$23M verdict stings Seattle-based assisted-living giant Emeritus

  Lawsuit says that the bottom line was more important than adequate care to the fast-growing giant in assisted-living facilities.

By Rami Grunbaum
Seattle Times deputy business editor
April 7, 2013

  A Sacramento jury has awarded $23 million in punitive damages against Seattle-based Emeritus in the death of an 81-year-old woman, finding management at the nation’s largest operator of assisted-living residences responsible for elder abuse and neglect.
  The lawsuit by the family of Joan Boice, who had advanced dementia, claimed Emeritus accepted her although she was physically too debilitated for the care the facility provides. Then, according to the suit, she was “left ... at the mercy of a few unqualified, untrained, and overburdened caregivers, with predictable, and tragic, results.”
  The verdict is larger than all but one of the punitive damage awards in California last year — precisely $22,963,943.81.
  Jurors tacked on Boice’s age in pennies, said the family’s attorney, Lesley Ann Clement, because “they didn’t want Emeritus to forget her.”
  During three months in the memory-care unit of Emeritus at Emerald Hills in Auburn, Calif., Boice developed several deep, necrotic pressure wounds. She died in February 2009, 10 weeks after being moved to a skilled nursing facility for hospice care.
  “We adamantly disagree with the verdict,” Budgie Amparo, Emeritus executive vice president of quality service, said in an interview. He called it “not a true representation of how we took care of Mrs. Boice.”
  Emeritus, which plans to appeal the March 8 verdict, is the biggest provider of a type of senior housing that promises its elderly clientele some assistance in daily life without the intensive personal care of a nursing home. The average age of Emeritus residents is 84.
  They paid an average $4,127 a month last year, producing company revenues of nearly $1.6 billion from more than 50,000 units mostly devoted to assisted living.
  The Sacramento verdict is not the first time Emeritus has been sanctioned by courts or regulators over issues of understaffing or inadequate care. Among others:

• Florida canceled the license of an Emeritus complex in Orlando in 2010 after finding three residents with late-stage pressure wounds who under state law should have been moved to skilled nursing facilities. 

• A Texas appeals court in 2011 upheld a $134,000 damage award to the executive director of an El Paso Emeritus facility, who was forced out after complaining that personnel cuts the company ordered didn’t leave her “an adequate number of staff members ... to provide for the needs of the residents.”

  The Boice case cited similar complaints.
  For instance, the Emerald Hills resident-care director in October 2007, a nurse named Mary Kasuba, wrote a five-page letter to 10 top Emeritus executives and board members to say she faced “a huge shortage of staff.”
  “There has not been enough staff to cover any part of the day-to-day staffing needs to give the residents their quality of care that Emerald Hills advertises. ... Not enough in the kitchen, housekeeping, resident assistants, (or) med techs,” she wrote, Clement’s trial brief said. Kasuba predicted that, “If the state came in (there) would be big trouble.”
  She never heard back from the executives, and resigned before Boice moved in, according to the suit.
  “Numerous red flags put Emeritus executives on notice of serious problems” at Emerald Hills and other company locations in California, Clement argued.
 

Care appropriate,Emeritus claims
  Emeritus painted a completely opposite picture of its care, according to filings in the case.
  The company said it provided appropriate care and kept Boice at Emerald Hills as long as the rules allowed because her husband, Myron, was in the facility’s assisted-living wing. It said other family members visited constantly and voiced no complaints about her treatment at the time.
  And it faulted skilled nurses from Kaiser Home Health, brought in to help care for Boice, for not seeing the pressure wounds sooner.
  Emeritus executive Amparo said in an interview that nothing in the claims about Emerald Hills’ management practices “could have changed the outcome of her overall medical condition.”
  Amparo, who spent two days on the witness stand during the six-week trial, said it was “very, very evident that there were a lot of prejudices that played in the courtroom” against Emeritus as a big company. “The jury reacted to that and we became the victim.”
 

Aggressive deal-making
  The 20-year-old company operates 483 facilities, including 28 in Washington state. It has grown in big spurts through aggressive deal-making and heavy borrowing, and its debt burden — $2.1 billion at year-end — means constant pressure to control expenses. The company has reported an annual profit only once.
  Despite that red ink, its shares have a total market value of $1.2 billion. Four days after the verdict, a major Emeritus investor completed a previously planned sale of 6.5 million shares for $175 million.
  Partnerships run by Emeritus co-founder and Chairman Dan Baty simultaneously sold almost 1 million shares for about $26 million. Baty, who controls a 6.4 percent stake, retired as co-CEO in 2011 and has since invested in hospitals and senior living projects in Asia, among other things.
  The current president and CEO is Granger Cobb, who led Summerville Senior Living before it combined with Emeritus in 2007 to push the company further up the ranks of the industry.
  Thanks in part to Emeritus, founded in 1993, Seattle became a hotbed of assisted-living companies, with three of the nation’s 10 biggest operators now based here.
  Emeritus is the largest, according to the Assisted Living Federation of America (AlFA), although Brookdale Senior Living of Tennessee has more elderly housing overall. Seattle-based Merrill Gardens and Leisure Care are also among the top 10.
  Huge punitive damage awards are often reduced on appeal or settled for a smaller sum, said Curt Cutting, a partner at Horvitz & Levy in Encino, Calif., specializing in appellate cases. His firm’s database shows only one California verdict for punitive damages last year was larger than the Emeritus award.
  The Sacramento jury also awarded Boice’s family $4.1 million in compensatory damages, which was reduced under California law to $500,000, and attorney’s fees.
  Emeritus was hit with punitive damages almost as large in Texas in 2005, when a jury awarded $18 million for the wrongful death of Florine Ofczarzak.
  An appeals court noted the company had misled the trial judge, violated court rules and refused to comply with a subpoena requesting documents in the case.

