaster preparedness. And, doing business in the economically troubled Puerto Rico has given Insignia a competitive advantage through increased efficiency and leaner operations. Now, the provider is applying those lessons and is looking for acquisition opportunities in the continental United States.
The following interview has been edited for length and clarity:
SHN: How did you get into this industry?
Cruz: In 1985, when I graduated from law school, I spent five years as a health care attorney in Puerto Rico, specifically doing a lot of hospital work. That brought me to a management position and eventually I became CEO of Puerto Rico’s largest hospital network, which was called San Pablo Health System. It was a number of hospitals which I ran for over 10 years as CEO.
In 1998, the network was sold to Universal Health Services, which is a publicly traded company out of King of Prussia, Pennsylvania. It’s a great company. They managed behavioral hospitals, as well as acute care hospitals, across the nation and in England. So, after we sold the hospital to them, I stayed on working with them for six years as the Puerto Rico CEO.
My wife Alieen and I, we always wanted to own our own company and be entrepreneurs. However, we couldn’t get into the hospital business because we had a noncompete clause in my employment agreement.
So, I started reading about assisted living. At that time, in 1998 and around the early 2000s, many senior living companies, especially publicly traded companies, weren’t doing well. Some of them went bankrupt.
We took advantage of that situation and we acquired around five former Alterra communities, mostly in Florida. The communities were not doing well at that time and we engaged and leased the properties to a third-party operator, because we didn’t know anything about the industry.
But we started learning, and we enjoyed working in the industry, so we decided we were going to do our own management company. We made a strategic decision to own our own real estate, plus manage it.
So, in 2007, we decided to take control of our own operations. We eventually sold our Florida portfolio and focused on Georgia. We bought some Georgia properties, and as of today, we have four properties in Georgia, in the Atlanta area, that we own and manage.
That’s our philosophy … we manage what we own. We believe that gives us more of a long-term vision and allows us to make strategic decisions for the benefit of our residents and not quarterly profits.
Tell me about what you saw in Puerto Rico during Hurricane Maria. What was it like for your communities there?
Hurricane Maria was a terrible situation. At the same time, it helped our company strengthen our relationship with our associates because we all worked together in making sure our residents were safe during and after the hurricane.
In Puerto Rico, there is a lack of nursing homes because of the way we are reimbursed by medical insurance. It’s not that attractive. So, we had to take care of traditional senior living residents and also take care of more frail residents that required much more intensive care.
My wife and I, we spent 16 days sleeping on the floor in one of our communities because we didn’t want to have even one death due to the hurricane. We are happy to report that all our residents in Puerto Rico were safe and nobody died, even though we spent over five months — five months, not weeks, months — without electricity. We were operating using electrical power generators. We had many days without water, and even without oxygen for our residents that need it.
We usually plan for one month without power. We never thought that it was going to be five months.
On the day of the hurricane,. Aileen and I slept in our largest community in Puerto Rico, which is Miramar, our largest community that has 75 units (pictured above).
The hurricane came through the night. It was a monster. We lost part of our roof. We had to move residents at 5 a.m., from one wing to another wing. We had to remain in the other wing for a few hours until the hurricane was gone.
After the hurricane, the issue was not only that the lack of electricity for months, but that there was no diesel for our generators … . So, we had to secure diesel,. and the diesel that was available went mostly to hospitals and other health care facilities.
FEMA was in Puerto Rico. We had to let them know that we also had frail residents that needed power from the diesel generators. Fortunately, we were eventually able to secure it.
But that wasn’t the only issue. Our electrical generators were not built to be operating nonstop for many days. Usually, they are built to run constantly for one week. So, we had no parts to replace the filters that needed to be replaced on the generators.
Once people knew the electricity wasn’t going to come back for a matter of months, everyone started buying the filters, and there were no parts and filters for the generators. So, that was an agonizing experience, just to looking for those parts.
There was a lack of oxygen in Puerto Rico, as I said. One night around 3 a.m., we had to move residents from one of our communities that was going to run out of electricity because it was out of diesel. So, we had to take our most frail residents to another community that we had that we knew had enough diesel for two or three days.
Our associates And, our associates, couldn’t come to work because the roads were blocked as a result of all the destruction in the area. Our associates that were in our communities during the hurricane had to stay. Some associates stayed for three or four months, living in our communities. I even told them, bring your family members, we’ll take care of them. We need you to take care of our residents.
Those were the most terrible five months in my life. I’m 57 and I’ve been through many issues. I mean, I used to be a hospital CEO, so you can imagine what I’ve gone through. But, this experience was absolutely a huge challenge.
In the end, though, we became stronger because our associates know that Insignia is not just management and caregivers. Insignia is all of the team members. In challenging times, we roll up our sleeves and we work hard to take care of our residents.
I’m writing actually writing a book about the experience. It’s called “Category 5: From Vacation to Adventure to Disaster.” That’s the title because I was on vacation the week before. When I heard there was a hurricane, the week before, it was an adventure, and then when I came back, it was a disaster.
You have four properties in Georgia ande three properties in Puerto Rico now. How did that come to pass?
Puerto Rico was undergoing a deep recession which started in 2006 and has been ongoing for over 10 years. As you probably know, Puerto Rico is having a lot of economic issues, and the government had to go into a type of reorganization with its bond holders.
In 2010, we were able to purchase a property at below replacement cost. Since we live in Puerto Rico, our home office is there.
