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Robert Brunswick:
Well, I’d like to welcome everybody to Counting Capital, our podcast where we like to provide education to our client base. It’s my great treat today to have Cory Alder with Nexus Development, as my guest. Known Cory for a long time, he’s an active participant in the real estate space here in Newport Beach and Greater Southern California now, you’ll hear more about some of their geographic expansion plans. Cory, welcome. We’re going to have some good learning and some fun today. It’s nice to reconnect and-
Cory Alder:
Thank you.
Robert Brunswick:
Maybe as we get started, I think it would be helpful, while we’re going to probably dig into senior housing today and a little bit about some of the things that you’re focused on, I want to kind of go backwards if we could and just understand kind of your upbringing in the real estate business, if you will, kind of your career path to help frame for the audience a little bit about your background. So if you could share a little bit about that, I’d appreciate it.
Cory Alder:
Sure, absolutely. Thank you, Robert. Good to see you again.
Robert Brunswick:
Yeah.
Cory Alder:
Started off real estate, I got my real estate license when I was 18 years old, right out of high school. My high school girlfriend’s dad was in the business, so I figured, why not? So didn’t really know what I was going to do with it, but it was a good start anyhow. Went to SC, did the real estate school there, when it first started with Rocky Tarantello. Got out, went to work for the Seeley Company, Clyde Stauff, up in the Anaheim office doing industrial brokerage for about six years. Then met James Watson, Watty-
Robert Brunswick:
Yeah, Watty, yeah.
Cory Alder:
Who’s well known and went to work for him at SDC Development as a development partner. And that was for about two, three years, four years, we hit the ’91 crash, and so things changed dramatically at SDC, Gary Hamilton left, Bill Steele left, so we were kind of left with solving a lot of problems, reducing debt, selling assets. So it was really, although it was a very uncertain time, it was kind of my MBA-
Robert Brunswick:
Sure.
Cory Alder:
In the real estate business, which was great. Learned a lot. We ended up heading over to the Koll Company through the asset, Koll bought the asset management group of SDC, Sunwest Asset Management, so we transitioned to Don. Then I ended up going to Mexico with Watty and Don, worked down there on the mainland side, not the resort business, the commercial industrial business. So that was a complete new experience, loved it, actually. So got some international exposure. NAFTA had just passed, so there was some interesting things going on there. And then joined Kurt in 2002 at Nexus, 2001, excuse me, and have been with him ever since.
Robert Brunswick:
Well, amazing kind of background of evolution, I like your reference to the MBA. So that was during RTC, is when you were experiencing those transition, so?
Cory Alder:
Correct, correct. SDC was industrial and retail.
Robert Brunswick:
Yeah.
Cory Alder:
Which I had no real experience in retail. So Watty and Joe Sites who ran the retail side for SDC, they took the company over and did a complete workout of all the assets and there’s a couple of hundred million dollars worth of assets. So as we kind of sold through and disposed of, I don’t know, $200 million worth of assets, working with five, six different banks, kind of a corporate level partner, a couple of pension funds had invested in the company. So there was lots of interesting components to it and so we got through everything and then we had a lot of retail stuff left. Watty went to go work for Don Koll, so Joe and I stayed and worked the retail side of the assets, because those were harder to dispose of back then. So I learned the retail business kind of on the fly, which was great.
Robert Brunswick:
Cory, we’re going to talk about that and by the way, Kurt for everybody’s benefit is, Kurt Olson, who is the founder of Nexus, and we might reference your relationship there a little bit later on, but I think mentorship is something I picked up from your comments. So the icons of Sites and Watty and just the players, Don Koll, that you had the benefit to study under and work with is really, I think, an amazing education and experience, and I think that’s how a lot of us grew up in the business. Talk to me a little bit about what attributes do you have and what did you like about real estate that you saw this just really line up well for you in terms of your capabilities as your career evolved and where you are today?
Cory Alder:
Well, I think, I was a broker for a long time, six years, I enjoyed the thought of the development process, finding a piece of land, creating a product that met market demand, getting it entitled, then building it, getting it financed. Just the process of that was very interesting to me, so nothing against brokerage, but you don’t have an end product at the end of the day that you can drive by or show your kids like, “Hey, I built that thing.”
Robert Brunswick:
Right.
Cory Alder:
So that was interesting to me. I loved the interaction with a whole host of people, some challenging you, some supporting you, and just getting through the process was great for me. I consider everybody a customer, and it’s kind of what Kurt instilled in me early on, was everybody is a customer, whether it’s the lender, the contractor, the opposition forces for entitlements, they’re all customers, and if we treat them as such, we treat them fairly and in search for that win-win, you’d be surprised what you can accomplish. And that’s what we do today, especially in the senior housing world.