Growing market for memory-care units
  Memory-care units, like the one where Boice lived, are a growing focus for Emeritus and its competitors.
  Last week a study published in the New England Journal of Medicine said expenditures on dementia — primarily to provide housing and daily care rather than medical attention — were $109 billion in 2010 and would more than double by 2040.
  Emeritus is converting some of its regular apartments to memory-care units, meaning they have better safeguards for dementia patients. “We get very positive return on those types of projects,” Chief Financial Officer Robert Bateman told analysts in a February conference call.
  Bateman also noted that late-stage residents typically pay more because they need more services, so replacing them with new move-ins means less revenue.
  Residents with dementia are a tricky but lucrative segment for assisted-living companies because, said Vicki Elting, the assistant State Long Term Care Ombudsman, “They are getting more income out of the same bed.”
  Historically, “Assisted living used to be a very hands-off place to live — very few nurses around, the care was very light in that you weren’t really that ill.”
  As companies move into dementia care, however, the demands change as patients “decline physically and mentally to the point where you wonder whether these people shouldn’t be in a nursing home,” she said.
  In Washington, Emeritus does not have a disproportionate number of consumer complaints or deficiency citations from regulators, she said. “They’re pretty average.”   There is no national database of regulatory infractions at assisted-living facilities.
  According to the company, its nationwide data shows the average number of citations by regulators has dropped from 9.16 per community in 2009 to 3.62 in 2012.
  “If there are problems or issues that arise, what’s most important to us is how we respond to it, and how quickly and thoroughly we can remedy them,” said Karen Lucas, Emeritus vice president of product development and communications.
  While the number of communities it runs has more than doubled since 2006, Emeritus also has cut loose some troublesome operations.
  When regulators wanted to revoke Emeritus’s license in Orlando, Amparo said, “It was a good business decision to surrender that license” because as a three-story complex “it was a very difficult building to operationalize in terms of managing it.”
  The El Paso facility, where Texas records show regulators issued three substantiated complaints in 2011, was sold by Emeritus at year’s end.
  Under new ownership there were no such complaints the following year, according to state data.

Rami Grunbaum: 206-464-8541
or rgrunbaum@seattletimes.com

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HCP, Blackstone Paying $1.73B for Emeritus' 133-Property Portfolio
At somewhere between $50,000 & $90,000 per bed per year
Nothing Personal, it’s just An Investment

October 16, 2012

   HPC Inc. and affiliates of Blackstone Real Estate Partners VI have placed a $1.73 billion contract on a 133-property portfolio of 10,350 senior housing units in 29 states. The joint venture buyer expects to start the phased-in closings in mid- to late November.

  The buyers' group includes former tenants-in-common investors and an investment fund affiliated with Dan Baty, chairman of the Blackstone joint venture, in which Emeritus holds a 6 percent interest. Since 2010, Emeritus has received 5 percent of all collected revenues for managing the properties.

  When the deal's finalized, HCP will get 133 properties for $1.7 billion in cash and debt assumption. Emeritus will receive about $140 million in cash, of which about $40 million is for its interest in the Blackstone JV and the balance as an incentive payment based on the final rate of return to the JV's investors. Emeritus also plans to buy nine properties for $62 million, shelling out $10 million in cash and financing $52 million in a four-year loan through HCP. The initial interest rate is 6.1 percent.

  Emeritus will retain management rights to 129 of HCP's 133 properties under a long-term triple-net master lease with annual rent escalations of more than 3.7 percent on average or CPI over the initial five years and thereafter at 3 percent or CPI for the remaining initial term. The first year's rent totals $105.5 million. In turn, Emeritus will invest $30 million or $2,900 per unit to upgrade the assets.

  "Strong operating performance, favorable financial market conditions, and Dan Baty's sense for timing and transaction dynamics, allowed us to execute sooner than originally contemplated," said Granger Cobb, Emeritus' president and CEO. "It allows us to benefit from the substantial upside economics in this portfolio and provides capital for accretive strategic investment in other areas."

  Sixty-one percent of the 10,350 residential units is assisted living; 25 percent, independent living; 13 percent, memory care; and one percent, skilled nursing.

  The Blackstone JV initially acquired the portfolio out of bankruptcy in 2010 and transitioned the operations to Emeritus. The JV subsequently invested $42 million or $4,100 per unit into upgrading the properties. Since the acquisition, the portfolio's occupancy has climbed to 88 percent from 80 percent. HCP's 133 properties consist of 99 stabilized facilities and 34 in lease-up.

  HCP plans to prepay almost all of the in-place secured debt, according to a press release. The transaction is expected to be $0.08 and $0.05 per share accretive to HCP's FFO and FAD per share, respectively, on an annualized basis. The financing will be consistent with HCP's long-term leverage target of 60 percent equity and 40 percent debt.

  "This transaction is immediately accretive, significantly expands our senior housing portfolio and is structured through the safety of a guaranteed triple-net lease with meaningful upside through contractual rent escalators," said Jay Flaherty, HCP's chairman and CEO.

  Emeritus' master lease will have initial terms of 14 to 16 years, with the properties being grouped into three comparable pools. The master lease has two extension options that could take the terms to 30 to 35 years.