We built these nice senior living communities, which at the beginning we were very concerned about. As I said, even though there are about 3.2 million residents in Puerto Rico, there are not many people that are age- and income-qualified to move into a private-pay senior living community.
We took the risk because we live there, we know the market. And my mother and my father needed services, so there was kind of a personal interest. We built these communities, and banks didn’t want to finance such an operation because of the economics in Puerto Rico.
This was a new industry that we were creating. Fortunately, we were able to complete the project, and even though it took us almost three years to stabilize it, we were able to do so and people are very happy with our services.
What is doing business in Puerto Rico like versus Georgia?
The cost of electricity is much, much higher than in the states. For example, in Georgia, I pay less than half than what I pay in Puerto Rico. Also, water is expensive. The cost of supplies is high. Since we’re an island, we have to import everything by boat or airplane.
In development, the permitting process in Puerto Rico is a big issue. I have to be very patient in the development process there.
But there are some advantages, too. Everything is in Spanish, and we have two official languages. So, that’s one of our competitive advantages. Because we’re from Puerto Rico, we know the market. We also know how to survive in a difficult market. We see growth in the affordable, best-value product in the states.
In Puerto Rico, we have to charge lower rates than in the states because of the economic situation. Our average monthly rates [in Puerto Rico] are in the the $2,000 to $2,500 range. In Georgia, our rates range between $3,500 and $6,000, depending on the level of care.
We have decided we need to grow in the states, in Georgia. In the states, there is a lot of competition, specifically in the Atlanta area. There is a lot of construction, but I understand it’s slowing down because of the overbuilding that has happened.
We are looking to meet a specific niche with our growth in the states. The niche is that we want to become the best value in the markets where we operate. We don’t want to be the most expensive, we don’t want to be the nicest community in terms of amenities or the building.
We want to provide the best care at a reasonable price. Because people won’t settle for less than great quality, but they don’t have the money to pay for a gorgeous Taj Mahal-type of building.
It’s also important to emphasize that we are family-owned and operated company, which gives us a lot of flexibility. We are also a very flat organization, we’re not too hierarchic. It allows us to have great communication between our home office and our associates and team leaders in Georgia.
We are doing well, although we also share the same challenges as other companies in the industry. Specifically, we’re seeing labor shortages both in Georgia and in Puerto Rico.
After Hurricane Maria, and due to the recession prior to the hurricane, Puerto Rico has lost over half a million residents, which is huge for its small economy.
You mentioned it’s hard to find good workers in Georgia and Puerto Rico. Do you do anything extra to attract employees?
We have something called Insignia Academy where we provide our own education to caregivers based on our own educational materials. The education is very comprehensive, and we even grant a certificate on completion of the training, specifically in the area of memory care services.
We want to make sure that our caregivers know how to take care of memory care residents. It’s difficult, so we have to train them. The challenge is, once you train them, the market is so tight that we have to retain them. They only way to retain them is not only by paying them a reasonable salary, it’s also by the culture. So, we have our own Insignia culture, which is based on open communication among our staff, our team leaders and our home office.
We don’t have a corporate office, we call it a home office. We don’t want to be seen as a corporation or as a publicly traded entity or an overly money-making enterprise. We are a people-centric, resident-centric organization, and we have to take care of our associates so they can take care of our residents.
We are not in this space to sell in five years. We are here for the long-term.
Can you apply anything from what you’ve learned doing business in Puerto RIco to the way you operate in the states?
What we have learned in Puerto Rico is to be extremely efficient.
As a provider of a senior living community, we have to provide quality care. So, you have to look at the construction costs and reduce those costs as much as possible.
You need to have a design that will be flexible, where you can have, for example, a dining room that could be converted into an activity room. In terms of unit size, even though people want large units and that’s the trend, if you want affordability, you won’t have a huge apartment. You will have a decent, good-sized unit.
The expense focus has to be on your associates and educating your associates so you provide quality care, both socially and in terms of activities of daily living.
We look at every item in the P&L expense lines. Even what we spend cleaning the floors, how much it costs. It’s not only food and salaries. We have to look at everything and then look at how we streamline our processes. If we do something in five steps, how can we do it in two steps to reduce costs and improve our margins?
We also find that in the states, there is a huge opportunity of reducing costs on the building maintenance side. We feel that we need to be careful when we hire maintenance directors in this space and make sure they’re really knowledgeable and hands-on in terms of doing many types of work, including electrical work, plumbing work, interior construction. When you subcontract maintenance work, you are paying somebody else a margin you could save by doing it yourself.
In Puerto Rico, our maintenance directors are very good with this. In the states, they are good because we hire them on our experience in Puerto Rico. But we have to make sure they are hands-on maintenance directors.
We see in the states people will say, let’s paint a community, let’s hire somebody from the outside. And we will say, no, we can do that. It’s very simple. That’s a way we can save expenses.
Aileen and I, we are always visiting our communities. We are engaged owners. We are not investors. We are operators, and we know everything that is going on in our communities because we listen. We listen to the concerns of our executive directors, and we are an action-oriented company. We make decisions, we don’t procrastinate.
Is Insignia growing right now? Any markets you have your eye on?
Nothing specifically at the moment, but we are looking at opportunities in the Southeast U.S. Not much development, since we want to be the best value. We want to acquire, at good prices, properties that we can improve.
Again, the key here is having well-trained associates work as a team with great communication. We don’t want to grow too quickly, because when companies do that, they might lose their soul. And we have to make sure that we keep the focus on our mission to provide safe and joyful environments for seniors.
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