Robert Brunswick:
Yeah, I mean, I think of you absolutely as a quarterback, I mean, you’re touching lots of aspects of development, we’re going to get into that, and then we’re going to get into kind of just how the retail side really applies well for senior housing and what you’re doing, because it’s really an operating business within real estate, so we’ll kind of talk a little bit more about that. What intrigued me as I’ve kind of just watched you over the years and your team is, retail, office, industrial, storage, multifamily, for sale housing, I mean, there really isn’t an asset class, although today there’s many more asset classes in real estate. There isn’t an asset class that you all haven’t touched and been involved with, but I think the focus of our conversation today is really going to be senior housing. But talk a little bit about that, maybe the background of some of those other asset classes within real estate and then the evolution to kind of the senior housing side.
Cory Alder:
Well, it’s interesting, we’ve thought about this over the years, and Kurt’s an entrepreneur, he’s a bit of a gambler-
Robert Brunswick:
Okay.
Cory Alder:
Self-admitted. So we’d find opportunities, we were never known as the widget builder, we didn’t focus, and that may not have been the best decision. If you find one thing, do it really, really well, but that’s just not how we evolved. And so we’d see a good piece of real estate, we’d figure out what worked and didn’t really matter what the product type was. We would see opportunity, we would respond to market conditions, in the 30-year history, we’ve been through some downturns, where things changed, things evolved, markets changed. In 2009, we had $65 million in recourse land debt and what we had planned on doing wasn’t going to work.
Robert Brunswick:
Sure.
Cory Alder:
So we evolved and figured out how to do things differently. And that’s really how we got into seniors, it was kind of by accident. We owned some land over by Hoag Hospital, never had known anything about senior housing, but we owned the land, we had to figure out how to get out of it, and we created an opportunity, that’s how we got in the hotel business too. We own some land in Hutton Center. So you respond to market conditions, the evolution of product types-
Robert Brunswick:
Right.
Cory Alder:
Through a 30-year career, it changes. So we’re really adept at doing that, we’re really good at figuring out what the market needs and then you go do that. And I think we’re really proud of the fact that no matter what the product type is, because as you mentioned, we’ve got a bunch of different product types in the portfolio.
Robert Brunswick:
Right.
Cory Alder:
It’s always super high quality. We always design elements into the product that make it different and that can be as simple as the mini storage. Kurt was one of the first ones to do a ramp to the second floor, because we heard people didn’t want to take an elevator up to the second floor, so we created a ramp, and so you could drive up to the second floor. Hadn’t seen that in this market before, so just something as simple as storage, you can create elements that are unique and helpful for the customer and differentiate yourself. So that’s what we’ve done in everything.
Robert Brunswick:
Well, I think, foundationally it makes lots of sense, and I see it in the byproduct of the quality of what you’ve done and the experience that you have. As I think about senior housing, let’s talk broadly about the asset class. Round math, there’s maybe 60 million people of our population today that are over the age of 65, you hear that maybe 10,000 people a day are turning 65. We’re going to be, shortly here by 2035, 2040, probably have close to 20% of our population in that age bracket. So demographically, the senior housing space seems ripe for some focus and attention within the real estate space. But help our listenership, if you could, Corey, understand when we say, broadly senior housing I mean, I think of congregate care and assisted living and memory care and just adult living. I mean, how do you frame or help frame for us senior housing, broadly, if you could?
Cory Alder:
Yeah, there’s several different categories, most commonly, people think of 55+.
Robert Brunswick:
Yep.
Cory Alder:
As a category, and that’s just age restricted, usually comes with some different zoning. Cities are trying to accommodate the elderly population, the aging population in their community, so 55+ is a category. Then you kind of start moving into independent assisted and memory care, which is state licensed, so we’re licensed by the Department of Social Services through the state of California, in our case here. But we don’t provide medical care, so it’s Department Social Services versus Department of Health Services. So we’re able to provide a host of, what they refer to as, activities of daily living, meals, transportation activities, and then we do have care staff that can provide simple, I’ll call it non-medical support, medicine management, bathing, grooming, escort service, those types of things. And then we work with the medical community, whether it’s primary care physician or local hospitals and we talk about that in a minute, what we did with Hoag Hospital.
Robert Brunswick:
Sure.
Cory Alder:
But just trying to create that. And then within senior housing, there’s a rental-type setup, which is what we do. You sign a year lease, it’s cancelable in 30 days, basically month to month. And then there’s buy-in communities, which are referred to as, continuing care retirement communities. And those are a buy-in, you move into an independent living section of the community, and then as you age in place, you can move to assisted living, to memory care and to skilled nursing at the end if you need it. So those are the categories that are most common for folks out there to see.
Robert Brunswick:
Helpful. So Nexus, broad-based development company, lots of product types, expertise in construction, marketing, leasing, why senior care? And then help us understand the Vivante brand and how that evolution has now taken you to two fine products here in Newport Beach, Costa Mesa, and one pending in Dallas.
