Chris Finlay, CEO of Lloyd Jones LLC, shares his view on trends in elderly housing investment, the firm’s strategy and future plans. He also predicts how technology will impact the sector.

by Beata Lorincz
Lloyd Jones LLC is a real estate investment, development and management firm that specializes in multifamily and senior housing throughout Florida, Texas and the Southeast. The company focuses on independent living and age-restricted facilities (ILFs), as opposed to communities that include a medical component, such as assisted living facilities (ALFs) and memory care (MC).

According to the National Investment Center for Seniors Housing & Care (NIC), senior housing occupancy in the U.S. averaged 87.9 percent in the second quarter of 2018, representing an eight-year low. Multi-Housing News reached out to Lloyd Jones CEO Chris Finlay for further insight on the senior housing market.

What do you look for in a senior community?
Finlay: Ideally, for existing assets, we look for properties 10 to 20 years old that we can acquire at substantially below replacement value, then improve or redevelop them so that they are competitive with new product. Unfortunately, very few of these opportunities exist. Consequently, our focus is on ground-up development, where we can create an active senior community designed specifically to our specifications—and to the expectations of our residents.

What are the latest trends in senior housing?
Finlay: More and more seniors are renting by choice. They are looking for lifestyle flexibility as well as freedom from taxes and household/yard maintenance. And they like being around like-minded friends, in a socially active and healthy-lifestyle-focused environment.

What are the greatest challenges in owning senior communities?
Finlay: Getting too attached to your residents. Our senior residents are wonderful. They are great to work with and so appreciative of the opportunities our communities provide.

Research shows that senior housing occupancy hit an eight-year low of 87.9 percent in the second quarter of 2018. What can you tell us about this drop? How does this impact the sector?
Finlay: Fifty-five-and-over occupancy is over 95 percent and ILFs are at 92 percent. ALFs/MC are overbuilt in nearly all major markets. We just got back from a seniors conference and our strategy was absolutely confirmed. This is where they’ve headed and will be staying for a long time and thanks to technology, many seniors may never have to go to an ALF/MC or skilled nursing facility (SNF).

What are your predictions for the senior housing market going forward?
Finlay: I see less demand for assisted living and memory care. With all the technology advances, seniors can avoid institutional facilities and stay independent for much longer.

Which are the most active multifamily markets at the moment?
Finlay: Jacksonville and Daytona are two of the hottest markets in Florida. We also like Houston and Fort Worth, Texas.

What are your predictions for the market?
Finlay: I think we have a few more years in this cycle, but demographics will continue to be positive for our industry for a very long time.

What can you tell us about the company’s strategy going forward?
Finlay: We are not planning to expand to any new markets. Our strategy is to focus on 55-and-over independent senior living, which is still doing very well.

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The senior housing industry is in the midst of a big disruption.  Occupancy in assisted living hit a record low in the first quarter of 2018 – and continues to fall. There could be numerous reasons for this, including a bad flu season, but I think there’s something bigger going on.

At a recent conference I attended, one of the speakers addressed this subject.   He suggested that two major influencers are driving the disruption.

1. Labor shortage. A labor shortage is anticipated for high-intensity facilities such as assisted living, memory care, skilled nursing facilities. The average wage for a CNA (certified nursing assistant) is currently $11 per hour.  Soon, the speaker projects,  it will be $15. This will cause an 8% drop in NOI which translates to a 27% decline in asset value!  Or, more likely, rents will rise, and such facilities will become even less affordable.
2. Technology. And this is where it gets cool! Technology is focusing on aging-in-place, allowing seniors to avoid institutional facilities longer. The speaker shared that aging-in-place technology will become a $7 trillion economy. Venture capital is investing 10:1 on technology versus operational improvements.

So how does this affect you and me?
It means we can age in place almost anywhere.  The secret is in choosing the place. If we live long enough, each of us will need assistance at some point, (although most of us refuse to admit it).  But technology will allow us to live wherever we choose with on-demand assistance as necessary.

Even today, technology is available to get us what we need, when we need it: a voice activated communications system connected with family or emergency-response team;  a sensor to monitor activities and detect irregularities;  a wrist band connected to an AI platform that alerts the doctor if anything is out of kilter;  apps to remind us to take our pills; apps to call a ride; apps to order meals; apps to request assistance with dressing or bathing; apps for help hanging pictures or rearranging furniture.

