Formation Capital Alums Beckwith, Marcet Launch Arcus with $100M Investment Target

Almost one year ago exactly, Brian Beckwith ended his tenure as CEO of Formation Capital and began to consider his next moves.

Sheryl Marcet was also considering her future. At the time, Marcet was a managing director at Formation, and she had first worked with Beckwith when they were both at GE Capital.

Beckwith and Marcet decided to launch a new firm, Arcus Healthcare Partners. Now, with an institutional equity partner, they are looking to put $100 million to work over the next 12 to 15 months through investments in senior living and skilled nursing.

“We felt like this was the right time to take a lot of the things we learned at GE and elsewhere, to really put it to work with our own touch to it, our own brand,” Beckwith told Senior Housing News.

Beckwith is CEO and Marcet is chief investment officer of Arcus. They have “gotten a few team members back together,” Beckwith said.

Arcus’ origins trace back to a portfolio of five skilled nursing mezzanine loans that Beckwith acquired from Formation. In January 2022, Arcus closed on a 118-unit assisted living and memory care property that was in receivership. Omega Senior Living is their operating partner in that community, where a turnaround has gotten off to a good start, Marcet and Beckwith said.

Going forward, they are primarily targeting investments in assisted living. They like going after distress, viewing such transactions as opportunities to flex their industry connections and know-how to improve operations and produce attractive returns.

Small and “complicated” transactions that are off-market or that do not attract the attention of real estate investment trusts are likely to be where Arcus initially makes a mark, Beckwith said.

Newer buildings struggling with 60% to 70% occupancy that will benefit from more sophisticated owner and operator involvement would be especially attractive, Marcet explained.

However, distressed opportunities are not prevalent at the moment. Still, given that assisted living has not received robust government financial support throughout the Covid-19 pandemic, Beckwith and Marcet anticipate that deals will emerge.

Arcus can “play a big role” for communities that have managed through the past decade but have not invested enough in the business and now are facing a new — and more challenging — operating environment.

“I think margins have systemically changed,” Beckwith said.

Staffing in particular will be a challenge for the foreseeable future; even if labor shortages ease, costs are likely to remain elevated, he argued.

Skilled nursing investments are also on the table, although this remains a surprisingly competitive market from a pricing standpoint.

“It’s strange to me that it is still as competitive, with the uncertainty that’s on the horizon,” Beckwith said.

That uncertainty is financial, as Covid relief funds come to an end. And there is regulatory uncertainty, given the comprehensive reform package proposed by the White House.

The reform package takes aim at private equity and REIT ownership of nursing homes in particular, with the Biden administration claiming that profits are trumping care quality. The skilled nursing industry has pushed back on these assertions.

“The way that we approach it is straightforward: the better clinical care, the better financial performance — they are highly correlated,” Beckwith said. “So, the transactions that we would consider, that we would do, are generally going to be with operators that are higher on clinical quality, quality metrics.”

Formation was among the most prominent private firms to invest in skilled nursing, acquiring industry giant Genesis HealthCare in 2007. Since that time, Formation has divested from the space and is now pursuing a new strategy focused on senior living.

Government criticism of private equity ownership of skilled nursing facilities has been ongoing for 20 years but ebbs and flows in “phases,” Beckwith observed. He would welcome conversations with regulators or politicians genuinely interested in the industry, as he believes policymaking and rhetoric can be more about grandstanding than truly driving improvement.

“It can be a distraction, but it’s not something that makes me think we shouldn’t be involved in that part of the industry,” he said.

Going from firms such as GE and Formation to a startup has been a change for Beckwith and Marcet.

“I don’t know that you’re ever fully prepared that the hat you wear is: you’re IT, you’re HR, you’re payroll, you’re underwriter, you’re business development … I don’t care what your title is, it’s just work, and so you get it done,” Marcet said.

She and Beckwith shared laughs about some complications they now must navigate; something as simple as getting a document notarized and mailed to close the acquisition — which could have been handled in minutes at an established firm — required Marcet to drive to the bank.

Beckwith “really enjoys” being entrepreneurial but acknowledged “it’s hard.”

“I’m very quickly learning where my skill sets have either declined or didn’t exist,” Beckwith said. “There’s a lot of things I’m learning.”

Despite the challenges, he and Marcet are bullish.

“The time just seemed right to do it, so you dive in,” Marcet said.

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