Cory Alder:
So we owned a seven acre site over in west side Costa Mesa, near Hoag Hospital.
Robert Brunswick:
Right.
Cory Alder:
It was an old aerospace plant, had some contamination, and we were going to build condos for the young people in our community.
Robert Brunswick:
Okay.
Cory Alder:
And we called it parent-assisted purchases, they couldn’t afford to buy stuff, so we had sports courts and surfboard storage and kind of took it from Quicksilver and Roxy and all the surf wear companies that were on the west side of Costa Mesa.
Robert Brunswick:
Right.
Cory Alder:
We got into the 2009 recession and that kind of went away. So we’re sitting there, we own the dirt, we were entitled, but we had no way to execute on the original plan. So we got introduced to a gentleman who was in the senior housing business, was a friend of Rob Aris, who’s one of our partners and handles a lot of entitlements for us and some other things. So we went and met with him, he was talking about luxury senior housing, and frankly, I knew nothing about it. So I just got on the internet, started looking and looking at the demographic, supply demand metrics, and it was like, wow, this is upside down. And so I went and looked at all the competition, the available supply in Newport, and it was very old, very tired, and I kept thinking, where would my parents go? I don’t know that I would put them in one of these communities.
There was a divergence between Newport Beach, the wealthy folks, the successful folks, business leaders, philanthropists, community leaders, and the old product that we had here. And there was only 290 assisted living and memory care units in all of Newport Beach and Costa Mesa. So I saw this aging population and I went to Kurt and said, “Hey, I think maybe I found a solution, not only for this piece of land that we own, but a business segment that we could do something in and there’s a real need.” And that’s how it started.
Robert Brunswick:
Logical economic supply-demand imbalance.
Cory Alder:
Yep.
Robert Brunswick:
Market opportunity as you saw it, not with a vision of building the largest senior housing supplier in the country, but to serve a niche in the way-
Cory Alder:
Yep.
Robert Brunswick:
That you’ve done that, build best of brand product. With that being said, then, what is Vivante?
Cory Alder:
We opened the first building 10 years ago, so the brainstorm is 12, 13 years ago, doing a lot of research. I’ve looked at 500 assisted living buildings and we started to come to some conclusions that the buildings were old, they weren’t highly amenitized, and the people around here have Big Canyon and Newport Beach Country Club and the yacht clubs and everything’s highly amenitized. The gyms were, Sports Club Irvine, 50, 60,000 feet, grandiose, very, very nice stuff. And there was nothing close to that in senior housing, so we thought, “Man, what if we could combine a place for the seniors that really honors them at the end of their life? They built this community. I mean, people have lived here for a long time, they’re the business leaders, the politicians, et cetera, and this is the best we can do for them?
Robert Brunswick:
Yeah.
Cory Alder:
That was really the angle. And we said, “But if we’re going to do it, we’re going to do it our way and we’re going to do it really nice.” So we got pen to paper, hired some architects and really started designing. And so we put in nice gyms, we put in indoor pools and jacuzzis, we put full kitchens in the units, which doesn’t exist in the marketplace. And if you’re moving off Linda Isle, out of a 5,000 square foot home, to go to a 300 square foot studio with a kitchenette, that’s a big leap. People aren’t going to do that unless they absolutely have to have it, and there’s a real medical need.
We felt if we could make it nice enough that maybe they would see, “Hey, I’m downsizing, but I’m not giving up everything and I feel good about where I’m going and I can get the medical assistance that I need. I can work out every day. I can socialize,” which was the biggest thing. People who age in their homes, if you’ve lived somewhere for 40 years, you don’t want to move, as we get older, we get stuck in our ways.
Robert Brunswick:
Right.
Cory Alder:
And you live in Emerald Bay, beautiful place, as you get older, it’s not a great idea to leave that environment. So we knew we couldn’t duplicate it exactly, but we had to make it nice enough that you felt like, “Okay, I’m giving up something, but I’m gaining a lot in return.” And it had to feel like kind of a lateral move, not a downward move. And so we really started focusing on that. When we started, the industry did not accept our ideas, so the first Vivante that we built, we probably had to-
Robert Brunswick:
Is that on the coast?
Cory Alder:
I’m sorry?
Robert Brunswick:
Is that on the coast or was that north?
Cory Alder:
It’s the first one, the Vivante on the Coast.
Robert Brunswick:
Got it.
Cory Alder:
So we refer to it now as Vivante Newport Mesa. So the first building, and it took us 37 banks to get through it. The industry is very consolidated, there’s only a few players, because it’s an operating business, there’s a perception of high liability. It’s not real estate, it’s not building a warehouse or an office building, you’re having to take care of old people and you’re providing services. So that differentiates into the capital markets how that looks, so we were new at it, we’d never done it and we found out real quickly that the big boys, the Sunrises and the Brookdales, they were the ones getting things done. Individual developers like us had a very difficult time.
