Wilkinson Family of Companies Emerge from the Doldrums of a

Transcription

Wilkinson Family of Companies Emerge
from the Doldrums of a Poor Economy
Founder & Chairman Russ Wilkinson looks back on the last few years~
discusses why conditions look good for a legacy-based business model
H ere
organization—and others—to create assets that grow
their investments 24/7 whether they work or not.
I love the book, “Rich Dad Poor Dad.” In this
book the author talks about the importance of having assets and minimizing liabilities. The intent is
to have assets that are making money for you day in
and day out. Keep your investing simple and invest
in assets you understand. If you don’t understand
the basic principle of how you’re going to make
money through the investment, stay away from it.
Whether it’s a duplex or a large apartment complex, I love owning a basic housing commodity
that everyone needs, and buying when markets are
down. Invest 0 to 25 percent down and cover the
balance with non-recourse financing (I love this
concept). Then
hold on to the
asset for a long
time.
Why does this
idea make money? First, every
month through
amortization,
you begin owning more of the
asset as the years
Wilkinson Corporation Founder and Chairman, Russell Wilkinson shares his thoughts on real
go by. Your tenestate markets over the last couple of years and his outlook in the coming months.
ants are buying
it for you. Second, as the years progress, time and
real success is minimized by organizations and indiinflation should enhance the cash flow and value of
viduals not knowing and following these basic laws
your asset. And third, the long hold forces strategic
and principles. I am passionate about this subject
and disciplined investing.
and would love to write a book on it very soon.
Every time an asset is sold and a new one is
However, in the business of real estate I have
bought, there are great costs and risk. If the investlearned the importance of:
ment is well located and kept in top condition—as
1) buying low (easier said than done)
long as it cash-flows positively—there should be no
2) holding for a relatively long time
immediate reason to sell.
3) build the best team possible to grow your assets!
Having the right team and leadership looking after
I work with a lot of partners... gifted professionyour assets is paramount to success. Buying right is
als, who make an incredible amount of money for
See “Russ Wilkinson”: Page Three
every hour they work. These partners work with our
are some of Russ Wilkinson’s thoughts
and comments on the history of Wilkinson Corporation, the challenges faced over the last couple of
years and his outlook for the future of real estate
investing.
Distill what you have learned over the last 20 years
on how to grow investments?
Long term real success is illusive to most people. Why? I think success is a very holistic and
dynamic process, typically
governed by
somewhat
interpretive
laws. I think
Spring 2011
In This Issue
Wilkinson Asset
Management a
Critical Component
(page 2)
WAM’s presence a
big factor in this
(or any) economy
GNC setting the
pace in Texas
(page 3)
Third-party assisted living
and memory care community
tops 50% pre-lease
~set to open April, 2011
Sale Closes on
Carriage Court of
Hilliard, OH
(page 4)
Second consecutive sale to
Servant Healthcare marks
another milestone
GNC Thriving
After Big Changes
(page 5)
With major downsizing and
reorganization behind them,
GNC forges ahead
Wilkinson’s First
Development
Project Performs
(page 7)
Three WD Fund I
Senior Communities
top 90% net occupancy
Editorial Staff
Editor/Layout:
Dale Renner
Contributing Editor/Writer:
Andrea McCoy
1
Wilkinson Asset Management Filling Critical Roles
Now a full-service asset manager, WAM raised the bar in Indianapolis and across the nation
W hen Wilkinson Asset Management
(WAM) was created back in 2005, the role
was fairly simple. With a minimal staff,
WAM would oversee third-party managers on behalf of the Wilkinson Family of
Companies. They would keep a close eye
on operational affairs to make sure costs
WAM now provides dynamic property
management services to institutional clients specializing in student and university
housing, conventional multifamily housing, senior living and office buildings.
Committed to a hands-on collaborative
approach, with decades of line experience
six assets and 2,121 apartments increased
their net operating income (NOI) by
nearly $1.5 million or 20.73 percent over
2009. This same property group reduced
their turn capital expenditures by just under $650,000 or 73.48 percent last year
and increased their portfolio occupancy to
The Villages of Bent Tree in Indianapolis, one of seven multi-family assets in the Indiana city where WAM now manages more than 2,100 units.
were being managed, lease-up programs
were in place, maintenance tasks were being performed properly and so on. As time
Bayview Club Apartment Homes
went on and WAM’s capabilities and staff
became more robust, it became more and
more evident that the Wilkinson Corporation subsidiary could effectively take over
operations on their own.
