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MorningStar CEO: Strong Leadership More Important Than Ever in Senior Living

The need for strong leadership in senior living has never been greater, in light of profound challenges related to workforce, the pace of new development and other issues, according to MorningStar Founder and CEO Ken Jaeger.

“The issues of today are real and they need our full attention,” he said on a recent episode of the Senior Housing News podcast Transform. “ … Leadership is more important now than ever.”

Leaders need to be on their game to keep their businesses steady, but Jaeger also believes that CEOs in the industry should be thinking bigger about how they can help solve monumental global problems such as poverty. He points to Bill and Melinda Gates as leaders to emulate in this regard.

Jaeger’s sense of mission was ingrained early in life, from seeing poverty during trips to Mexico, where his mother spent part of her childhood in an orphanage. As a child, Jaeger vowed to start a business that would do good in the world.

But a strong mission is not just about making the world a better place, it’s also key to creating a robust and profitable business, he pointed out. 

This year, Denver-based MorningStar Senior Living struck a joint venture with Houston-based real estate development giant Hines, which could possibly lead to a dozen or more properties. A strong sense of shared values was crucial in cementing this partnership, Jaeger said during his Transform interview.

Highlights of that interview are below, edited for length and clarity. Subscribe to Transform via Apple PodcastsSoundCloud or Google Play.

On the origin of the Hines partnership:

We’ve been extremely blessed to have joint ventures with some really good development companies. That is what we do — joint venture. With Confluent here in Denver and Swenson out on the West Coast, and now with Hines and a few other ones. [Hines] has become an important part of our future as we expand our senior housing platform.

Gerald Hines, the founder, is successful beyond conventional comprehension. I mean, he has built a legacy that will be hard to duplicate and one that joint venture partners like MorningStar are proud to be a part of.

Under the Hines platform, projects are going to move forward under the values established by Gerald Hines and integrate everything from him and their organization. There are no shortcuts. Quality is going to be paramount. It’s all about a long-term relationship, a long-term play with them.

So, about two years ago, we got introduced to them by another real estate partner of ours. We flew to their corporate headquarters in Houston and we had what I call a family meeting. It was really, get to know each other to see if our core values aligned. Subsequent meetings led to our current partnership.

At the end of the day, it was all about alignment, not just on the financial side of the business but our mutual interest in serving seniors, about our core values and overall mission … You can have all the skillset in the world, but [if] the core values and worldviews aren’t in alignment, you’re going to have troubles down the road.

So, I’m excited about changing the way people view senior housing with the ingenuity of Hines as our partner. We don’t know what the future holds. We may do one property with them or a dozen or more. We’re going to be very selective in our site selection, like with the rest of our partners. They’re just great folks to be joined up with.

On why Hines chose MorningStar as a partner versus other operators:

I think there were two things. First and foremost, they were looking for core value fit. They did a lot of work on us. Checked a lot of our references, checked our website — our website really tells a story about who we are … They visited our properties.

And then it was really that face-to-face meeting with their team for several hours and going to dinner with them. When they studied us, they spoke with Matt Turner, my managing partner, and myself. They are very, very keen on who it is they’re doing business with, that there is a long-term, basically friendship there. Because that develops into trust. It’s kind of like a marriage. You have to trust your spouse, and that’s the way they look at things.

And then, they were looking for financial alignment. They weren’t interested in the third-party management structure. So, the financial alignment that MorningStar likes to have — you know, as they say, skin in the game — that was an interest of theirs.

So, those were the two primary reasons. And, our track record of building Class A assets, because everything they do is the best. They wanted to be sure we weren’t going to cut corners anywhere.

On whether operations are under-capitalized in the third-party management structure:

I think it’s a valid concern.

There’s really two types of operators in our space. Those that work strictly for a management fee plus incentives for hitting predetermined targets, and those that have equity in each deal and participate pari passu on the real estate returns plus the management fee. Generally speaking, those with equity in each deal are pretty firmly capitalized due to their fees on the real estate side and the management fees.

