New Markets, Creative Partnerships: Pathway, Capri Pursue Distinct Growth Strategies

In 2017, the Archdiocese of Milwaukee sold land in the city's historic Italian-American neighborhood for $ 1 to the Capri parishes.

Capri created St. Rita Square, a 118-unit senior community with independent living, assisted living, and memory maintenance. The Waukesha, Wisconsin-based developer and operator then built a brand new church next to the new ward and sold that church to the Archdiocese for $ 1, SVP of Development Wayne Wiertzema said at the recent Senior Housing News BUILD event in Chicago.

In essence, the Archdiocese of Capri gave the land and Capri gave them back a new church.

This is just one example of how Capri - a for-profit company - is working in creative ways with religious organizations to enable growth and expand its portfolio.

Capri intends to continue expanding through development in the future. This is in contrast to Chicago-based Pathway to Living, a Waterton company.

Waterton SVP of Investment Justin Dickinson sees the present moment as a "buying environment" in the face of challenges for new developments, including high construction costs. Pathway recently nearly doubled its portfolio through a deal with real estate investment trust Welltower (NYSE: WELL), and Dickinson is looking to grow in new regions in the United States.

Capri and Pathway show how two senior housing organizations are pursuing different strategies while sharing an optimistic outlook for the future of the industry.

Build instead of buy

In the pursuit of growth, Kirchen offer Capri an attractive partnership opportunity.

"If you really think about it, many churches or church organizations are well located in parishes that have a good, nice, dense population base," said Wiertzema. "Many [churches] have surplus land that at some point in their history they wanted to do something else with ... build a school or whatever it is. "

Capris St. Rita Square opened in the fall of 2020 during the worst of the Covid outbreak in Wisconsin, but is doing well, according to Wiertzema, who found occupancy is close to 80%.

This is not a once-in-a-lifetime opportunity for Capri to partner with any church or religious institution. In Menomonee Falls, Wisconsin, Grace Lutheran Church sold approximately 38 acres of land to Capri, on which the company built a 180-unit campus that opened last year.

"We are in the early stages of a partnership with a religious college to develop housing for seniors on their campus," said Wiertzema. "It's very synergistic."

Doing business with churches is not a quick process. The St. Rita project is the "culmination point of a seven-year courtship", said Wiertzema. However, Capri is ready to invest the time necessary to make these projects a reality and regards the projects with religious organizations as part of its future growth strategy.

“We will continue to look for projects that make sense from the ground up,” said Wiertzema.

One benefit for Capri is that its development costs are generally around 20% lower than the Midwestern average, he added.

“I owe that to the team, the architects and the work that we did beforehand; We build beautiful communities, but I think we are able to do this at a slightly cheaper cost than in the general market, ”he said.

However, Capri will also evaluate potential acquisitions and has grown in recent years through a combination of acquisition and development.

Pathway to Living has also grown through a mix of development and acquisition, but Dickinson understands that buying is the preferred approach right now.

"We see it as a buying environment because of the cost of construction, and I'm sure everyone is familiar with it," said Dickinson.

According to Dickinson, Pathway has a threefold thesis when it comes to acquisitions. These factors are:

• A well-known and sought-after market
• The opportunity to add value through management
• The possibility of adding value through unit mix shifts or additions

Dickinson and his colleagues have implemented this thesis over the past few months. In June of this year, Pathway acquired 22 parishes for nearly $ 100 million in a transaction with Welltower.

And Waterton sees other options in mind

While the company is focused on current real estate in the Midwest and Florida, the company could expand its senior housing portfolio by entering other regional markets.

"Whether it's a partnership model or an M&A structure, I think capital is really moving in the direction of the regionalized operator approach," said Dickinson.

For Dickinson the opportunity is obvious: Benefit from regional and local know-how and at the same time offer synergies such as accounting, human resources and other support structures and effectively take this responsibility off the respective operators.

As for Waterton to grow, the Pacific Northwest, Southeast, and I95 Corridors in New Jersey, New York, and Connecticut are attractive, according to Dickinson.

Mix care levels

In addition to growth through new developments, there are also opportunities within the current Capri portfolio, said Wierztema.

“We're checking our own portfolio to see where we can add something [independent living] because this is a good feeder to the campuses we run, ”he said.

Capri has succeeded with a model that merges independent living and assisted living. In the company's experience, this arrangement facilitates the transition for those who are reluctant to transition to assisted living.

"In Wisconsin, in our market, we encounter resistance," said Wiertzema of the move from independent living to assisted living.

Pathway sees things differently and prefers to keep the different levels of care separate.

"... People who are less acute and less able to walk have the ability to connect with their peers and lead significantly different lifestyles," said Dickinson.

Get to know the new consumer

The residents of senior housing not only live a different lifestyle based on the level of care, but also a different lifestyle than the senior citizens of the past. New developments and newly acquired communities need to evolve to keep up with the developing market, said Wiertzema and Dickinson.

To cater to the baby boomer generation, options and amenities are constantly being added and improved, including technology.

"All I can say is that our technology spending on new developments has increased so much since I started working on senior housing development just four and a half years ago," said Wiertzema.

Currently, Capri's WiFi systems are robust enough to run many platforms, he added.

Pathway evaluates the technology currently available in buildings before deciding how to proceed.

"To me, that's a P&L issue because a lot of these heavy technologies come with ongoing contracts that can be expensive," said Dickinson.

Skynet, a wearable technology that helps track the health and safety of residents, is available in part of Pathway's portfolio and a potential complement to other properties within the portfolio.

Examining the current technical infrastructure is a difficult aspect of buying compared to developing.

“There are fewer [technological capability] on buildings that we have acquired, ”said Wiertzema. "And it is more difficult to bring them up to the same operating standards that we have for our new developments."

Technology is also used in the recruitment and communication of residents.

Pathway is currently filming a video series with the aim of showing potential residents the unique opportunities available within a community such as lifestyle perks and various activities.

"One thing that I don't think is being explored as intensely as it should be is the aspect of social media," said Dickinson, who asked, "How can we make the senior lifestyle cool when it is are no better words? "

As Wiertzema and Dickinson try to improve technology and lifestyle for current and future residents, they are optimistic about the near future. And despite their different approaches, Dickinson believes regional operators like Pathway and Capri will have an advantage going forward.

"Groups like Wayne's are going to be very successful because they know their market and stay in their market," he said.

Given the barriers preventing some other groups from pursuing fundamental projects, he anticipates that Capri and other developers active today will benefit from limited supply as new communities open their doors in the years to come.

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