  Additional rent changes take place in the sixth year for the 34 properties in lease-up. The rent will be increased to the greater of the percentage increase in CPI or fair market, subject to a floor of 103 percent and a cap of 130 percent of the prior year's rent, allowing HCP to capture potential upside from these non-stabilized assets.

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APRIL 19, 2001
10 Things Your Assisted-Living Facility Won't Tell You
By Stacey L. Bradford
 

  BETTY ANN DRESSER wanted badly to trust the marketing director at Village Retirement Communities, an assisted-living company in Greenville, R.I. Her father, Howard Wyllie, suffered from both diabetes and Alzheimer's disease and had recently been discharged from another assisted-living facility that no longer had the resources to care for him. Dresser needed a new solution and she needed it fast. So when the first facility suggested she give Village a try, she called right away.
  Dresser knew that her father needed lots of attention. He required a strict diet, as well as assistance with taking his medications. And because his Alzheimer's was well advanced, he needed what the industry indelicately calls a "lock-down" facility a building where residents can be locked in to prevent wandering. Dresser says the marketing director foresaw no problems with Wyllie's special needs and she recommended he move into the Village at East Farms, a lock-down facility in Waterbury, Conn. She wrote down some figures on the back of an envelope explaining the fee structure, Dresser says, and the two sealed the deal with a handshake.
  Or so she thought.
  Problems arose just a few days later as Dresser was moving her father into his new residence. Not only did the marketing director present her with a contract that raised the fee by a couple of hundred dollars a month, but it became clear she had never told the head nurse or the kitchen at East Farms of Wyllie's medical condition. The facility wouldn't, in fact, cater to his dietetic needs and officials insisted that his prescriptions be reissued in a form that was easier to administer. Six days later, the facility called Dresser and said her father was running a fever. He would have to go see his personal physician.
  When Dresser's sister arrived at East Farms to collect her father, she found him sitting naked in his own feces on the edge of his bed. No one helped her clean him up or dress him. And when she got to the doctor's office, Wyllie's physician said he wasn't running a temperature and that his sugar levels were fine. When the doctor called the officials at East Farms to tell them that Wyllie was in good health, he was informed that his patient wouldn't be allowed back into the facility. "When my brother-in-law called the head nurse," Dresser recalls, "she said, 'He's your problem now.'"
  Dresser and her father's experience is an extreme one, there's no doubt about it. But their story raises a number of issues that, unfortunately, have become all-too-common in the sprawling, multibillion-dollar assisted-living industry. Lack of adequate care, broken marketing promises and a dearth of federal regulation are just a few.
  Not all assisted-living residences, of course, suffer these problems. If you keep your eyes open, read the fine print and adjust your expectations, it's certainly possible to place your loved one in a facility that lives up to the industry's promise providing a more comfortable, independent living experience than a standard nursing home. But as the financial pressures build on this fast-growing industry, problems are likely to proliferate. And in order to make an informed decision, you need to know what to look for. Here are 10 things that your average assisted-living director may not tell you.

1. We promise more than we can deliver
  The biggest misconception consumers have about assisted living is that once their loved one is accepted into one of these facilities, he or she will live there for a very long time perhaps avoiding a nursing home altogether. But nothing could be further from the truth. In fact, the average resident stays only two years. Why? The assisted-living business model was never intended to provide care for frail and sickly seniors. When they get that way as they inevitably do many facilities will insist that they leave. In fact, state law often requires it.
  To the extent that the industry acknowledges there's a misconception, it tends to blame consumers. "You can tell people [the rules] over and over again," says Whitney Redding, a spokesperson for the Assisted Living Federation of America. But when faced with family crisis, she insists, they often don't listen.
  Our reporting suggests a more common reason for the confusion: marketing. As in Dresser's case, assisted-living companies struggling to fill their beds often suggest that their goal is to adjust to your loved one's needs, even if they become substantial. It used to be called "aging in place," but after pressure from consumer groups, the industry now discourages that phrase. Buzzwords aside, the message remains the same.
  That is, until you read the disclaimer.

Altera Healthcare's
  Even if a facility wants to keep your loved one on, the state may require he or she be moved to a nursing home. Consider the case of Marcia Gutterman, whose mother barely got settled into her Florida assisted-living residence before she had to move out. After less than two months Theresa Chasan fell and broke her hip, and according to Florida state law she had to move to a nursing facility. In Florida, an assisted-living facility with a basic license isn't allowed to tend to a resident who is bedridden for more than seven consecutive days.
  Exceptions are made in terminal cases when hospice care is brought in. But the fact remains, if your dad's health deteriorates sharply, you run the risk he will be asked to leave just when you can least cope with it. How can you protect yourself? Read the resident contract very carefully and have a lawyer look it over before you sign. That way you can be prepared for an emergency situation.

2. We can raise our prices at any time
  Get ready for sticker shock. The average assisted-living complex charges $2,000 a month for basic services and some of the pricier residences can run as high as $6,000. Moreover, while Medicare and Medicaid cover nursing-home care, they don't pay for assisted living. (There are four states where a Medicaid waiver can be granted, but funding is limited and hard to come by.) Seniors who are trying to work out a budget also need to realize that a complex can raise its prices at any time and with little notice warns Meredith Coty, the state ombudsman in Oregon.
  The problem is often exacerbated by the industry's headlong growth. When a new facility opens it will often offer consumers a teaser rate to help fill the beds. Then, once the rooms are filled, it will hike its prices. Another tactic is to charge residents a basic monthly rate to cover a flat set of services and then tack on additional charges for care not included in the basic list.
  When Lisa Lewis moved her father into Alterra's Sterling House in Ponca City, Okla., she was promised the fee would only increase incrementally as her salary rose over time. But less than two years later, her father was forced out of his residence after a new assessment program was instituted adding an additional $800 to his monthly bill a burden the family couldn't afford. Alterra charged him every time he forgot to flush the toilet or when he needed help changing his clothes. He was even assessed because the staff had difficulty understanding him since his dentures didn't fit properly. The move back to Lewis's home proved traumatic for her father and he died less than two months later. When we called Alterra for comment, we were told the company doesn't discuss individual residents.
  The key in a case like this is to ask beforehand what's covered by your contract and what's not. If your parent has special needs, count on paying an additional fee to have them taken care of. If the facility charges for something as silly as flushing the toilet, you might consider moving to the competition.

