- January 31, 2014
Thomas Harrison says he holds the record for clinching the highest amount ever paid for assisted-living facilities on a per-unit basis.
So now that Harrison is back in the business, people in the senior-housing industry are taking note.
Harrison is the CEO of Discovery Management Group in Bonita Springs, a company he formed in 2009 to buy back the six Aston Gardens senior-living communities in Florida he sold in 2006.
Harrison engineered the sale of Aston Care Systems at the height of the real estate boom in 2006 to a joint venture of Sunrise Senior Living and General Electric for $450 million.
“We didn't really want to sell,” Harrison recalls. But the deal was so irresistible that the shareholders of the company couldn't refuse the nearly quarter million dollars per unit they were offered.
When they sold Aston Gardens in 2006, Harrison says the communities were 99% full and net operating income was $26.5 million a year. When Harrison's team purchased them back three years later, occupancies had fallen into the low 80% range and net operating income had declined to $18.5 million, a 30% drop.
“GE was unhappy with Sunrise's operations,” Harrison says, so Sunrise sold its 25% ownership to Discovery Management in 2009 and GE retained its 75% stake. “We bought it back for substantially less than we sold,” Harrison says without elaborating. His partners include Al Hoffman, the founder of WCI Communities.
Now, Discovery has returned the six Aston Gardens communities to $26.5 million net operating income. “It took us three years to turn it around,” Harrison says. The Aston Gardens communities have about 2,000 apartments total.
Discovery plans to grow by building eight to 10 more senior-living facilities around the state in the next three to four years branded as Discovery Village. The first Discovery Village will be built in Fort Myers north of Colonial Boulevard; the company has contracted Naples-based DeAngelis Diamond Construction to build it.
While Florida cities such as Sarasota, Naples, Orlando, West Palm Beach, Jacksonville and Coral Gables are also on the list for Discovery Village, the company is scouting sites outside the state, too. “We're looking in Texas now and the Carolinas,” Harrison says.
Harrison is a pioneer of the senior-housing business, and successfully developed assisted-living facilities for Hoffman and Don Ackerman, another partner. “I was the turnaround guy,” he recalls when Hoffman and Ackerman hired him to fix Aston Gardens in the 1990s.
Harrison had been a homebuilder for three decades, including for Kaufman & Broad (now homebuilding giant KB Home). “A lot of issues can be tracked to sales and marketing,” he says. “It's the first avenue to turn around a business.”
When Harrison and his team analyzed the challenges to filling the assisted-living apartments at Aston Gardens they found that rent escalation was the biggest obstacle to attracting new residents. The most common question: “What's my rent going to be next year?”
So Aston Gardens promised new residents they'd pay the same rent for the next three years, working that cost into the monthly fee. “We looked at it as an actuarial problem,” Harrison says. “It has been hugely successful.”
When Sunrise took over the Aston Garden apartments in 2006, it did away with the three-year rent-protection program and suffered as a result. Now, Harrison has reinstituted it.
Initially, there were some questions about locking in the rents for three years because some costs are variable. But Harrison says most expenses can be estimated accurately. “If you don't know what your cost is, you shouldn't be in this business,” he quips.
The certainty of rent for three years is reassuring to adult children of residents, too. That's important because most of the time they're involved in the decision to move, Harrison says.
Another major change Harrison brought to the organization was how it compensated employees. Employees are the front lines of the company, and Harrison says well-compensated people are more likely to give residents excellent service.
For example, instead of paying its sales team salaries that ranged from $35,000 to $50,000 a year, Harrison instituted a pay-for-performance scale that lets sales people earn as much as $100,000 to $150,000 a year to recruit new residents. “We're at a very high occupancy level,” he says.
To operate efficiently, Harrison says Discovery Management outsources human resources and technology, for example. “We have a scalable enterprise,” he says, noting that the company could double in size without additional corporate staff.
Focus on wellness
Now Harrison and his team are developing a new generation of assisted-living facilities called Discovery Village. The first one in Fort Myers will have 66 assisted-living units, 30 apartments for people with memory problems such as Alzheimer's disease and 30 for independent living that don't require as much care as assisted living. The new facility will include a movie theater, a physical therapy center and physicians' offices.
Harrison says Community & Southern Bank of Atlanta provided the financing for the Fort Myers project, estimated to cost $25 million.
“It's all private pay,” Harrison says. Monthly rents will range from $2,800 to $3,900 depending on the size of the unit and the level of care required.
The physician offices inside the facility are particularly attractive to prospective residents because they don't have to go far for care, Harrison says. The company contracted with IPC, a company that provides physicians to hospitals and other facilities. “In the past, routine exams became an all-day excursion to the general practitioner,” Harrison says.
In addition, Harrison created a home-health company called Discovery at Home that recently received Medicare approval. “It took 18 months and $1 million to get Medicare-approved,” Harrison says.
While Discovery at Home is a profitable business on its own, the benefit is the company can provide its residents with this service at a time when the government is pushing for more at-home care. In addition, the home-health service reduces the liability problems that may arise from outside providers caring for Discovery's residents.
Besides focusing on wellness, Harrison says Discovery's residents enjoy a myriad of activities that helps them maintain social interaction and gives adult children a sense that their parents are well cared for. “There is always something for them to do,” he says.