Robert Brunswick:
I want to stop you for one second, because you’ve touched on a bunch of things, and I know you’re relationally well-supported by a group of high net worth investors that really allowed you to maybe disproportionately over equitize this first deal that you might’ve done. But you’re signing recourse on construction loans, correct me if I’m wrong? So you’re making a big bet, you’re putting your-
Cory Alder:
Yep.
Robert Brunswick:
Your financials on the line, but you got it done. But just talk a little bit about that capitalization if you can, just briefly.
Cory Alder:
Again, it was a very difficult process, we had a long relationship with Bank of America. We went to them first, we got some traction with them, at the end of the day, the valuations that they were coming up with loan to cost, et cetera, were a bit difficult, so we ended up with Bank of the West.
Robert Brunswick:
Right.
Cory Alder:
They participated with three other lenders, which was a challenge in itself, we ended up helping them make the presentations to all these lenders, ’cause we were very passionate. We thought 290 units of old product in Newport Beach, we knew we could be successful.
Robert Brunswick:
Right.
Cory Alder:
So we pushed through, we grind like we always do, and we made the presentations ourselves, but we felt like staying away from institutional investors, whether it’s the debt or the equity.
Robert Brunswick:
Right.
Cory Alder:
We chose to go to friends and family. We needed to be able to control what we were doing and with institutions, that’s more of a challenge. Our friends, the people who knew us and trusted us, they had also been through this process, they knew they had done this with their families and they knew, firsthand the shortfalls of what was here in the supply. So we could apply our business plan, our vision to their personal experiences and it really resonated. And by interviewing all these people and making pitches to them, we learned a lot about what was good and what was bad about the existing situation, so we learned a ton. And our logo, the three rings that you’ve seen, it’s our families, I mean, it’s our residence, it’s our families, and it’s our employees, and we found out real quick that there was a revolving door in the employee base. They were being forced to adhere to unreasonable budgets, there was just a lot of turnover, let’s put it that way, 100% turnover per year, which is unsettling for a senior.
Robert Brunswick:
Sure, so-
Cory Alder:
That’s not the environment they want.
Robert Brunswick:
Let’s touch upon that, because I wanted to do my homework. So I know Otis Healy, you know Otis.
Cory Alder:
Oh yeah.
Robert Brunswick:
Otis is a philanthropist with Hoag, he’s involved with our innovator program. So Otis had me over for lunch at the Newport Mesa project, and I had a chance, firsthand, to taste the food, see the employees, and understand the amenities. And knowing Otis like you do, he toured me everywhere, so I saw it all. As you’re thinking about the Otis’ of the world, if you will, the cost to be a Vivante residence, okay, so this is not a mainstream product, so help us understand what this cost, and this is just for rent, they’re getting no equity, this is not an ownership option. So help us understand that marketplace and how you priced this to allow yourself to offer all these great amenities in this great piece of real estate.
Cory Alder:
Yeah, Otis is a great example. He’s a successful business guy, he’s a pillar in the community, but he was getting older and he needed some assistance and frankly, he was a bit lonely.
Robert Brunswick:
Yeah.
Cory Alder:
As gregarious as he is, and at 96 or 97 maybe now-
Robert Brunswick:
Amazing.
Cory Alder:
Yeah, he’s in phenomenal shape, like we could only hope, right?
Robert Brunswick:
Yeah.
Cory Alder:
But he was yearning for something different and so we were able, in our concept to provide that, like you said, it’s a year lease, cancelable in 30 days. We looked at the buy-in model, the CCRC model that I mentioned earlier and it did not make sense to us that somebody at age 85 or 90, whatever your situation is, that you take a large down payment, essentially. You don’t own anything, it’s an advanced fee, you still pay rent, when you pass away they resell it. It’s such a complicated deal. We felt somebody at 85 should have maximum flexibility, if your world changes, if your spouse dies, your family moves out of state, you give us notice and you’re out in 30 days. We felt that was a much better solution. The other is good for developers, but we felt, let’s honor the residents and make their life easier and takes a stress point away from them.
Robert Brunswick:
Yeah, I was just going to say, what is your average tenant, I mean, if you could profile demographically the range of ages, I know you have memory care, so I do want you to touch upon memory care versus what I’m going to call, more conventional assisted living of some sort, but profile if you can, your customer base.
Cory Alder:
We’re licensed for independent living, assisted living and memory care as you mentioned. Very few people come in independently, there’s a few, but I would say it’s 5% of our resident base can still drive, they still are moving around. They’re primarily looking for socialization, is really what they’re doing. Our average age, when you open a building, is roughly 82 years old, as the building matures, that age moves up. So right now at Costa Mesa, when we opened, it was 82, right now it’s about 86, 87 years old.