It’s certainly up to the management fee-based companies as it is with the equity-based companies to budget accordingly. As far as I know, most companies do a pretty good job of ensuring that they’re balanced in that arena, and I personally have not heard of any management companies being in financial trouble or distress. But, nonetheless, it’s something to keep an eye on. It will be important, going forward, that debt and equity partners keep fees stable so that everyone is aligned and success is shared from all sides.

On ASHA President David Schless’ comment that this might be the toughest operating environment ever:

I’ll tell you what, David is correct. There’s a lot to consider here … the issues of today are real and they need our full attention.

With unemployment rates hovering around 2% in some states, employees have options. Leadership is more important now than ever, and designing a career with purpose for our team members so that we can compete with other industries such as banking and hotel, restaurants, just to name a few. It’s critical.

As far as development and growth goes … the need for senior housing in the next 20 years is going nowhere, but our biggest challenge is monitoring the development. As an industry, we can’t build all the homes now that we’ll need in the next 20 years. So, we as an industry have to grow at an intelligent pace. Banks and equity sources need to be wise when a developer comes to them with a great site. I mean, after all, everybody has a great site, a “no-miss” site, right? Some have 20 or 30 or 40. But, it’s best to pull back and be disciplined with site selection and unit count per property, or overall I’m in trouble with occupancies and operating margins. Margins are going to fluctuate if overbuilding continues. It’s best to be conservative with your performance as you write those and don’t oversell to the investment group. Build with the notion that someone’s going to build down the street, whether there’s room for them or not.

I’d really advise people to scrutinize third-party market studies and go with about half of what they say you should go with.

On brainstorming with HRA:

I’m getting together with another senior leader — another CEO and his company — and we’re bringing our senior leadership teams together. We’re going to talk about best practices for two days and discuss the issues that we’re facing in each of our firms. We’re doing this to learn and grow from each other and to stay ahead of the issues at hand. We’re really looking forward to that … We’re going to Vero Beach [Florida] to meet with Tim Smick and his great organization down there … he’s a great leader and he’s got a great leader in Sarabeth [Hanson], she’s an awesome CEO. I said as a requirement we need to have dinner on the beach, because it’s cold up here! As a matter of fact, it’s snowing today.

… I could name 15 great CEOs right now. I’d love to spend time with them and their team. Tim’s company in particular has great core values and alignment with ours, so there’ll be some great things coming out of it, where we can really build upon each other. I think more companies should do that.

On building smaller than market studies recommend:

I’ve never read a market study where they say, there’s too much building — they always say, there’s room for 1,000 more units, when you know there isn’t. I want to be careful here … I’m sure they’ve got their metrics that they’re leaning on, but it never seems to turn out that way. So, you’ve just got to be cautious. We do our own internal market studies. Matt and I, we still kick the tires, we still walk the dirt, we still do our comp analysis. Then, if we feel good about it, we’ll engage the third-party market study to kind of tell us what we already know, because the banks require that. I would really advise you to do your own first … rely on your own data before you pull the trigger. That’s just really important to us.

On the active adult opportunity:

Active adult certainly is getting a lot of talk these days. I think it’s too early to see if it will be a successful product or not. I mean, you can’t just jump into something without studying demand for it or understanding the product. Most of the active adult is catering to the senior in their 70s looking to downsize their life and enjoy meaningful activity. On the other hand, the Del Webb product has been around forever and has done a nice job … so, actually, it’s not all that new a concept, but it’s the rental, apartment-style active adult product that is getting all the talk at the moment.

We’ll see what the future holds. At MorningStar, we’ll stay disciplined, do what we do well, and whether active adult fits into our plans in the future, time would tell.

On his personal backstory and commitment to fighting poverty:

It actually started when I was about five years old. My mother grew up, in her younger years, in an orphanage in northern Mexico. When I was a child, she’s taking me across the border to show me what poverty looks like, with my brothers and sisters. It made a dramatic impact on my life. I made a vow to God at that time that one day, when I grew up, I was going to start a business and give a large percentage of my profits to the poor. It’s become much more than giving of my income.