2
and operational expertise, WAM is able to
give clients a powerful edge in a very competitive real estate environment. WAM’s
management team is comprised of experts
in the field of multifamily operations, research and redevelopment with a particular
expertise in operational excellence, property turnarounds, and value added community repositioning.
With the question of ‘how can we make
this better?’ at the forefront of every decision, WAM’s dedication to operational
performance takes shape month after
month by effectively monitoring spending
and controlling expenses to preserve cash
flow and increase revenue for the asset.
An example of WAM’s innovative service and dedication to excellence paying off
in big dividends for its institutional clients
is a group of Indianapolis properties. In
2010, this property group which includes
94.3 percent.
“This is a snapshot of how WAM effectively manages properties in spite of a
depressed economy (and rental economy)
by staying true to our values which is to
manage and control expenses,” said WAM
Executive Vice-President Kimra Holcomb.
“We have a very basic approach to business; watch costs carefully and control how
spending happens.”
A certified real estate manager, Holcomb has over 20 years of operational experience in multifamily real estate including conventional multifamily housing and
student and university housing for the two
largest REITs in the country, AIMCO and
Equity Residential.
Also under WAM’s leadership, this
group of properties retained a nearly 99
percent average in rent collections with a
See “Wilkinson Asset Management” Page Seven...
Spring 2011
Impressive Lease-Up Prior to Opening in Texas
G ood Neighbor Care (GNC) has proven itself an industry leader in operating senior
Mckinney, TX senior community tops 50% in pre-lease activity ~ Scheduled to open this spring
3-D rendering of the McKinney, TX development
being managed for The McFarlin Group by GNC.
Russ Wilkinson
...Cover Story
the first step, although I have seen so many
companies fail and investments go sour because they did not have the right team and/
or the right leadership.
We are continually in the process of
growing the best team you will find anywhere in the world! Why? Without the
right team success will not happen.
Many companies such as yours have gone
bankrupt in the past three years. How
has WC been able to make it through this
challenging time?
Strategically, we sold most of our assets
in January of ‘07 at, or near, the peak of
their respective markets for most all of our
legacy funds.
Some of our challenges since that time
have been in part due to our large infrastructure. I wish I would have begun
downsizing and pushing each of our companies to live within their means much
sooner than we did.
Our company invested heavily into our
team and the inherent knowledge gained
over the years. Coupled with the personal
side of the equation—being close to the
families affected—the bottom line was; it
really hurts to let awesome people go and
to scale operations to fit income.
I will never forget Christmas of 2009.
We had just gone through some significant
downsizing and suffered incredible losses
over the previous year. However, we realized that further and more extensive cuts
and restrucuring would have to take place
as our company’s life was now at stake. That
Spring 2011
care communities no matter what the prevailing economic conditions are. In the last
year or so, Wilkinson’s senior operations subsidiary has been busy building it’s reputation
for another critical area in senior housing. Development lease-up specialist.
Securing a third-party management agreement for the 97-unit assisted living and
memory care community in McKinney, Texas was a win for GNC and the developer,
The McFarlin Group. As construction winds down and the community prepares to open
its doors in April, Executive Director James Denny, who relocated from his home in
Idaho at the end of last year to assemble his team and set up operations in Texas, reports
pre-lease contracts and deposits now exceed 50% occupancy with another month to go.
James was also instrumental in assisting the three Wilkinson Development properties in
Illinois achieve their occupancy goals in the last year. You’ll be hearing much more about
both accomplishments in future issues of this newsletter.
Christmas break was probably my darkest
5) This storm—and the process created
hour in business as I realized for the first
in its midst—has developed a collectime that a cataclysmic event would haptive faith and persistence among all
pen unless significant decisions and critical
Wilkinson subsidiaries that we may
changes were made immediately.
never have thought possible.