Robert Brunswick:
Wow, okay.
Cory Alder:
Which is interesting, because like Fashion Island right now we’re 82, so it’s almost identical starting age group and then they will age. But typically 75 to 100 years old, is the age range, 82 being average.
Robert Brunswick:
Very helpful. So there’s a couple of other key things I want to touch upon, I want to get to Fashion Island in a minute, but you guys are real estate block and tackle guys, and now you’re in a, I’m going to call, an operating business. So yeah, there’s four walls, yeah, there’s the conventional real estate product, but how did you become experts in learning this business of serving this community of population?
Cory Alder:
Well, living it. Kurt and I spent a lot of time in the building, I spent a lot of time. We actually hired a guy to run the first building, he didn’t work out and we let him go a month before opening.
Robert Brunswick:
Okay.
Cory Alder:
So Kurt and I, both, were looking at each other, “Okay, what are we going to do?” And I said, “I’m going to essentially move my office into the building.” And so just every day we would talk and I would do the tours with the residents, I would hear firsthand what the challenges they were facing, the emotions they were facing. I got to know all the family members, what they were facing, because a lot of the challenges fall to the family members. And so I saw it firsthand, I got to meet and see every employee and how they were doing and what they needed to do their job. So again, the MBA comment, we got the MBA in senior housing by really living it. And Kurt’s mom moved into Vivante Newport Mesa, she was there eight years, passed away last year, but we’ve extended the life, the quality first and then we’ve extended the life. In a lot of documents or research you’ll see maybe, average lifespan in assisted living, we heard it was 36 months, across the country there’s some documents say, maybe 22 months. We’re almost to six years-
Robert Brunswick:
Oh my gosh.
Cory Alder:
Average. So we’re providing not only a great environment while they’re here, but we’re extending their life, because of socialization, because of the exercise classes and we’ll talk about that because there’s some big differentiators that we saw in the process of learning and walking with them through their occupancy in our building. We walked with them so we saw what was important. So we just grew to love them and we knew we were making a big difference in our community, we knew we were making a big difference for the elderly. And it was, you build an office building, yeah, you know the people you lease the space to, you don’t know the CEO, you don’t know folks, it’s a commodity business so to speak. This is extremely personal and we’re making a big difference in their lives, and it’s the most rewarding business that we’ve ever been involved with.
Robert Brunswick:
And great takeaways there, but just globally and extending life, that concept makes perfect sense. And we all hear about the socialization helps us live a longer life, right? It’s one of the key things when we understand that side of it. So just, I want to make sure, Integral Senior Living Operators, which I researched, is that a standalone operating entity that you all own and that’s basically your operating business for these properties?
Cory Alder:
No, it is not. One of the challenges that we had when we were trying to get financed, the very first building was, we had no history in this business.
Robert Brunswick:
Got it.
Cory Alder:
So when we finally started getting some traction, because we were hiring our own team, we were going to be the manager.
Robert Brunswick:
Got it.
Cory Alder:
So the compromise to get the financing at the end of the day was hire an experienced manager, but we had already hired our key employees and the team. So we said, ISL manager, you’re going to hire our people, we are going to dictate the key hires in the building, you’re going to house the employees from an HR perspective, and we’re going to be able to focus on the residents-
Robert Brunswick:
As per the-
Cory Alder:
And the programs and et cetera. So ISL has been great, we’re a big client of theirs from an income perspective, because our rents and our gross revenue is higher than the average assisted living community, so their fees are big, but they basically take direction from us. That’s how we do it.
Robert Brunswick:
With the model it gave you, you check the box for your capital.
Cory Alder:
Yeah.
Robert Brunswick:
But at the same time gave you control so you could bring your, je ne sais quoi, and your special secret sauce to the equation.
Cory Alder:
Correct.
Robert Brunswick:
I love it. It’s perfect.
Cory Alder:
Yeah.
Robert Brunswick:
So let’s move to Fashion Island, iconic site, describe the site, that you got ahold of the seller and what it is today, ’cause I think it’s really an amazing story.
Cory Alder:
I was actually remodeling my home in East Bluff-
Robert Brunswick:
Right.
Cory Alder:
And I was living in the Meridian Condos over here by the Marriott and I would walk my dogs down and I’d come past the Orange County Museum of Art, and I would call Kurt and I’d say, “We really need to be in Fashion Island, this is our site right here.” And so that was the start of it, very technical and very calculated.
Robert Brunswick:
Right.
