Twin brothers Bill and Bob Thomas achieved success as multifamily housing entrepreneurs in the 1970s — but their situation changed in the next decade.
“We thought we were the smartest guys on the block … and then the 80s hit,” Bill Thomas told Senior Housing News, during an interview at the American Seniors Housing Association (ASHA) Mid-Year Meeting in Lake Tahoe.
The brothers struggled from roughly 1983 to 1989, due to multiple challenges, from changing tax laws to the unprecedented failure of FDIC-insured banks. Given that they are based in Oklahoma, oil industry instability also affected their core markets.
With operating expenses exceeding gross income of their buildings, the brothers felt like “indentured servants” to banks, Bill said. But they came to realize that the banks were struggling even more than they were, and the lessons learned in these tough years taught them the value of having true alignment with capital providers and other business partners.
They applied those lessons as they focused on the senior living sector, where their strong partnerships have been critical to their success, they said. Most recently, that was demonstrated in closing a transaction with Welltower (NYSE: WELL) in the midst of Covid-19.
Newly inducted into ASHA’s Senior Living Hall of Fame, the Thomas brothers are now looking to the future of the industry, their many civic and philanthropic efforts, and the company they founded, Senior Star.
A relationship business
After the difficult mid-1980s, a turning point occurred in 1989, when the Thomases took over management of two senior living communities in receivership.
Anja Rogers, a partner in the business and current Senior Star CEO, perceived the larger opportunity in senior living. About three months into the first receivership, she came to the Thomas brothers with a simple message, Bill said. That message was:
“You ought to pay attention to what we’re doing here; we can see the opportunity to create a perception of value that people will pay for, and we think we can do it really well.”
By the end of the 1990s, the Thomases had sold off their multifamily portfolio and were all-in on senior living.
Today, Senior Star operates 12 communities. Though never one of the largest U.S. senior living providers, the company has been influential within the sector, with a reputation for quality. That quality is reflected in recognitions such as the Best Workplaces in Aging Services list published annually in Fortune magazine. Senior Star was the highest-ranked senior living provider on the list in its inaugural year of 2018.
But the influence of the Thomas brothers comes not only from how they have led Senior Star, but through the work they have done — and the relationships they have forged — throughout the senior living industry and beyond it.
Bill Thomas took on a leadership role with ASHA, becoming vice chairman in 2004.
In this capacity, he focused on how ASHA was fundraising for its political action committee (PAC). At the time, the association was raising between $15,000 and $30,000 a year. Recognizing that fundraising hinges on creating personal relationships with potential supporters, Bill devised and launched an effort that within three years increased PAC funding to $450,000.
Bill served as ASHA chairman from 2006 to 2007, becoming the association’s first leader from a small provider company, Bob Thomas said.
“Bill was really part of creating a ‘no-ego’ culture … a collection of people that are really here to help us lift up the entire industry,” Bob said.
Bill was quick to shine a light on the work that Bob has done with the Alzheimer’s Association. The genesis of this work came in the late 1990s, during a meeting of all Senior Star executive directors. It became clear that Alzheimer’s was seriously affecting residents across Senior Star’s communities, even in independent living settings.
“Bob got on the airplane and looked at me and said, ‘I know a guy in Tulsa, I think he’s on the Alzheimer’s Association board. We’ve got to do something about this,’” Bill said.
Bob joined the board of the local Alzheimer’s Association, making Tulsa a national leader in fundraising events. He went on to join the national board of directors and was a founding board member of the Alzheimer’s Impact Movement (AIM), a separately incorporated advocacy affiliate.
Largely through AIM’s efforts, dementia-related research funding at the National Institutes of Health increased from about $450 million in 2011 to $3.2 billion today. Bill credits Bob’s work in building relationships with Capitol Hill lawmakers.
“He’s developed relationships with easily 30 to 40 senators,” Bill said.
The brothers’ civic and philanthropic efforts extend to various other organizations, and there is significant crossover in their work — currently, Bill is on the national Alzheimer’s Association board, for instance. Harry Johns, president and CEO of the Alzheimer’s Association, introduced the Thomases during the Senior Living Hall of Fame ceremony, in a speech delivered via video.
The future of Senior Star
Through their relationship-building skills and dedication to strong partnerships, the Thomas brothers have not only made notable impacts on the senior living industry and the fight against Alzheimer’s, but have strengthened Senior Star.
That was demonstrated in last year’s deal with long-time joint venture partner Welltower, they both said.
Leaders with the REIT and Senior Star started to negotiate about the future of the assets in mid-2019, the Thomases said. By about the third week of February 2020, a transaction was inked. But with Covid-19 spreading globally and about to hit the United States, the Thomas brothers perceived significant uncertainty about the direction of the financial markets and the senior living operating environment. They reached out to then-CEO of Welltower, Tom DeRosa, expressing their reservations; his response was, “There is no clear path forward.”
“So the deal we just wrote, we were literally acknowledging in two emails … no, this is not the deal,” Bob said.
From that point until a final transaction closed in late May, Welltower and Senior Star collaborated to hammer out a new deal. Again, relationships played a pivotal role, as the Thomases worked with Freddie Mac on financing, despite the challenges the agency was itself facing during the first U.S. wave of Covid.
“We’ve known Freddie Mac a long time,” Bob said. “We’ve known so many of these people, through service … they had known us, maybe not our business, but they learned about us through service, the Alzheimer’s Association, ASHA.”
In the end, the Thomases acquired Welltower’s JV ownership interest in six retirement communities in a transaction totaling approximately $300 million.
Getting this deal across the finish line required Welltower and Senior Star to be good partners, Bob stressed. Current Welltower CEO Shankh Mitra and the Thomases stayed in contact through the process, to ensure that both parties were meeting their objectives and to see how they could help problem solve.
“That’s hard to think about, when you think about the two of us at a tiny company, and a company of Welltower’s size,” Bob said. “They were a phenomenal partner.”
In terms of the future of Senior Star, the immediate focus is on pandemic recovery, but a more long-term plan is already underway. The Thomases anticipate that as baby boomer demand strengthens in the coming years, the Senior Star portfolio will be highly sought after by investors, and they want their key team members to benefit from a future transaction.
To that end, the company is implementing long-term incentive plans for executives and middle management leaders.
“Therefore, in terms of relationships with other private equity investors and other money holders that they will be looking to merge interests with, they will be able to get the waterfalls, the provisions for performance to make that bigger income, outside of salaries,” Bill said.
Although their departure is not imminent, this is a key part of their exit strategy from Senior Star, the brothers said.
Of course, this strategy depends on establishing a strong and mutually beneficial relationship with any future investment partners. So, it’s no surprise that their advice to future senior living leaders is not to rush into partnerships — even when capital or other resources seem to be desperately needed — and to be sure that the interests of all stakeholders are aligned.
It’s a message that may be particularly resonant in light of Covid-19, which fractured some partnerships while strengthening others. Currently, many in the industry are reevaluating how well common capital structures such as third-party management contracts align owner and operator interests.
“If you look at our career in senior housing, it was having that alignment of interest with partners, so that you really could focus on the good of the business,” Bob said. “Everybody wins out of that arrangement, starting with the families we serve. Everybody wins.”