I saw an article in the Wall Street JourOne needs to remember that the storm
nal about the challenges Sysco had come
will eventually end... even if the storm is of
through. The CEO of Sysco shared with
epic proportion. This process has prepared
the WSJ his darkest hour in leading the
our individual staff members—as well as the
company. Jack Welch, (Retired CEO of
team at large—to work together to move forGE) shared with him a fact he never forward and climb new mountains that I never
got. Jack commented
that, “no company
ever experiences greatness without going
through a near-death
experience.” There is
so much more to this
story that I will share
another time.
I have told many
of my partners and
friends that I have
learned so much after 20 years in this
business, however, in
Good Neighbor Care of Sterling, Illinois.
the past three years,
I think each Wilkinson team member
dreamed possible just a few years earlier.
should have earned doctorates in business
I am blessed to work with the world’s
after what they have all pulled off. These
most incredible partners and an amazing
people are true business warriors!
team of professionals who continue to beIn brief, here’s what saved us;
lieve in us... even in our darkest hours!
1) We created a 4-pillared very focused
Here are some sobering statistics; 50%
plan which was done in the midst of
of companies don’t make it past two years,
the storm
80% are gone in five years and 96% are
2) We eliminated excess to our core
gone within ten years. We are now heading
3) We kept the plan simple
into our 20th year and the foundation is in
4) We kept the plan in front of us daily
place for the next twenty!
See “Russ Wilkinson...” Page Ten...
and made few changes, and
3
Carriage Court/Hilliard Sale Marks Solid Turnaround
Christmas closing sends off 2010 in impressive style ~ Classic senior turnaround scenario
I n the sweltering month of July, 2010,
the temperature wasn’t the only thing on
the rise at Wilkinson Corporation headquarters in Yakima, Washington. Expectations were also high for a prompt and
large 102-unit community was hovering
around 50% occupancy and would prove
to be a daunting challenge for Wilkinson’s senior care management firm Good
Neighbor Care Centers, LLC (GNC).
Incidentally, purchaser Servant Healthcare could have chosen any senior care management firm in the nation for operations,
but they chose to have GNC continue because of the confidence they have in their
operational
platform. (Servant also
acquired The Terrace
- see article, page 8)
The closing of
this sale—along
with a number
of other critical
events that took
place in 2010—
represented
a
very
significant
turning point in
The sale of Carriage Court of Hilliard, OH closed on December 23, 2010.
uneventful close on the sale of Wilkinson
Properties-held senior community, Carriage Court of Hilliard, Ohio.
Oh how we’ve come to expect the unexpected.
With a well-qualified buyer in-tow
and HUD financing seemingly coming
along nicely, a prompt and successful disposition looked to be inevitable. When
the sale finally closed just a few days before Christmas later that year, it was a
prime example of the challenges faced by
the Wilkinson Family of Companies, and
many others in the commercial real estate
game over the last couple of years.
The rural Ohio assisted living and
memory care community was originally
part of a group of communities acquired
back in 2004, and it certainly was not the
crown jewel of the seven-property Carriage Court portfolio. A diamond in the
rough was more like it. A big diamond,
yes… but very, very rough.
Hilliard was the tired hound of the
bunch. Most of the communities in the
Carriage Court deal were much smaller
with higher occupancy and a respectable
cash-flow. But if we wanted the deal, we
had to take Hilliard. At that time, the
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When Wilkinson sold a large
portion of it’s senior housing assets to Wakefield in 2007, they
took the cream of the crop and
Hilliard, along with a handful of
others, was not part of the mix.
While the turnaround was well
underway, at that time Hilliard
still had a long way to go.
Since that time, however,
through hard work, diligence and some
very critical roles on the part of GNC staff
members on the ground in Ohio, GNC
has turned Hilliard into a cash-flowing
success story
After a near five-year hold, the sale
of Carriage Court of Hilliard, Ohio, (to
Servant Healthcare) has been successfully completed. This 102-unit assisted
living and memory care community was
purchased for $9.5 million and sold for
$17.5 million and underwent an amazing turnaround going from roughly 50%
occupancy at the time of acquisition to
a consistent 90+ percent occupancy for
the last two years. It took a frustrating six
months of dealing with HUD backlogs
to finalize the loan details, but the sale
closed on the 23rd of December.
the history of the Wilkinson Family
of Companies. The reorganization of
Good Neighbor Care and its continued
recognition as a leading national senior care provider, the successful turnaround, lease-up and sale of two of our
largest senior communities, strong lease
activity at our development properties,
and, a continually developing relationship with Servant Healthcare as both
an acquisition partner and a third-party
management client for GNC.