Cory Alder:
So Kurt knew some people who could get us to board members, Related, had been approved to do a high rise luxury condo tower on the site, but there was some pushback from the community. And while that pushback gained strength, we started seeing what inroads there were, started making some inquiries, and then the community got enough signatures to qualify for a referendum on the ballot. The city then reversed course, they negated their approvals on the project, and there was some lawsuits going on and there was a lot of uncertainty. But we slid in said, “We think we have a solution that will not only work within the current zoning but won’t provide traffic,” all of the impacts that the community was voicing concerns over. And so that’s kind of how we got in, it was complicated, the Orange County Museum of Art went through a process, so there were many other buyers that were entering the fray, so to speak.
But at the end of the day, we prevailed because we went to the Irvine Company and said, this is what we’re going to do, we went to Lion In The Sand and Spawn and said, this is what we’d like to do. And we got buy-in from those opposition forces, so to speak, and we got buy-in from them, which I think played a huge part in the museum making the final decision to go with us. And Kurt being the gambler, put up some hard money right away to prove that we were real, we did not have the financing in place at the time, so we prevailed on the auction or the bid, whatever you want to call it. And then we set about trying to get the thing closed, and some friends of ours had an exchange on the equity side, we got our bank, Pacific Western Bank to give us an A&D loan, and we cobbled it together and closed on the land before entitlement. So we took a huge gamble.
Robert Brunswick:
Well articulated. I want to have you back, because I want to do the Fashion Island story by itself, because it’s really iconic, heroic, and I think, indicative of just how hard it is to be a developer and what you go through and I’m not sure the broader public really understands the risk you take and just the process you’ve got to go through with so many elements. But let’s, as we kind of focus, what is Vivante Newport Center today? And I want you to get into, because you hear about the price points for this customer base, it’s a narrow customer base, but when they understand what it is, I remember Kurt would tell me, “I wanted to build a place that my mom would say, “It’s just like going to the country club.” And her friends are there and she can do everything she used to do there.” And I’m shortchanging it. But what is Newport Center of Vivante today?
Cory Alder:
The one thing that we did not have over in Costa Mesa was the location.
Robert Brunswick:
Sure.
Cory Alder:
It was a mixed use, kind of transitional areas, some industrial, some odd zoning components, and it was our first one. So we had learned a ton in the eight or nine years that we’d been operating that and when we got this location, we knew that we had to create something that was reflective of the location. And so it’s interesting, we don’t consider ourselves to be in senior housing here any longer.
Robert Brunswick:
Yeah.
Cory Alder:
We are the montage of senior housing, we just cobble on top of that, three meals a day and transportation and activities. So we just take that, the really high end hospitality model, the country club model, the yacht club model, what everybody’s used to, and we cobble on those other items that our residents need as they age. And so we just don’t have any competition from the senior housing perspective. Our competition is those residents staying in their house and paying for in-home care, which the socialization is gone, that’s a big problem. You live in a multi-story house, you got stairs, you got mobility issues, they end up living in the kitchen and the bedroom downstairs, so they’re not living in 5,000 feet, they’re living in-
Robert Brunswick:
Right.
Cory Alder:
1,200 or 1,300 feet. And I said that earlier, we don’t look at it as a downgrade. You’re trading across, you’re giving up a few things, but you’re gaining a whole lot. And it really is that hospitality model that makes us different.
Robert Brunswick:
So help me with the price point, because I think, and before I go there or you answer, ironically, I had lunch yesterday with the founder of Montage, Alan Fuerstman, and as I’m hearing you describe your business and thinking how he built Montage, that brand, that management company, it paralleled perfectly. So I think that’s-
Cory Alder:
Yeah.
Robert Brunswick:
Good analogy for you. But tell us a little bit about the price point, it’s not inexpensive to live on this property in Newport Center.
Cory Alder:
Yeah, so price points are $11,000 to $25,000 for the standard assisted living units.
Robert Brunswick:
Okay.
Cory Alder:
That includes all your food, all the transportation, all the activities, weekly housekeeping, it’s basically everything, side, you can get medicine management and some other things, the bathing, grooming, those are extras. We make no money on our care, so we take the conflict out, we make no money on our care, so whatever is that you need extra, we’re going to provide it for you. So the only way, when we started financing, we were showing what we were projecting rate wise.
Robert Brunswick:
Right.
Cory Alder:
And the banks all looked at us like, “What’s going on here? This is crazy.” And we said, “No, no, it’s really not. Here’s why?”
Robert Brunswick:
Right.
Cory Alder:
“Here’s a survey of every neighborhood in Newport Beach, Laguna Beach, Newport Coast. Here’s the rental rates of what’s available and here’s the rental comps for every single neighborhood.” And we said, “This is cost neutral in most cases to the residents who could be coming here.” Kurt lives on Harbor Island, he had a house there, the rental rate is 30 grand, 40 grand, he’s on The Bay. That’s not unusual, Newport Coast, you can move up from there depending on what the house is, it’s big homes, obviously. But even in the Port streets, even in Harbor View Hills, rental rates in this area are significant. So what we tried to impart to the banks was, “Don’t sell your home, Mr. Resident, lease your home. You trade almost even, if not profitably, into Vivante. You get the needs, you get the socialization, you get all your needs taken care of here, your family’s comfortable. And then when you pass, the family gets to step up in basis on the home. And so from a tax planning perspective, it’s great for the families and the estate and we’re providing the service.”