3. Our staff has very little training
  According to Jeff Goldman, a former Manor Care executive in charge of development and marketing, most assisted-living facilities were never designed to accommodate frail seniors or people with major health problems. The financial models, he says, were set up with "old ladies in fuzzy slippers" in mind.
  Chains like Sunrise Assisted Living and Alterra have tried to adjust by offering services to residents with higher degrees of "acuity." But even the best and most expensive assisted-living complexes man their facilities with mostly unskilled workers. The majority of the staff are personal aides working for close to the minimum wage. The folks who distribute medication need as little as 16 hours of classroom instruction in some states to qualify for the job. Even in Virginia, which is known for its strict rules, the training requirement jumps to just 48 hours.
  Karen Love, a consumer advocate who works with the Consumer Consortium on Assisted Living, can personally attest to what a problem this can cause. During the mid 1990s she worked as an administrator for Sunrise Assisted Living's Arlington, Va., facility. She resigned after she realized she couldn't run a safe residence under the corporation's strict rules and staffing constraints. Her No. 1 complaint was that the caregivers had such little training. "You can't just throw [staff members] into a room and show them a tape," she says. "That's not meaningful training."
  The incident that pushed her into consumer advocacy happened back in January 1995. One evening, a resident was found unresponsive in her wheelchair and the staff members were flummoxed. Rather than call 911 immediately, they first tried to perform a barbaric version of CPR. Then, thinking she was dead, they left the resident alone in her room for nearly an hour before help was called. "They freaked out," Love says, and "acted the way untrained people would." The resident died later that evening in the hospital.
  Love blames an industry that expanded too quickly, growing at a compounded annual rate of 10% through out the 1990s. The pressure to make each new building profitable has been tremendous. A number of companies, such as Balanced Care and Alterra, admitted publicly that they struggled to meet debt obligations. It's clear looking back that in a rush to meet expected demand, many assisted-living operators pursued ill-conceived business models and failed to create the management infrastructure needed to operate a service-intensive business successfully. This includes keeping up with necessary infrastructure and support.
  Asked to comment, a Sunrise spokesperson said, "We provide a safe and secure environment for residents and staff residences adequately to meet requirements enforced by each state and to meet our own guidelines."

4. Medication errors are common and our pharmacy charges too much
  Trusting an assisted-living facility to properly dispense your medication is a bit like playing Russian roulette. Errors are common. While Lisa Lewis's father lived at Alterra's Sterling House, the health department found the facility failed to administer his ordered medications on 20 different occasions during the last four months of his stay. And during 15 of the 17 months he lived there, records indicate that the company lapsed in ordering or obtaining his medications.
  Coty, Oregon's ombudsman, was hardly flabbergasted when we shared Lewis's story. "There is an epidemic [breakdown] in the medication administration system," Coty says. She also warns that pharmacies affiliated with assisted-living facilities will often charge residents more for prescriptions than an independent druggist would. When possible, residents should continue to use their own drugstore. But don't be surprised if your facility requires medications to come in a certain format, such as bubble dispensers, that may only be available through an affiliated pharmacy.

5. We face scant regulation
  Al Schmidt's wife suffers from Alzheimer's disease and when he could no longer care for her on his own, he moved her into an assisted-living facility that appeared safe and loving. Only once it was too late did he realize that his spouse was better off at home.
  While residing at Sunrise Assisted Living's Northville, Mich., facility, Ruth Schmidt was sexually abused by another resident who also suffered from dementia. This was discovered when an aide walked in on the man performing a sex act on Schmidt. The aide was instructed by the administrator of the facility not to report the incident to authorities, not document it in their files and not to tell Al Schmidt. The husband only discovered what had happened after a former employee felt a pang of guilt and called him at home to confess what she knew.
  The facility initially denied the occurrence. But after the Northville police department investigated for criminal activity, Sunrise claimed that Ruth Schmidt who can't think rationally chose to participate in consensual sex. According to a state report, the administrator regrets trying to hide the incident, but chose not to tell Schmidt in an effort to spare his feelings. For his part, Schmidt isn't trying to conceal anything. "I want the world to know what goes on and I want it stopped," he says. A Sunrise spokesperson says the company doesn't comment on individual residents.
  Unfortunately, Schmidt learned he had very little recourse against Sunrise. Since the facility didn't initially report the incident, there are no tangible records. And unlike nursing homes, which are federally regulated, assisted-living residences tend to face light state regulation. Marguerite Schervish, the long-term-care ombudsman for Michigan, says assisted-living facilities in her state, by law, have no requirement to protect vulnerable people other than what might be typically provided under a landlord/tenant relationship. Conversely, she says a nursing home would be liable and the state would take an accusation of sexual abuse in a licensed facility very seriously.
  "It is up to a jury to prove without a reasonable doubt that she was abused, not the state prosecutor," Schervish says. Also, since assisted living isn't regulated by the federal government, rules and regulations differ by state. For information on your state's rules, check with your local department of aging or you can browse through the National Center for Assisted Living's state regulatory review.