In my early years of business, I would return to Juarez, where my mother grew up, and I would help build homes … from there, about 12 years ago, an elderly gentleman asked me to go along with him to visit his daughter and her husband, who were down in Nicaragua repairing homes, when Hurricane Felix had just swept across the country and destroyed the eastern coast. On that trip, I met a man and his wife — Esther and Earl Bowie — who had taken in dozens of children off the streets, who were left abandoned, due to the natural disasters and poverty in the area and the civil war that was going on there. Many children were left hungry and homeless … they were holed up in this warehouse-looking type of building with holes in the roof, no AC, one bathroom for 60 children. The place was dark and gloomy and kids were sleeping three to four on worn out mattresses … there was little hope.

I came back to Denver, got in my nice car and drove to a nice home, and I couldn’t get the image of those kids out of my mind. So, I decided to do something about it. I took about a dozen men from my church to this village called Puerto Cabezas. We took our tool belts and our hammers and everything else we could get across the border and then for the next three years, we built these children a beautiful, home-like, dormitory-style house that they could be proud of. It was complete with running water and restrooms, ceiling fans, screened-in windows, new beds, and from there we added on a kitchen, study hall, vocational center, clinic, and on and on. We keep going back … my company’s gone down there and other CEOs have actually joined me with some of their key staff.

Matt Turner, my partner, got involved with a company called Life Water. They are a world-class organization. They drill water wells. Matt climbed Mount Kilimanjaro to raise money. They drill water wells in such places as Ethiopia, Tanzania, Uganda. We’re in the midst of a massive fundraiser campaign right now to purchase three new water rakes, one for each of these countries.

We have a volunteer program where all our employees can voluntarily donate out of their paychecks a payroll deduction to the water wells or orphanage. It’s shocking what’s going on with our team members. A very high percentage of our team members give maybe $2 a paycheck, and it all adds up and we’re saving lives together. Then, I walk into my homes, and I’ll tell you, I have dishwashers and housekeepers coming up to me and the first thing they ask me is how the kids in the orphanage are doing … and how are the water wells coming along in Ethiopia?

On what he would want to discuss with other senior living CEOs he respects:

This past May, Fortune magazine ran an edition titled The World’s 50 Greatest Leaders … the No. 1 leader, in their research, was Bill and Melinda Gates. They were selected No. 1 not because they are the wealthiest couple in the world, but because of what their position of influence [is] and what they do with their wealth.

Their work over the last 20 years is mind-blowing, and it has helped transform the lives of hundreds of millions of people, and will surely affect billions more if the research they’re doing and funding now helps trying to cure AIDS, multi-drug resistant tuberculosis, malaria, neglected tropical diseases, bringing clean drinking water to millions of people, and medicine for simple issues like flu that we take for granted …

Melinda Gates was asked, what do you think is the most pressing issue of our time? Her answer was ending poverty in the world.

So, the power of leadership is changing the world. They are an incredible role model. They bring infectious optimism that these problems can be solved … I don’t think it’s naive optimism. It’s realistic optimism. I’ve seen it for myself, where I’ve been to dozens of underdeveloped countries, walked into the poorest areas of the world, and they’re trying to envision a future, a better future, just as we leaders envision the future of where our company and our missions are going. But, for them, it’s a mission that all lives have equal value, regardless of where they were born. 

I think we as leaders, we need to come alongside them and do the same. Let’s work together to move this mountain called poverty. One child, one village, one country at a time.

So, I have a question for my fellow peers. The same question I think Bill and Melinda Gates ask when they are surrounded by monumental world problems. What do we do next? And then, do it. You know, let’s get our teams on board with the thousands and thousands of team members that this great industry has. We can circle the wagons. We can do some wonderful things in this world.

Click below to listen to the complete episode:

The post MorningStar CEO: Strong Leadership More Important Than Ever in Senior Living appeared first on Senior Housing News.

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