So that was really the genius part of how we sold the banks, because they saw that and went, “Well, of course, perfect. That’s how you do it.” And so it worked and we got financed, BOfA was great to work with, and we went out to our friends and family, we have 72 investors and they’re friends and family, and we have 72 salespeople for our project. That’s the other key thing that we do.
Robert Brunswick:
But let’s take you back, so-
Cory Alder:
Yeah.
Robert Brunswick:
Has the projection that you referenced to the bank, has it gone that way in terms of your “lease up” of this project? I think you referenced earlier your 82% lease, so is this been users that have kept their homes and in turn lease their homes and come over here, or is it not quite that way?
Cory Alder:
It’s about half the cases.
Robert Brunswick:
Wow.
Cory Alder:
Most seniors in their mind believe you leave your house, you have to sell your house, that’s just how it used to be. The rental market is a new phenomenon that’s occurred in the last 15, 20 years, the VRBOs, but the leasing market has changed significantly. And so I’d say about 50% are actually leasing their homes, typically when there’s an iconic location, there’s a sophistication level with the kids, they know what they have from an asset perspective, like, “No, we’re going to hang on to this.” And it makes sense from an estate planning perspective, so that occurs about half the time, I would say.
Robert Brunswick:
With my involvement over at Hoag, I was taken by, you have a Hoag doctor at your property or comes in a couple of times a week. Take us through that. What a-
Cory Alder:
Yeah.
Robert Brunswick:
What a convenience for your tenancy.
Cory Alder:
Again, one of the things that we learned over in our first building-
Robert Brunswick:
Yeah.
Cory Alder:
Because I got to know people, I got to know families. If somebody had an event, they fell, broke a hip, if they had a heart attack, whatever event they had, they typically go to Hoag and then they would get discharged to skilled nursing-
Robert Brunswick:
Right.
Cory Alder:
To do their rehab. But I noticed, I would go visit them just to see how they were doing, I’d ask questions of the team, “How is Mrs. Jones doing?” And they’re like, “Mrs. Jones isn’t doing very well.”
Robert Brunswick:
Oh.
Cory Alder:
And I said, “What’s going on?”
“Well, she’s kind of losing the will.” Skilled nursing is not a great environment, if you’ve seen it, you know what I’m talking about.
Robert Brunswick:
Yeah.
Cory Alder:
And so I was like, “Well, wait a second. We got to figure out a different way, because selfishly, we’re losing residents to that process.” So I go over and visit them and try to motivate them to get up and walk and do the rehab and all of that. And then, just coordinating care, you have a primary physician, but every resident’s got four or five specialists, you’re basically running around all over town trying to organize. You need a secretary to organize all the meetings and the doctors and coordinating everything, so it was a confluence of many things. I went to Hoag, said, “Hey, could we get a doctor in our building? Could we give you an office? Could you just be here one day, two days a week, so people just know you’re going to be here?” The comfort level, first of all, was great for them-
Robert Brunswick:
Yeah, right.
Cory Alder:
Creating stability and certainty and then having that doctor coordinate all the other items. So that was a really big thing. So we negotiated to deal with Hoag, five years ago, they then merged with Providence Healthcare and Provident said, “No, we’re not doing any of this.” Like, “Why? This is a great solution for you.” It was the genesis of, Hoag at home-
Robert Brunswick:
Yes.
Cory Alder:
Home care.
Robert Brunswick:
Yes.
Cory Alder:
“These are your patients, okay. Get to them, provide them so that you endear yourself to them and they come to you.” Well, it didn’t work. Well, that Hoag-Provident relationship fizzled out and kind of flamed out. And so we went back to them and Otis was a big part of that.
Robert Brunswick:
Yes.
Cory Alder:
Dr. BZ was a big part of that.
Robert Brunswick:
Sure.
Cory Alder:
So we said, it’s time to resurrect our discussion. What I added to the deal was I said, “Look, this whole skilled nursing piece doesn’t work for our residents, they want to come home, they want to be with their friends. The whole socialization aspect of what we started with is gone in skilled nursing. They’re there by themselves in a hospital bed and they grow tired and lose the will.” That’s just what happened, so I said, “Look, let’s convert some space we have here into a physical therapy and an occupational therapy clinic.” So get to your hospital, if you got to go to skilled for a week or something, if there’s an incision or a chance of infection, take care of that. But when you come back to real physical therapy and occupational therapy, you can come back home and you can do it in our building. And that is a huge selling point, it’s awesome, it’s great for the families, they know they’re home, it works really well.