6. You're practically on your own at night
  A lot of seniors are like Elsie Lox. She moved into Atria Retirement & Assisted Living's Cranford, N.J., residence precisely because she wanted to have someone to watch over her in the evening. Only after settling in did she discover she was more alone than she had hoped. "At night, everyone went home and no one knew what was happening," says Lenore Lox, Elsie's daughter-in-law. The residence which has more than 200 residents employed just one aide to cover the night shift. Not exactly the security and care Elsie felt she was paying for.
  Realizing she couldn't count on Atria, Elsie wore an emergency call button that contacted an outside service. The rest of her care eventually fell upon the shoulders of family. Lenore Lox and her husband spent countless evenings driving the 45 minutes back and forth from their home to the facility every time Elsie got a stomachache, felt dizzy or fell out of bed. The only help the night aide was trained to provide was placing a call to the ambulance.
  Goldman, the former Manor Care executive, says the relatively healthy seniors that assisted-living centers were designed to treat don't really need 24-hour nursing care. But as the sector exploded from its infancy in 1981 to a $15.7 billion industry in 1999, beds needed to be filled and facilities started accepting people with more and more acute needs. The problem was, they couldn't increase staffing because that would inflate costs further, Goldman says. And they couldn't overtly raise rates because they were already sky high.
  So how do you protect yourself or your loved one from moving into a poorly staffed facility? Insist on taking an extensive tour at different times of day to be sure there is adequate staff. It's rare that you would find a residence that's fully staffed in the evenings, but some are better than others. Observe whether the aides know the residents names and ask how many residents each staff person is responsible for. Don't be shy. Step right up and start talking to the people who already live in the residence. They'll tell you if they get enough service and attention.

7. You may have to hire a private-duty nurse, too
  A few months ago, Heather Oppenheimer received a phone call. The administrator at Cincinnati's Evergreen Retirement Community wanted to meet and discuss her mother-in-law's care. Oppenheimer was told that her mother-in-law, who suffers from Alzheimer's disease, needed help with toileting and bathing. This was more care and personal attention than the assisted-living facility was willing or able to provide.
  The administrator recommended that Oppenheimer hire additional help from 7 a.m. through 9 p.m. in other words, for most of the day. If she refused, her mother-in-law would be forced to move into a nursing home only the one on the same campus was already full. Oppenheimer decided finally to comply with the facility's costly request. Now her mother-in-law is being tended to by a home-care nurse who costs an additional $100,000 a year.
  Oppenheimer's experience is far from unique. "Once we can't keep up with all of [a resident's] needs, we give them the option to get more help or move to a nursing unit," Janet Lence, an assistant administrator at Evergreen, says. Although a facility will often offer a long menu of services, that doesn't mean your loved one is entitled to all of them. Each resident is allotted a certain amount of personal time and once that time is up you either have to pay more or get outside help.
  Connie Rosenberg, president of the National Association of Professional Geriatric Care Managers, says you need to factor those costs into your budget if you plan on keeping your loved one in an assisted-living facility for more than a couple of years. The last thing you want is to expend the family's resources on the basic service and then be left with few options for care, she says.

8. We stop spending once our beds are full
  From our research, we found that the newer the facility the better the maintenance and care. Why? Companies need to fill their beds. When shopping for an assisted-living residence, consumers often pay close attention to the appearance of a facility. So it's in a company's best interest to maintain the grounds and make their current residents happy.
  Lenore Lox found that her mother-in-law's assisted-living facility deteriorated significantly during the seven-plus years she lived there. First, a major corporation bought out the facility. Then, soon after the property changed hands, a new administrator came on board who didn't manage the operations with the same firm hand. Dr. Jon Pynoos, of the University of Southern California's Leonard Davis School of Gerontology, says consumers need to be very vigilant to avoid problems. "[It's] easy [for a facility] to slip into doing a very poor job," he says. "All it takes is an administrator to not know what she is doing."
  To make sure your facility is keeping up to snuff, ask to see its most recent inspection report. Although each state varies, most conduct a full survey once every two years and document any problems, ranging from faulty paperwork to safety concerns and general cleanliness. This document should be available at the front desk. If it isn't, consider it a red flag.

9. Practically anyone can hang an assisted-living shingle
  Steve Sheley, a registered nurse who owns Freedom Oaks, a small assisted-living residence near Orlando, Fla., says he was surprised by how easy it was for him to open his facility. After taking a one-week class, he was ready for business. You too can open a facility. It doesn't matter that you have no medical or industry experience. Getting a license, which you don't even need in certain states, is remarkably simple. In Florida, a state known for protecting the elderly, an administrator need only take a 26-hour course and pass an exam before setting up shop. The facility itself receives a license upon physical inspection, where state officials check for safety and cleanliness.
  Consumers also need to realize that assisted living is just a marketing phrase, not a regulatory term, says Alison Hirschel, an elder-law specialist at the Michigan Poverty Law Program. Almost any building catering to the elderly can use this title, though their services may range from a room with a call button to a full-service facility. Hirschel also confirms that there have been nursing homes in Michigan that were shut down for various reasons, but were allowed to reopen under the assisted-living shingle.

