$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.
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.
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.
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.”
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
*******************************************************
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.
*******************************************************
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.
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.
****************************************************************************
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.
*******************************************************
Acquisition Is Still Subject To Court Approval And
Auction
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?