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New Markets, Creative Partnerships: Pathway, Capri Pursue Distinct Growth Strategies

In 2017, the Archdiocese of Milwaukee sold land in the city’s historic Italian-American neighborhood to Capri Communities for $1.

Capri created St. Rita Square, a 118-unit senior community with independent living, assisted living, and memory care services. The Waukesha, Wisconsin-based developer and operator then built a brand new church adjacent to the new community and sold that church to the Archdiocese for $1, SVP of Development Wayne Wiertzema said at the recent Senior Housing News BUILD event in Chicago.

Essentially, the archdiocese donated the land to Capri and Capri donated a new church right back to them.

This is just one example of how Capri — a for-profit company — is working in creative ways with religious organizations to facilitate growth, to expand its portfolio.

Going forward, Capri intends to keep expanding through development. That’s in contrast to Chicago-based Pathway to Living, a Waterton Company.

Waterton SVP of Investment Justin Dickinson sees the current moment as a “buy environment,” given challenges to new development, including high construction costs. Pathway has recently nearly doubled its portfolio through a deal with real estate investment trust Welltower (NYSE: WELL), and Dickinson is eyeing growth in new regions around the United States.

Capri and Pathway show how two senior living organizations are pursuing different strategies, while sharing a bullish outlook on the future for the industry.

Build versus buy

In pursuing growth, churches offer an attractive partnership opportunity for Capri.

“If you really think about it, a lot of churches, or church organizations, are well-located within communities where there’s a good, nice dense population base,” Wiertzema said. “A lot of [churches] have excess land that, at some time in their history, they intended to do something different with … build a school or whatever it might be.”

Capri’s St. Rita Square opened in fall 2020 in the worst of Wisconsin’s Covid outbreak but is doing well, according to Wiertzema, who noted that occupancy is nearly at 80%.

This isn’t a one-time opportunity for Capri to work with a church or religious institution. In Menomonee Falls, Wisconsin, Grace Lutheran Church sold some 38 acres of land to Capri on which the company built a 180-unit campus that opened last year.

“We’re in the early stages of a partnership with a religious college to develop senior living on their campus,” Wiertzema said. “It’s very synergistic.”

Doing deals with churches is not a quick process. The St. Rita project was the “culmination of a seven-year courtship,” Wiertzema said. But Capri is willing to put in the necessary time to bring these projects to fruition, and views the projects with religious organizations as one part of its go-forward growth strategy.

“We’ll continue to look for projects that make sense to do from the ground up,” Wiertzema said.

One advantage for Capri is that its development costs are generally about 20% below Midwest averages, he added.

“I credit that to the team, the architects, the work that we put in up front; we build beautiful communities, but we’re able to do it at a little bit better cost, I think, than the general market,” he said.

Still, Capri will also evaluate potential acquisitions, and in recent years has grown through a combination of acquisition and development.

Pathway to Living also has grown through a mixture of development and acquisition, but Dickinson is clear that buying is the preferred approach at the moment.

“We’re viewing it as a ‘buy’ environment due to the cost of construction, which I’m sure everybody’s aware of,” said Dickinson.

Pathway has a three-fold thesis when it comes to acquisitions, according to Dickinson. Those factors are:

  • A known and desirable market
  • The opportunity to add value through management
  • The opportunity to add value through unit mix shifts or additions

Dickinson and his colleagues have put that thesis to use in recent months. In June of this year, Pathway acquired 22 communities in a transaction with Welltower for nearly $100 million.

And Waterton is eyeing other opportunities

While focusing on current properties in the Midwest and in Florida, the company could expand its senior housing portfolio by entering other regional markets.

“Whether that’s a partnership model… or an M&A structure, I think that the capital is really moving toward the regionalized operator approach,” Dickinson said.

For Dickinson, the opportunity is clear: take advantage of regional and local expertise while offering synergies such as accounting, HR, and other support structures, effectively taking that responsibility off of the operators’ respective plates.

As to where Waterton could be looking to grow, the Pacific Northwest, the Southeast, and the I95 corridor in New Jersey, New York, and Connecticut are all attractive, according to Dickinson.

Mixing care levels

In addition to growth through new development, there are also opportunities within the current Capri portfolio, said Wierztema.

“We’re looking at our own portfolio for where we can add [independent living] because that serves as a good feeder to the campuses that we operate,” he said.

Capri is finding success with a model in which independent living and assisted living units are intermingled. This arrangement eases the transition for those reluctant to transition into assisted living, in the company’s experience.

“In Wisconsin, in our market, we’re finding resistance,” Wiertzema said, of moving from independent living to assisted living.

Pathway sees things differently, preferring to keep the different levels of care separate.

“ … Individuals moving in who are less acute, who are more ambulatory, have the ability to socialize with their peers and live a distinctly different lifestyle,” Dickinson said.

Meeting the new consumer

Senior housing residents aren’t just living different lifestyles from one another based on level care, they’re living a different lifestyle from seniors of the past. New developments and newly acquired communities must evolve to meet the evolving market, Wiertzema and Dickinson said.

To accommodate the baby boomer generation, options and amenities are continually added and upgraded, including technology.

“All I can say is that our technology spend on new development has gone up so much since I started working on developing senior living just four and a half years ago,” Wiertzema said.

Currently, Capri’s WiFi systems are robust enough to run many platforms, he added.

Pathway assesses the technology currently available in buildings before deciding how to proceed.

“For me, it’s a P&L question because a lot of these heavy technologies come with ongoing contracts which can be expensive,” Dickinson said.

Skynet, a wearable technology that helps track residents for health and safety, is available at a portion of Pathway’s portfolio and a potential addition for other properties within the portfolio.

Examining the current tech infrastructure is a difficult aspect of buying versus developing.

“There is less [technological capability] in place at buildings we’ve acquired,” Wiertzema said. “And it is more difficult to bring them up to the same standards of operation that we have for our new developments.”

Technology is also being applied to resident recruitment and communication.

Pathway is currently filming a video series with the aim of showing prospective residents the unique opportunities offered within a community like lifestyle perks and various activities.

“One thing that I think is not explored as much as maybe it should be is the social media aspect,” said Dickinson, who posed the question: “How do we make senior living lifestyle cool, for lack of better words?”

While trying to improve tech and lifestyle for current and future residents, both Wiertzema and Dickinson are bullish on the near future. And despite their different approaches, Dickinson believes that regional operators like Pathway and Capri will have an advantage going forward.

“Groups like Wayne’s are going to be very successful since they know their market and they stay in their market,” he said.

And, with obstacles preventing some other groups from pursuing ground-up projects, he foresees that Capri and other developers active today will benefit from limited supply when new communities open their doors in the years to come.

The post New Markets, Creative Partnerships: Pathway, Capri Pursue Distinct Growth Strategies appeared first on Senior Housing News.

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