10. Check your dignity at the door
  The guiding philosophy behind assisted living is to treat seniors with respect and help them maintain their dignity. After all, that's the major reason people choose one of these facilities over a nursing home. But while some facilities excel at this, others fall short. And as the string of examples above shows, it's easy for a frail senior citizen to get into a situation where dignity and independence are compromised.
  Sometimes the breach has more to do with civility than health issues. Virginia native Nancy Jean complains that staff at her mother's small residence nearby speaks to both the residents and visiting families rudely. The residents are relegated to the upstairs bedrooms and hallways except when eating in shifts in the small dining room. There are also restrictions placed on the amount of clothing they are allowed to keep at the facility. Jean says staff members will go through residents' closets and throw out items they feel are extraneous.
  Most upsetting to Jean's mother is that she isn't trusted to hold on to her own over-the-counter remedies such as Tums and Gas-X. It embarrasses her to ask for them so oftentimes she simply goes without. "I say they have taken her dignity away," says Jean.

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Blackstone to buy $1 Billion Worth of Tampa Bay Homes For Rentals
By Drew Harwell, Times Staff Writer
Thursday, September 20, 2012

  A Wall Street behemoth plans to spend $1 billion on Tampa Bay's hobbled housing market, dispatching teams of brokers to scour neighborhoods and buy hundreds of homes a month.

  But rather than resell the homes, the Blackstone Group is opting to become a landlord, renting the homes to tenants including foreclosed ex-homeowners burned by the housing crash.

  Blackstone, one of the nation's largest private-equity firms, plans to buy as many as 15,000 homes in Tampa Bay over the next three years, many of them foreclosures, capitalizing on decimated home prices and growing rents.

  The shopping spree, and those of half a dozen other big investment firms and hedge funds, could radically change the local home landscape, as big-money brokers compete with first-time buyers and mom-and-pop landlords over homes in tight supply.

  "It's a land grab unlike anything we've ever seen," said Peter Murphy, CEO of Home Encounter, the largest manager of rental homes in Tampa Bay. "You're going to drive through parts of town and all of it is going to be institutionally owned."

  But it's also a big gamble on a shift in the American psyche, away from home ownership and toward home renting: cheaper, easier and with less risk of financial ruin.

  "Used to be a house appreciated value 3 percent every year. It was a great investment. Then everyone got burned," said PDC Group owner Nick Pavonetti, whose St. Petersburg-based firm is helping Blackstone buy homes.

  "We're moving more toward a nation of renters," Pavonetti said, "and we want to provide a product to meet that demand."

  Blackstone insists that the homes have at least three bedrooms, two bathrooms, less than 20 years of wear and tear and little need for repairs. Blackstone's most profitable sweet spot is between $100,000 and $175,000, Pavonetti said, though the firm is open to buying bigger and pricier if they smell a good deal.

  "There's no upper limit. We can spend as much as we want," Pavonetti said. "If we've determined we want that house, we're going to be there, no matter what it takes."

  Blackstone would install its own property manager and cover maintenance, taxes and insurance, Pavonetti said. He would not specify rental rates, but brokers seeking homes for other funds said rents would hover around 1 percent of the home's purchase price, or about $1,500 a month on a $150,000 home.

  Blackstone brokers have begun distributing flyers offering cash-in-hand deals with quick turnarounds, "no lowball offers" and "no red tape." Many are working with local agents and banks to divine the choicest homes as soon, or even before, they hit the market.

  But with nearly 200 homes already bought and another 700 deals under way, brokers still have a long way to go to meet projections. For scale, $1 billion could buy all of the 1,500 homes and condos sold in Pinellas County last month — four times over.

  Unlike home prices and rents in large apartment complexes, single-family rents grew during the recession — a tantalizing offer for firms with investors hungry for good returns.

  Single-family home rentals are a $3 trillion market, with 21 million homes drawing rents across the country, according to CoreLogic, a financial data firm.

  And Florida, with its low prices compared to rental cash flow, represents some of the most fertile grounds for investors looking to tap into the foreclosure-to-rental market, which CoreLogic estimated could grow to $100 billion this year alone.

  Most families who lost homes to foreclosure, Federal Reserve data shows, have turned to rental homes, either because they can't qualify for a new loan or because they feel gun-shy about buying again.

  About 65 percent of Americans own a home, the lowest level since 1997, U.S. census figures show. Among the young, that rate is even lower: Only a third of Americans younger than 35 own their own home.

  "I've been a broker for 30 years, and I have never seen more demand from the tenant side of the business," said Kevin Chadwick, who owns seven Keller Williams franchises across Tampa Bay.

  "And typically, these are really great tenants. They used to be owners in a house. . . . They're used to taking care of their home. (Investors) love this situation."

  Investors looking for steals have been a big part of the local market since prices dropped by 45 percent from the 2006 peak. But few are like Blackstone, the nation's biggest buyer of strip malls, suburban offices and other commercial real estate, including ownership of Hilton Hotels. Based in New York, the firm is bigger than Bain Capital, the spotlit private-equity firm once run by Republican presidential nominee Mitt Romney.

  Blackstone is embroiled in fierce competition with firms like KKR and Waypoint Homes, diving deep into the same neighborhoods and looking for yearly profits of 8 to 12 percent. Blackstone is buying in Pinellas, Hillsborough, Pasco and Polk counties.

  The competition is not just for rent checks.

  Bankers are looking at bundling the future payments as trusts or securities to sell to investors, much like mortgages were pooled and sold during the housing boom.

  Banks and mortgage giants are getting in on the growing rental market. Earlier this month, in its first bulk sale of foreclosures, Fannie Mae sold 699 Florida rental homes to a San Diego investment firm for nearly $80 million.

  Families and first-time buyers stand little chance to compete. Firms like Blackstone don't need appraisals, don't mind waiting for short sales, and pay cash on the spot for homes they want.