Now coupled with that, Robert, we have our vitality program, which, and I don’t mean to be long-winded about it, but it dovetails, because when I was over in Costa Mesa early on, I would sit and have lunch or dinner and Kurt would do the same thing and we’d compare notes and people would say, I’d ask them, “You going to go down and do water aerobics?” My wife, Lisa, she volunteers, and she’s a big part of this. “Nah, I’m 85, what’s the point? Why am I going to go to the gym? What’s the point?” So I tried to psychologically get in their head and figure out why this is happening, why they’re not taking advantage of everything that we’re providing. So we wrote a vitality program, and it’s an eight-week program, every day you’re doing something, physical fitness, nutritional fitness, cognitive fitness, and then a little bit of mental and psychological fitness as well.
So we ended up joint venturing with Long Beach State, and-
Robert Brunswick:
Wow.
Cory Alder:
We’ve created this program. Long Beach State comes in with their students and grad students, there’s a 15 point checklist of kind of beginning statistics, and we go through. And by the way, it’s a social event, we have fun, it’s not bootcamp. We have a party every week and they get to party and have fun, and we serve wine and it’s a fun event, but you’re doing something meaningful across different spectrums of what they need. And the results are pretty impressive, significant improvement in leg and core strength helps prevent falls, it’s a huge thing. Significant improvement in mood, depression, so we’re helping them live well for however long they have, but the statistics show they’re living longer and they’re living better and they’re socializing. And so the Hoag and the vitality program didn’t exist in the business, and those are things that we’re learning on the ground that we’re implementing for our residents.
Robert Brunswick:
Well, Cory, it’s not accidental, the success you guys have had, as evidenced by what I’m going to call, the continued evolution of an entrepreneur kind of innovating within their particular product line. And there’s no better example with this case study that you’ve just done and I definitely want to have you back, ’cause there are so many more aspects of what you’re doing that I think would be interesting to our audience. But as I look to wrap today, I mean, your enthusiasm comes out as you answer these questions, but I would love to just hear, what is the favorite aspect of your job?
Cory Alder:
It’s the customer service aspect, we’ve built a great team, there’s a lot of employees here, but the accolades, the happiness, the smiles that we see on our faces of our residents, what they tell us we’ve meant to them in a difficult period in their life, and then seeing the families being so relieved that the burden is off of them, that they feel the comfort that mom or dad or both are in a place where they can thrive, they can live. It changes their trajectory in the last years of their life. And Kurt walks around here, he’s in Dallas now living there, but he’s here all the time, he walks around and people say, “You just have changed our life. We’re so happy.” And that’s really rewarding, because Robert, you know everybody in town here, it’s our parents, it’s our parents’ friends, there’s one degree of separation. I know employees here laugh that everybody who comes through the door, we know them, somehow, some way-
Robert Brunswick:
Yeah.
Cory Alder:
We know them. So it’s very important for us to help our community. So it’s a community within the community, and that’s the most rewarding thing for us.
Robert Brunswick:
Very well said, I think, it’s lost on folks too much when they think about jobs and careers, the monetary returns and the achievements and the resume elements to it. But I think what you’re talking about is psychic income and that ROI that you really can’t quantify-
Cory Alder:
Yeah.
Robert Brunswick:
That makes a difference, and especially in the community, so you’re living that and it’s evidence. So as the last question I would ask you, there’s probably several hundred younger people starting out in their careers or early in their careers, what advice might you give them about the real estate business or just pursuing their career and their life as you’ve learned it, and you might share with them?
Cory Alder:
I think it’s networking and building of relationships, I think, that’s the real key. In my own career, I’ve done industrial retail, hotels, seniors, so you normally would lose the cadre of relationships within a sector, but that’s not really true, because lenders, equity partners, just everybody who’s involved, contractors, so that’s the most important part. Create those relationships, do what you say you’re going to do, you shake somebody’s hand, you do what you say you’re going to do, no matter what. And Kurt, I mean, he is the perfect example of that, he will take the loss versus somebody else when he doesn’t have to, when that’s not what the operating agreement says. He’s a standup guy, his reputation and integrity is paramount, same with myself, we instill that on the rest of our team. So the young people out there, and my kids are getting into the business, my kids are in it.
I stress that to them. Don’t worry about this and that, or if you didn’t make a home run on this deal or things didn’t go perfectly, people understand that. But open transparent communication, give your best effort and always do the right thing and you’ll be fine.
Robert Brunswick:
You’ve done that clearly, and that’s why you have had the success you have, and I really appreciate having you on our program today. Let’s have you back because there’s a lot more that we can do together. It’s great to see you, and congrats on the project and we will see you soon. I hope everyone has enjoyed this today, we’ve had lots of good learning with Cory and more to come with our next session. Thank you.