Real estate giant Related Companies is making a health care play focused on older adults through a newly announced investment in CareMax.
In 2018, Related joined forces with Atria Senior Living to launch a $3 billion development pipeline focused on serving some of the most affluent urban markets in the United States. The new partnership with CareMax focuses on the other end of the income spectrum, as Related believes CareMax’s health care model will benefit residents of affordable housing communities.
But like the Atria JV, the CareMax initiative stems from Related’s “efforts to be a more innovative leader in health care,” Related Executive Vice President Bryan Cho told Senior Housing News.
The deal is another signal that organizations such as CareMax, which offer more coordinated care to older adults in models that are largely supported by Medicare Advantage plans, are growing faster and in new directions, which could have implications for senior living providers.
“We think we’re on the right track here, and it’s something really unique,” CareMax CEO and President Carlos de Solo told SHN, of the Related partnership.
A hub-and-spoke approach
Under their newly formed agreement, Related purchased $5 million in CareMax common stock and received warrants to purchase up to 8 million additional shares at $11.50 per share. Cho is joining the CareMax board of directors, and Related will advise CareMax on opening new medical centers across the United States.
The current strategy is to build out “hub” clinics and “spoke” clinics, Cho told SHN.
Hub clinics are generally 10,000 to 15,000 square feet and are the main sites in which CareMax delivers and coordinates its whole-person health services, including primary care, specialty care and services related to social determinants of health.
The goal is locate hub clinics in markets that are “health care deserts,” Cho said. Related and CareMax are already finding opportunities to create clinics in locations such as underperforming storefront retail centers and grocery-anchored shopping centers.
Spoke clinics are smaller and could be embedded within affordable housing buildings.
So far, Related and CareMax have announced three new medical centers they are working on together, to be located in the Bronx, Far Rockaway and East Harlem areas of New York City.
The Bronx and Far Rockaway centers are in affordable housing buildings owned by Related. The East Harlem center will be located in a retail location that was experiencing vacancies before and during the pandemic, Cho said.
“I think it really resonated with the landlord that we were responding to a real need in that neighborhood, and we were exactly the type of business he was looking for,” he said. “We’re seeing a number of opportunities in our markets that fit that pattern.”
Related has gained fame as the developer behind New York City’s Hudson Yards and other large-scale, mixed-use developments, many of them geared toward the luxury consumer. But the company began in 1972 with a focus on affordable housing development, ownership and management.
Today, Related’s affordable housing portfolio encompasses about 55,000 units in 24 states, Cho said. The firm estimates that 20% to 25% of that portfolio is either age-restricted housing or a naturally occurring retirement community (NORC), which occurs when residents age in place over time.
“We took a step back and looked at our senior populations in our affordable housing portfolio and quickly realized that we’re not alone and it’s not unique, it’s a phenomenon that is lurking in every city in America,” Cho said.
For example, he cited the New York City Public Housing Authority, which is the largest Big Apple landlord. A growing population of residents of New York public housing are in their 60s, and as they age, this group will put stress on the health care system.
“We at Related feel like there is an opportunity for us to make a difference not only in the lives of these seniors but to help accelerate innovation to respond to that stress,” Cho said.
Of course, there is money to be made through such innovation, as well. That might come in the form of longer tenancy in Related’s properties, if residents do not have to move out due to deteriorating health. And as an entity providing care and services to the aging demographic, CareMax could be positioned for massive growth, supported by the company’s recent $614 million SPAC merger.
The Related partnership is further accelerating CareMax’s growth, with the company targeting 15 new care centers in 2022, about 25 new centers in 2023 and approximately 35 new centers in 2024.
When a new center opens, CareMax conducts community outreach to garner participation. CareMax will accept members on a fee-for-service basis, although in the long run, being enrolled in a Medicare Advantage plan with one of CareMax’s close partners on the payer side enables the most complete access to the services available, Executive Chairman Richard Barasch told SHN.
And accessing those services does drive health and wellness for members, de Solo said, noting that the hospitalization rate for CareMax members is 66% lower than the national average.
Other organizations with models similar to CareMax, including Oak Street Health and Cano Health, also have been garnering large amounts of capital and growing quickly. Some of these companies have partnered with assisted living providers to bring their services into these communities. CareMax has “a handful of providers that work with ALs,” de Solo said, but the core of the business is serving members who can visit the company’s health centers. There are currently no plans to co-locate or otherwise cross-pollinate CareMax centers with Atria projects, Cho said.
In terms of how CareMax compares to other, similar organizations, Barasch emphasized that all these health care innovators are generally good companies, and said that CareMax’s focus on the lower-income demographic is a differentiator.
CareMax also brings more specialists in-house, de Solo said — noting that Related had been evaluating alternatives before settling on CareMax as the partner of choice for this venture. Related did analyze different players and was impressed by CareMax’s results, Cho said.
From early meetings between the companies, there was “good heat in the room about doing something together,” Barasch said. He described a meeting on a top floor of a supertall skyscraper in New York City, which afforded a panoramic view and a vivid sense of how ingrained Related is in the “real estate life” of the metropolis, across various income groups.
“I think it’s going to give us access to the right communities in a way that really accelerates our growth,” de Solo said of the partnership.
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