  The home investments are stoking uncertainty among real-estate agents, who are happy to see extra business but unclear on what happens when it ends.

  "This might be an incredible solution to taking homes off the market, or it could put a big squeeze on our inventory," said Century 21 franchise owner Craig Beggins. "It's game changing. But I don't know which way."

Times staff writer Jeff Harrington contributed to this report. Contact Drew Harwell at (727) 893-8252 or dharwell@tampabay.com.

EDITOR'S NOTE: This follow-up report appeared in the Times on Sept. 22:
By Graham Brink
Times Business Editor

  The Blackstone Group said Friday that it might buy homes in the Tampa Bay area and turn them into rentals, but that it will not be spending $1 billion here.
  The response comes after the Tampa Bay Times published a story in Friday's newspaper saying that the private equity firm would spend $1 billion over the next three years in this area buying up to 15,000 homes, many of them foreclosures.
  Blackstone and other large firms are opting to become landlords, capitalizing on decimated home prices, rising rents and an abundance of tenants, many burned by the housing bust.
  Peter Rose, a spokesman for Blackstone, said publicly Friday that the Tampa Bay area is one of several metro areas it is looking at for buying properties. Rose told the South Florida Sun Sentinel that the firm has started acquiring homes "in a number of cities across the U.S.," but added that the amount of money spent in any one city would be a "tiny fraction" of $1 billion.
  Rose did not return phone messages or an email from the Times on Friday.
  The Times was told of the $1 billion amount and other details by Nick Pavonetti, owner of the St. Petersburg-based PDC Group, which was helping Blackstone buy homes.
  The Times did not confirm the details with anyone at Blackstone's headquarters in New York City.
  On Friday, Pavonetti said he had terminated his relationship with Blackstone.
  "I don't want to get sued. I want to stay out of court," Pavonetti told the Times on Friday. "For that reason, it's best I don't address Blackstone directly."
  Pavonetti confirmed that he spoke to Blackstone officials on Friday morning.
  "We did not speak about the veracity of the numbers," he said. "We only talked about how I should have kept my mouth shut."
  Blackstone oversees more than $190 billion in assets for public and corporate pension funds, academic and cultural and charitable organizations. It is the nation's biggest buyer of strip malls, suburban offices and other commercial real estate, including ownership of Hilton Hotels.

by the numbers

15,000
Number of homes Blackstone plans to buy in the Tampa Bay area over the next three years

Target homes: At least three bedrooms, two bathrooms, less than 20 years of wear and tear

Most profitable price point: Between $100,000 and $175,000.

Fast facts
Blackstone Group

• The private equity investment and advisory group began with a $400,000 balance sheet; now it oversees more than $190 billion in assets for public and corporate pension funds, academic, and cultural and charitable organizations.

• Founded in 1985 by Stephen A. Schwarzman, left, current chairman and chief executive officer, and Peter G. Peterson, who retired as senior chairman in 2008.

• Notable real estate investments: Equity Office Properties, Hilton Hotels Corp., La Quinta Inns & Suites and Wyndham Worldwide.

• Other notable current and former investments: Allied Waste, Houghton Mifflin, Legoland, Universal Studios Parks, Madame Tussauds, Travelport, the Weather Channel and SeaWorld Parks & Entertainment (parent of SeaWorld and Busch Gardens).

• Its portfolio companies employ more than 700,000 people around the world. If all its holdings and transactions were combined into a single company, it would rank No. 7 on the Fortune 500 list.

• Went public in 2007 (a $4 billion initial public offering) and is listed on the New York Stock Exchange under the ticker symbol BX.

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 The SeniorCare Investor: Blackstone Signs Sunwest Deal
Acquisition Is Still Subject To Court Approval And Auction

  Depending on whom you were talking with in early January, the deal between Blackstone Real Estate Advisors and Sunwest Management was going to be signed “any day now.” Or, it was a dead deal and Judge Hogan was pushing, along with the Management Committee, for an alternative structure from an alternative buyer. Although we were never too sure who to believe, as far as we were concerned there was still just one deal on the table, and that was the Blackstone offer. There is another one circling, which we will get to in a moment, but during the first two weeks of January, only Blackstone, with its partners Emeritus Corporation (NYSE: ESC) and Columbia Pacific Advisors (Dan Baty), had pretty much everything in place to finally move forward.

  The definitive sales agreement with Blackstone was finally announced on January 19 for 134 properties with 11,096 units for a total purchase price of $1.153 billion. There are 6,175 assisted living units, 2,944 independent living units, 1,782 memory care units and 195 skilled nursing beds. The price is comprised of $235 million of cash and the assumption of $918 million of debt, of which Mr. Baty and his various partners control 30%, or $275.5 million. This new price comes to about $103,900 per unit and represents a drop of 14 properties and about $100 million in price from their earlier offer. That is what due diligence is all about, but we hear that The Judge was none too happy about it. If the offer is “approved” by the court, the Blackstone deal will become the stalking horse bid in a bankruptcy auction “to be held later this year,” which we hope means by March or April at the latest. Not to lay blame, but the Erickson Retirement Communities bankruptcy filing, stalking horse bid approval and final auction took place faster than The Judge and his lawyer friends can play a round of golf in the Oregon rain. But we digress.