This incredible event took the cumulative effort of a wonderfully talented nationwide team… from the staff right here
in Yakima and Eugene, to the hundreds
of employees at Good Neighbor Care and
Wilkinson Asset Management all across
the nation.
Spring 2011
Good Neighbor Care Remains on Firm Footing
For
Wilkinson’s Senior Care Operator comes through challenging times fully prepared for managed growth
two decades, Good Neighbor Care
consolidation brings seasoned institutionToday, Good Neighbor Care maintains
(GNC) has successfully managed senior
al performance management capabilities
a strong national management platform,
living communities across the country.
to Good Neighbor Care. WAMs adminoperating senior communities in 13 states
Even during the economic downturn
istrative roster includes significant experiacross the country. GNCs dual focus on
of 2009-10, Good Neighbor was able to
ence managing performance for some of
quality care and disciplined performance
maintain a 90 percent occupancy rate or
the largest public REITs in the nation.
management is not only creating an exbetter on the entire portfoceptional environment for
lio of 52 senior care comresidents but also facilitates
munities across 11 states.
successful investment outGNC also grew its rentcomes for private owners,
per-unit which raised the
equity partners, REITs and
net income on the entire
TIC owners. “There are
portfolio while maintainsome companies in this ining the highest quality care
dustry that are pretty good
for over 3,000 residents.
at care and compassion but
A subset of GNCs entheir leaders don’t have the
tire portfolio consisted of
expertise or the directive to
34 communities in 8 states,
manage the business well
and was acquired by various
enough to optimize perWilkinson-based funds and
formance. And there are
other joint ventures from
some companies that are
diverse small owner/operapretty good at managing
tors from 2004-2006. This
the performance levers in
consolidated portfolio of This chart represents the 34-community portfolio sold in 2007, yet remained under
the business but they aren’t
GNCs purview until mid-2010. For more than two years, GNC drove both occupancy
34 properties was sold to a and NOI higher during some of the toughest economic times in recent history.
great at creating exceptional
REIT subsidiary, close to
environments for residents
the peak of the market in January of 2007
Successful financial navigation can come
and employees,” said GNC Chairman
and continued under GNC management
easy during boom times. However, during
of the Board, Lonnie Gienger. “At Good
until the Q2 of 2010. The chart on this
difficult economic times it is critical to
Neighbor, we excel at consistently creating
page illustrates how GNC was able to conhave experienced managers provide perexceptional experiences that make people
tinue to improve the performance of this
formance guidance by making data driven
say “Wow!” and at the same time we are
portfolio to above industry averages even
decisions, monitoring and properly interextremely disciplined about managing the
during this challenging market cycle.
Good Neighbor Care and Wilkinson
Asset Management (Wilkinson’s general
asset management and operations oversight entity) re-organized and consolidated
operations to take advantage of scale created by combining backroom support
operations to support both operational
platforms. This backroom consolidation
is a significant improvement because it
provides GNC with the opportunity to
integrate advanced performance and asset
management oversight with the exceptional resident care that Good Neighbor Care
has become well known for in the industry.
Wilkinson Asset Management servicThe Fountains of Shiloh, Illinois. One of the Tenant-in Common, GNC-managed communities.
es include Capital Management, Performance Management and Facilities Manpreting key indicators & metrics. This
business to optimize performance. That’s a
agement capabilities to compliment the
type of leadership is the key to successmagic combination that makes GNC the
traditional backroom support of accountfully stewarding properties thru difficult
provider of choice and the employer of
See “Good Neighbor Care” Page Six...
ing, HR/PR, Legal, and IT. The backroom
economic conditions.
Spring 2011
5
Good Neighbor Care Hitting Its Stride
...From Page Five
choice in the markets we serve and the manager of choice for investors and owners who
take the time to understand our operational
strength.”
Good Neighbor care is well known in
the industry for its operational culture,
which is driven by exceptional Resident
fectively manage and oversee the business
process for each community. It is critical to focus on business fundamentals in
good times or bad. However, the nation’s
current economic environment demands
that businesses focus on performance
fundamentals with seasoned experienced
consistent occupancy run-rates with lower
marketing costs.
