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How Cardinal Senior Management started.
In 2014 I was managing student rentals. Competition was tough because everyone and their brother could manage apartments.
Very few knew senior and the little research I did showed senior housing margins were much better.
In 2014 I was managing student rentals. Competition was tough because everyone and their brother could manage apartments.
Very few knew senior and the little research I did showed senior housing margins were much better.
With low competition and high margins it seemed like a great place to go get rich.
I had zero experience in senior housing. Figured the best way to learn about the space was asking around so I sent an email out to everyone in my gmail contacts that was related to real estate.
I had zero experience in senior housing. Figured the best way to learn about the space was asking around so I sent an email out to everyone in my gmail contacts that was related to real estate.
Ended up getting a response from a guy who sat in on an internship interview when I was 18. I never worked with him, as he quit just after my internship started, but he seemed to like my enthusiasm.
He invited me to lunch on Dec 1 2014 and introduced me to Chuck from his bible study. Chuck had just been pushed out of a senior living management company. Chuck’s old group were syndicators out of LA that purchased struggling assisted living buildings and turned them around.
Chuck has two skills that are incredibly valuable to running an assisted living business. He is incredibly empathetic, and he can get the best performance out a sales person.
Chuck is 20 years older than me and we hit it off from the 1st meeting. We met regularly for coffee after that lunch to discuss senior living. He explained the business to me, and we began finishing each other’s sentences as it relates to our opinions on management.
Trust your employees, do not require them to spend half their day telling you what they do with the other half, less meetings and even less conference calls, treat and pay your best people better than their peers, outputs are more important inputs.
Spending time with Chuck was energizing to me. Felt like we could do anything, except we had nothing to do. We began looking for properties to manage in March of 2015.
Chuck and I wanted to work together but there was a big problem. Chuck didn’t have any money coming in and had a wife, kids and a house to pay. Finding investors to fund the search project was not materializing, we were stuck.
My wife was working at the time and we lived with 4 roommates, so my monthly expenses weren’t too bad. I decided to pay Chuck’s salary with everything I had coming in from my day job.
In June of 2015 we got wind of two senior living buildings that had been on the market over 4 years. 240 units had been doing a NOI under $1 million with occupancy never above 70%. The second-generation owner was ready to retire and would not budge on price.
We toured the buildings and loved the property. Although old and dated the owner kept the physical plant in excellent condition. We decided to write and offer at $17.3 million and figure out the financing later. Offer accepted.
Finding investors as an unproven management company on a 5 cap deal in a secondary market 500 miles from my house was difficult. Mostly because I did not have any money and I didn’t know anyone that invested in senior housing deals.
No, no, no from everyone we brought the deal to because we didn’t have any ‘skin in the game’
With due diligence coming up Chuck and I threw a Hail Mary and flew out to PA to grab breakfast at a Perkins with the seller.
With due diligence coming up Chuck and I threw a Hail Mary and flew out to PA to grab breakfast at a Perkins with the seller.
We told him if he gave us a seller held second mortgage for $3.5 million we’d find a way close the deal and he is headache was over.
He looked over the 1 page proposal we printed off and agreed to $2.8 million on the spot and extend due diligence.
His lawyer and broker thought he was crazy.
His lawyer and broker thought he was crazy.
We were in business! The seller note was not secured by the real estate and the seller accepted my personal guarantee as collateral.
We then began talking to lenders. With the seller note in our name we thought they would treat it as our equity.
We then began talking to lenders. With the seller note in our name we thought they would treat it as our equity.
We called banks, REITs, brokers and no one wanted to deal with us because we had no track record.
We took a meeting at a family office in our town that had a lot of interest.
We took a meeting at a family office in our town that had a lot of interest.
It was a disaster and the worst meeting of my life. After the meeting it was clear this is not going to work.
Cardinal was over before it even started.
Cardinal was over before it even started.
Our office was in a coworking space above a brewery in Grand Rapids. Chuck and I came back to sulk.
Magically a knock on the door from an office neighbor. He wanted to say hello and introduce himself. As luck would have it, he owned nursing homes and assisted living buildings.
Magically a knock on the door from an office neighbor. He wanted to say hello and introduce himself. As luck would have it, he owned nursing homes and assisted living buildings.
Since the banks would not touch us the chance of us taking down the two buildings was not going to work. The office neighbor and his friend proposed a landlord tenant agreement. They buy the building and lease it to us. We guarantee the seller note and they got the mortgage.
The landlord had experience in the space and the bank let them use the seller note as their equity. Landlord was able to get into the property with much less equity and if things broke bad they could get out and we’d have to deal with the seller note.
We closed on December 15 2015. Cardinal went from an idea to a company with 150 employees and $550k a month in revenue. I was 28 years old. This photo of Chuck, me and Lisa was taken that night.
Now the real work starts. Lisa moved from Missouri to PA to run the day-to-day operations of properties. Chuck and I visited every other week and slept in the building. We only had one chance to be new and we set the tone that this company is all about census.
We immediately started working on filling rooms. We hired a new sales team and signed up with all 3rd party referral sources. We developed a tour path and mode units. We RAISED prices and the move ins started flowing. In 24 months, the monthly rent roll went from $550k to $750k
NOI went from sub $1 million to $1.9 million three years later. With the increase in NOI the landlord was able to refinance the property with HUD and get all their equity back along with repaying the seller note
After showing what we can do on census the landlord went out and purchased 5 more properties in PA. We grew by focusing on properties that needed census and are now the 132 largest operator of senior living in the country. Hopefully in a few years we can crack the top 100.
Here is a little better screen shot of the list. You can find the complete list of senior housing operators here. https://www.argentum.org/wp-content/uploads/2020/08/2020-Largest-Provider-Report_Final.pdf
