IHC Product: Medicare vs Private Pay, Target Investments

Wally:
Jason, can you tell us a little bit about how you go about finding properties? Obviously, you’re looking at these two sectors really focusing on senior living and on the memory care. Do you specialize? Do you focus on private pay only? I know most of them that we’ve seen have been private pay, not Medicare, Medicaid facilities.

Jason Muth:
Yeah. So a couple things there in terms of private pay versus Medicaid, we do deals that have Medicaid in them. It just depends on the certain states. Certain states, Medicaid payments are really, really good. And so we have no problem at all going into states like that. Other states, Medicaid doesn’t pay as well. And so in that those states, we would probably just be looking for deals that are a hundred percent private pay. In terms of kind of senior housing assets that are within that healthcare spectrum and what we’re looking after, it kind of starts at that 55 plus active adult type communities, which is basically apartments for age restricted people that are 55 plus kind of thing. So we do look at those a little bit.
But like Patrick said, most of what we’re looking for is that independent living, assisted living memory care. Kind of at the other end of the spectrum is skilled nursing, which is a completely different animal. A lot more state, federal regulatory stuff going on there, dealing with higher acuity, resident patients, shorter stays. So a lot more risks and unknowns and stuff outside of what we know really well, which is that IL, AL, MC stuff.
Those are kind of the deals that we actively look for in terms of where we source these, the brokerage community. Multifamily, there’s brokerage firms and brokers, hundreds, if not thousands throughout each of these states. In senior housing, it’s a little more confined. I would say there’s probably 25 to 30 legitimate senior housing brokerage firms out there. And then a handful of actual brokers with each one of those brokerage firms. So I have a relationship with all of those firms, been doing this a long time. And relationships is a big part of this to have somebody, a broker, a brokerage firm knows us, knows me, good comfort, and familiarity can talk openly and trust one another.
I can trust what they’re doing. They absolutely trust what we’ve been doing and our track record. So not only are we getting on market deals, but we’re also getting some off-market deals with these brokers that don’t want to go through the hassle full of putting out an OM and doing initial bids and tours, invest in finals. Occasionally, we will get deals that are completely off market with these brokerage firms that say, “Hey, we know IHC. We know Jason. We know we can get a deal done with those guys. So let’s see if they can do this before we go out to the whole community.” So…

Wally:
So when you guys…

Jason Muth:
… off-market deals…

Wally:
When you guys buy, are they always operational stabilized assets that you’re buying, or do you come in earlier than that?

Jason Muth:
We have a few different buckets of deals that we go after. But primarily, yeah, we’re looking for the stabilized deals, the newer deals, the deals that are fully occupied or let’s say they were fully occupied, have a good track record of occupancy before COVID. Obviously, it took a little bit of a hit during COVID but have made their way back or have at least started to make that turn back to where they were pre-COVID. Those are the kind of deals that we really, really are looking for and have been successful in getting up to this point.

Wally:
Very good. We’re in Denver, Colorado, there’s an absolutely ginormous continuing care, retirement community, Erickson, that they have three or four neighborhoods. It’s all connected by bridges. It’s an incredible complex over there. Are you in the continuing care retirement community space? Because you talked about going from just age qualified, 55 and older, all the way through skilled nursing but not in the same facilities, right?

Jason Muth:
Well, we do some in the same facilities that will have independent living, assisted living, and memory care, all within one roof or two roofs, but on the same campus. But at CCRC, which is a continuum care residential community is a little bit different animal. It’s not something that we actually go after…

Wally:
Okay.

Jason Muth:
… because those things typically have a very large buy-in fee.

Wally:
Yeah.

Jason Muth:
And then there’s a lifetime contract with that resident for their care, no matter how long they’re there, no matter how much care they’re going to need. It’s a different model. And it’s just not something that we’re… Like I said, we do what we’re comfortable with, what we know, and a CCRC falls outside of that.

Wally:
Okay. So it’s always with your tenants. It’s always a straight rental.

Jason Muth:
Exactly. Yeah.

Wally:
It’s not a buy-in in any way. Okay. I know Erickson came close to having some big problems with theirs back in ’08. They changed their model a little bit as far as the payout amount on when you leave the property. But that’s an interesting model as well. As far as the states that you’ve been in, I’ve been tracking it since… And some of the work you’ve done in Georgia, Nevada, Illinois. Are there states that you lean towards or that you look for? Are there any that you specifically try to avoid?