The Micro CRM strategies focuses on
personalized sales which creates unique
personal customer experiences throughout every step of the decision making
process. The goal is to connect with each
customer’s unique passions and interest by creating “WOW! Experiences.”
This personal approach allows prospective residents to move comfortably through the pipeline from prospect to resident status.
Revenue Management
Effective revenue management requires systematic review and focus of
the process fundamentals including:
sales pipeline, rental rate price points,
level of care charges, and accounts receivable management.
Expense Management
Good Neighbor Care of Sterling, Illinois ~ one of three Wilkinson Development Fund I senior
communities operated by GNC. The portfolio now sits 93% net-occupancy and is performing well.
Care Services. However, there are three
fundamental management focus areas as
follows: Managing Resident Care Services, Managing the Business Process, and
Managing Backroom Operational Support Services.
Resident Services
Good Neighbor Care’s communities
provide a full-range of services based on
individual resident needs in a supportive
“home-like” environment. Services are tailored to a resident’s unique profile including: Independent Living, Assisted Living,
and Memory Care. Resident services include Dining Services, Life Enrichment programs, and Ancillary Services. The Ancillary
services include Respite care, rehabilitation,
Hospice Care, Beauty/Barber Services, and
selected Transportation Services and more.
Managing the Community’s
Business Process
Good Neighbor Care’s primary focus
is to provide the best possible care for residents. The next order of business is to ef6
leadership. Performance fundamentals include: Sales & Marketing, Revenue Management, and Expense Management.
Sales &
Marketing
Good Neighbor Care continuously reviews expense categories for
opportunities to save and maximize
investor return.
Examples includes:
Optimizing procurement and purchasing through national purchasing contracts that offer communities
timely cost-effective access to the goods
and services needed to operate their communities. Managing food costs at the same
time ensuring dedicated VP of Hospital-
GNC
manages
sales and marketing
using customer relationship management
(CRM) strategies that
focus on two primary
areas:
The Macro CRM
strategies
include
disciplined pipeline
management, which
is critical to efficiently drive for both
community and na- Rambling Oaks of Oklahoma City is one of the Wilkinson 1031
Tenant-In-Common holdings, also operated by Good Neighbor Care.
tional sales pipelines.
ity & Dining Services maintain high qualPipeline tools prioritize customer followity and appealing meals while still carefully
up efforts and efficiency moving customcontrolling food cost per resident per day.
ers from prospect to resident status. EffiSee “Good Neighbor Care...” Page Nine...
cient closing ratios drive higher and more
Spring 2011
WD Fund I Occupancy Tops 90 Percent
L ess than two years after the last of three Wilkinson Development Fund
First three Wilkinson Development senior communities performing well
I communities opened their doors, Good Neighbor Care is proud to announce the net occupancy rate for the three communities—located in the
north-central Illinois towns of Sterling, Pekin and Washington within
about ninety miles of each other—are firmly above the 90% level.
Construction first started in Sterling in March of 2007 and as you can
imagine, as the economy weakened throughout the duration of construction, nerves were on edge for everyone involved. The first several quarters
of initial lease-up were challenging and note-holder Key Bank continues
to retain cash-reserves as a safety measure. At this point, with performance
strong for the last few quarters, those funds could be released sometime
this year. Additionally, interest rate swaps have now burned off and each
community is showing a strong positive cash-flow. The properties now
boast a net occupancy of 93% with Washington leading the charge at 98%.
During one of the worst real estate downturns in history the senior
housing market has remained strong. As a result, values are generally
trading much higher than replacement value.
The Grand Victorian of Washington was the final Fund I community
to open it’s doors. The three-property portfolio is performing well.
Wilkinson Asset Management
...From Page Two
resident retention
of over 60 percent.
This is particularly
remarkable in these
tough
economic
times.
“We care about
creating the best value for the property,”
Jim Shearer,
said WAM ExecuWAM’s President
tive Vice-President
Kimra Holcomb. “We ensure that revenue
stays up by never compromising quality for
our renters but at the same time keep a focus
on cash flow and budget.”
Spending is carefully monitored by
WAM’s eProcurement platform; a webbased purchasing system that provides real
time visibility of what properties spends.