  As part of the new offer, the Blackstone joint venture offered a potential equity rollover of up to $25 million for the existing Sunwest TIC investors, which we assume would reduce the cash portion of the offer dollar for dollar. Obviously, this is meant to be something of a peace offering to those TIC investors who believe there is significant upside in the Sunwest operations and, perhaps more importantly, don’t need any cash at this point in time. We assume these are the larger TIC investors and not the “mom and pop” investors who have a few hundred thousand dollars invested rather than the several million invested by what we call the “controlling TICs.” This was a smart move on the part of Blackstone, and our guess is that this will be where there is the most wiggle room as the negotiations or competing offers come into play.

  Other details of the transaction, other than being subject to bankruptcy court approval and a six-week bidding period, are the requirement that any competing bid be at least $26 million higher than the Blackstone bid (more on this later), and that a competing bidder have a net worth greater than $500 million and assets of at least $2.5 billion. It looks like that takes Jon Harder out of the running. In addition, there is a break-up fee equal to the greater of $9.0 million, or 10% of the amount that the successful bidder’s cash/equity price exceeds $235 million. For its part, Emeritus will be investing up to $26 million, and will receive a management fee equal to 5% of revenues plus incentive fees. The management contract alone will be accretive to Emeritus, with Morgan Keegan’s estimates of $0.12 to $0.15 of cash flow from operations per share, and that’s before any growth potential.

  So what’s keeping the deal from getting done, which, by the way, would be the largest transaction in our industry since the fourth quarter of 2007? First of all, there are the large TIC investors who believe they are leaving too much money on the table with the Blackstone offer, especially with a sale at a market bottom. They believe that as occupancy improves at the Sunwest facilities, and as the capital markets stabilize, the cash flow-generating potential will increase, and the value will ultimately rise. And they are right, and that is pretty much what Blackstone is counting on, or any other bidder, otherwise they wouldn’t be wasting their time.

  The difference is, and it is not an insignificant one, that Blackstone will be counting on Emeritus to improve the census, operations and cash flow, and we are not too sure who the TIC investors think will do the job for them. Some say the existing Sunwest management team, and while we are not sure exactly who is there today, after what they have been through who knows who will be there tomorrow? In addition, if the TICs think that they are leaving money on the table, how and when do they plan on taking it off the table in the future, and who will decide the best way to do that? Disagreement among the investors could lead to delays and missed market opportunities. Yes, we know that the REIT structure and a public offering down the road has been discussed, but REIT IPO windows are not always open, especially for an IPO with just one tenant, and one tenant with a troubled past. Think about that discount in pricing.

  Here’s where the story begins to get complicated. The reason why Blackstone slipped its “up to $25 million equity rollover” into its offer is because the only known potential competing bid is one that will involve an approximately $100 million “preferred” investment (for now), with perhaps half going to cash out some of the TIC investors (who want out now) and half going toward working capital and needed capital improvements. The remaining TIC investors would ride with the new investor to take advantage of any appreciation in value in the properties, which everyone is assuming will happen.

  As a preferred investment, the investor usually has a return preference before others get any return, and the others we assume would be the TICs and any other stakeholders and unsecured creditors that The Judge deems worthy of having a future claim. So, standing in line ahead of the TIC investors would be the creditors with $918 million of debt, followed by the new preferred investor with a $100 million commitment (for now). The only name mentioned to date as the potential investor, and it is mentioned a lot, is Boston-based AEW Capital Management, but others may see the merits of this structure and join the bidding fray when it is opened up, but we doubt it given the due diligence requirement. For now, we will assume it is a duel between Blackstone and AEW, and we understand that AEW may have caught up to Blackstone on the due diligence front.

  A second problem is that we don’t see how the court (and from what we hear, The Judge did not exactly major in economics) or the investment bank hired by the Chief Restructuring Officer to handle the auction, Moelis & Company, will be able to compare the two offers as we understand them to be (when the second offer is formally made). How does one decide whether a competing offer, for argument’s sake from AEW, is $26 million higher than the Blackstone offer when it is a preferred investment that is less than 50% of the cash offer from Blackstone and less than 10% of the total offer when the assumed debt is included? And how do you decide which one is better for the stakeholders, which is what we understand to be The Judge’s main concern? Cash today, or less cash today with the hopes of even more cash at some later, unspecified date? And better for which stakeholders? This is obviously complicated with many competing interests, but we think that if there is going to be an auction, it should be on the same playing field, with the same rules (meaning terms).

  Now that you’ve asked, here’s how we see it playing out. If AEW (or someone else) does make a competing bid with a preferred investment, say the $100 million that has been bandied about to start with, and The Judge seems to think this is the way to go, Blackstone will do one of two things. It will increase the amount of the equity rollover in its current bid to satisfy a larger contingent of the TICs, and it probably has some room to increase the total cash/equity rollover portion of its bid, with that increase depending on how much it wants to do the deal and what other returns are available to Blackstone in the market right now. Or, it will play the “preferred investment” game, topping an AEW bid and getting its 30% annual return with a smaller investment, and not worrying about what to do down the road with the $918 million of debt.

  How high AEW would go is anyone’s guess, and we will be the first to admit that we do not have a clue, but if they do make a formal offer and take part in an auction, we suspect that the total cash portion of the offer will go up by $25 to $50 million, if not more, whether in Blackstone’s current structure or in the preferred investment structure. If AEW or another bidder offered $200 million in a preferred investment structure, then more TICs would get on board, but that may be a stretch because there is the issue of real control compared with theoretical control of the assets, and the higher the investment the more real control the investor will demand. And if the cash increases, especially with a higher rollover amount, the receiver and the CRO would probably recommend an enhanced Blackstone offer to The Judge, who could then feel inclined to take it. And who said Judge Hogan didn’t understand economics 101?