Jason Muth:
I wouldn’t say that there are states that we avoid right now. Certain states like New York, licensing is a bit more difficult there. But if a deal makes sense, pencils out, models out, and we have an operating partner that’s willing to go into a state like that, it’s not a state that we would stay away from. I would say within each state, there are areas and pockets of cities and communities that we would go after versus stay away from, for sure. So we do our due diligence. We take a look at demographics, just in general income levels, home values, that sort of thing. We deep dive deeper into those numbers. And of senior housing, what their incomes are, what their net worth is, that sort of thing. And then we’ll look at kind of the unmet demand and certain areas of pockets of five miles, 10-mile radius is and see how much supply and demand.
Because there are pockets within each market that are oversaturated, and we don’t want to be in those communities, right? So we’re looking for areas where there’s some definite unmet demand for either or all three of the IL, Al, MC products.

Wally:
And the age of the properties, I know I’ve toured a few of them, and they tend to be pretty nice, a little bit newer. I mean, is that part of the model for your acquisitions, really want something that’s built within the last five or 10 years, or how do you filter that?

Patrick Lam:
A lot of times, we have really good relationships with brokers and developers in the industry. And the life cycle for a developer in assisted living or memory care facilities, about five to six years. And so a lot of times, we buy facilities that are five to six years old is because that’s when the developer wants to exit, and that’s when we come in because there’s a lot more meat on the bones left in that facility. And I think that’s perfect for our investors because it’s not too new, but it’s also not too old.

Wally:
Yeah. Yeah. Well, that’s nice. I’ve been very impressed with this, with the ones that I’ve seen. As far as the trends where geographically people are going, I think that’s always of interest. There’s a lot of activity going on in Georgia. I don’t know if you’ve kind of topped out to what you’re doing in Georgia at this point.

Patrick Lam:
There’s actually a lot more in Georgia that we’re looking at now. Obviously, Georgia’s a great state, but it’s also a certificate of need state for us. In the senior housing sector, it’s very important. You just can’t build senior housing facility in Georgia just for the sake of building it. There’s a lot of permits and licensing, things that they have to look at, to make sure that there is an actual unmet demand in that region or in that city.
I think that has to do with a lot with the blue state, red state argument as well. We don’t really look at a state and call it a blue or red state right off the bat. We look at the county and the region, and then we look at the unmet demand. And the beautiful thing about senior housing and assisted living and memory care facilities is a lot of times, you’re shielded from all the politics and the stroke of the pen risk because you’re in senior housing, because it’s assisted living and memory care. We don’t really need to be too concerned about who’s controlling the White House or the Senate or Congress.

Wally:
Yeah. Or a state legislature. I mean, would you be concerned about rent controls being put in? Saying you’re picking on these seniors, you can’t keep increasing their rents, that kind of thing.

Patrick Lam:
Well, the beautiful thing again in senior housing is that, again, you’re shielded from all of that. So with senior housing, it’s very usual and customary that every single year, the rents increase by five or 6%.

Wally:
Yeah.

Patrick Lam:
That is across a board depending on… It doesn’t mean anything, depending on what state you’re in, whether you’re in a blue state or red state. It’s a five to 6% increases every single year.

Wally:
So with all the seniors moving to Florida, are you guys in Florida at all?

Patrick Lam:
We love Florida. Obviously, a lot of our investors like Florida. It’s a tax-free state, which is always popular with our investors. We do look at Florida quite a bit. We actually have a few LOIs out there in Florida now.

Wally:
Okay.

Patrick Lam:
A lot of times, you’ll see that we’ll never be the highest bidder in any of our facilities. And so if there is an overbid situation in Florida, we will take ourselves out. And that’s why you haven’t seen a lot of Florida facilities in our portfolio.

Wally:
Makes sense. How about Texas or any other tax-free states?

Patrick Lam:
We love Texas. We love Nevada. As a matter of fact, our next DST is in Reno, Nevada. And I’m sure that Sly already talked to you about that.

Wally:
Oh yeah. Sly’s take good care of us there.