And that’s today.  Just wait until that $7 trillion investment is realized!
I project the future of senior housing will be focused on the independent-living model with limited services – which will be offered a-la-carte.  Technology will replace the need for personal assistance. We will not need (nor can most of us afford) the full staff that comes with assisted-living facilities. With this exciting new technology, we will remain independent much longer as we age in place.

But aging-in-place doesn’t mean staying in your four-bedroom colonial with stairs, narrow doorways, and slippery bathtubs.  Forward-thinking baby boomers are eschewing their large family homesteads that require constant up-keep and high taxes for luxury apartment living.  Here, they can age in place, but in a place with more amenities, more fitness activities, more social involvement, and more companionship.  And that socialization is very important.  Studies show that social isolation increases the risk of death by 30%;  some show it as high as 60%!

Assisted living and memory care facilities, of course, will still be needed, but they will have a much higher cost and be even less affordable to the average senior.  That said, senior housing still ranks as the most attractive property class for investment according to a recent survey of commercial real estate owners, managers, developers, and lenders.

So, we will age, in place, independently, and wherever we want. And I suspect most of us will choose an independent-living community surrounded by like-minded, active, involved friends – and cool technology!

Christopher Finlay  is Chairman/CEO of Lloyd Jones, a real estate investment firm that specializes in the multifamily and senior housing sectors. Based in Miami, the firm acquires, develops, improves, and operates multifamily and senior housing communities in growth markets throughout Texas, Florida, and the Southeast.  The firm’s investment partners include institutions, family offices, and individual accredited investors.

Before you entrust your funds to a real estate investment partner, ask some questions.
First: Is your real estate investment partner an Allocator or an Operator? There is a big difference.
Allocators distribute capital on your behalf to Operators. Allocators seek the best operators and invest, on your behalf, in whatever funds and deals operators bring to them. Allocators make sense if you are a pension fund (or similar) with no expertise in real estate investment. You are basically outsourcing that function and knowledge; however, it comes at a cost. You have no input in asset selection or fund strategy. And of course, the Allocator charges fees. This adds an additional layer of costs to you, and these fees come out of the investment thus reducing your returns. An Operator, on the other hand, is the preferred solution if you have the resources to analyze a specific fund or an individual deal. If you invest directly with a real estate operator, you will not only save a layer of expensive fees, but also get to choose a fund investment strategy, (or particular asset), its geography, investment term, and even the potential returns. But be careful how you choose an operator. They are not all the same.
Six questions you should ask your operator:

1. Focus. What asset class do you specialize in?

If the answer is “retail, industrial, and student housing…” Run! An operator must be an expert in a specific asset class.

2. Market. What markets do you specialize in?

The same applies to markets. A real estate operator must have a physical presence in the target market to really understand its nuances and trends.

3. How long have you been in business? In the specific asset class? In the specific market?

Experience is priceless.

4. How many economic cycles have you experienced? How did you weather the market crashes of early ’90s and ’08?

Real estate is great while the market is booming. Does your operator know what to do in a crash?

5. Who manages your investment properties? Do you outsource to a 3^rd party management company?

There is no substitute for your own, on-site management of your assets. As a wise farmer once told me, “The best fertilizer is the farmer’s foot on the soil.” This applies to property management, as well. You must have your foot – and your hands, eyes, and ears — on the property, at all times. The 3^rd party manager has no skin in the game. It’s not his money at risk if there is a budget shortfall.
A word about property management: It is local, hands-on, and very difficult – and probably the most important aspect of a real estate investment. Your management team, especially at the site level, is critical to your property’s success. Few investors/operators pay enough attention to this fact. Let me assure you, it’s very, very difficult to assemble the right team. I can hire 1,000 financial analysts more easily than one, excellent on-site property manager. It’s that hard.

6. How much of your own money are you putting in the deal?

Most sophisticated investors want to see the operator have money in the deal. It gives them comfort knowing that if the investment is not successful, the operator will share the pain.
At Lloyd Jones Capital, we always invest alongside our real estate investment partners, but, in fact, maintaining our good reputation and strong track record is what motivates us to succeed. With the transparency in the market today, an operator’s reputation is far more valuable than his money.
In summary, when choosing a real estate investment partner, ask these questions and remember:
Real estate is local and hands-on. Your partner should be, too.
Christopher Finlay is Chairman/CEO of Lloyd Jones Capital, a private-equity real estate operator that specializes in the multifamily and senior housing sectors. Headquartered in Miami, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast. Its affiliated management group is an Accredited Management Organization (AMO®) with a thirty-five-year history in multifamily real estate.