This automated system provides a consolidated and standardized purchasing system
using approved suppliers. The platform
controls unauthorized or overspending
while also allowing suppliers (who compete on a national level promoting increased discounts for assets) to save time
and money on transactions. It also ensures
spending is circulated through the centralized purchase order system configured to
company policy and purchasing controls
for users, based on spending limits and
Spring 2011
budget limits.
“It would be
simple to just focus on the Net
Operating Income
(NOI),” Holcomb
said. “But at WAM
we go deeper than
that, with a daily
Kimra Holcomb,
review of how
WAM’s Executive
our properties are
Vice President
managing expenses
and meeting budgets. The eProcurement
platform tracks inventory, property history and data; allowing us to make the
best possible decisions for that specific
asset.”
A major focus, for property groups
such as the Indiana group, is defining
how turn costs are used. Many management companies focus on revenue streams
(ensuring occupancy) but lose track of
cash flow (turn costs). This happens when
units are stripped, gutted and remodeled
unnecessarily.
“We like to call it ‘peeling back all the
layers.’ It becomes a question of what is
necessary, does the unit need renovations
or does it need replacements? Our job is
to ensure that any work being done creates value,” Holcomb said. WAM is dili-
gent in ensuring work done to a property
follows appropriate channels of approval
and meets budget requirements.
Regardless of where the asset is located
across the country, WAM managers visit
each property multiple times throughout
the year. “We believe strongly in working
hand-in-hand with our property teams
and there is no better way to do that than
to walk every unit. We are very involved
in the management of our properties,”
Holcomb said. “We stay in touch, as the
saying goes ‘inspect what you expect.’”
WAM believes strongly in inspiring
property teams to achieve their highest
potential through hands-on training, face
to face ‘huddle’ time and constant contact
between management and properties. “We
coach, mentor, develop, parent, and cheer
property teams to inspire personal best performance,” Holcomb said.
Whether just down the road or across
the country, WAM is enthusiastic about
helping property teams achieve their potential. With an excellent track record,
proven accountability and a tenacious
spirit, WAM is more than a management
company. From increased revenue to decreased expenses, WAM’s goal is simple
and fundamental — be the best, period.
WAM wants the best operator status and
employer of choice recognition in every
location they operate.
7
Fund VII Sells Wilkinson’s First Senior Housing Acquisition
Q3 sale of The Terrace at Mountain Creek marks a major turnaround for the Chattanooga senior community
I n September of 2010—after a long and
sometimes challenging hold—we successfully closed the sale on The Terrace at
Mountain Creek, Wilkinson Properties
Fund VIIs senior housing community in
Chattanooga, TN.
The Terrace marked a critical first for
the Wilkinson Family of Companies. It
was our very first senior housing acquisi-
senior housing was carefully identified as
an asset class that offered great potential,
and The Terrace was a classic turnaround
opportunity. It was bank-owned, marginally occupied and in need of improvement
to bring it to it’s full potential.
Purchased in 2003 for just $3.8 million,
the building certainly fell well within the
realm of “fraction of replacement” where
exterior and interior, landscaping, flooring,
furniture, a complete kitchen re-model, the
addition of a memory care unit and more...
all necessary and all very significant expenditures for a building of this size.
After setting some significant goals for
the community in 2009, GNC was able to
gain footing on occupancy and NOI. Goals
were met earlier than expected and, in fact,
GNC staffers cracked 90% occupancy in July of 2009 and Chattanooga’s Terrace at Mountain Creek has held steady ever since. WP Fund VII
participants endured a challenging turnaround beginning in 2003. The senior community sold in September of 2010.
tion and was the starting point for WP
Fund VII. The Terrace also marked a critical end-point to an important phase of a
national economic trend and real estate
markets in-general. After the last couple
of years, it’s hard to imagine what markets were like in 2003. It was the onset
of a real estate bubble and not long after
purchasing The Terrace, values began to
escalate. That was a positive indicator after purchasing The Terrace for such a bargain, but the real value in senior housing
is nestled firmly in it’s business model.
Prior to that, with markets unsettled for
a number of years, Wilkinson hadn’t purchased any new assets—in any category—
since 1998. After a long period of research,
8
Wilkinson likes to make acquisitions. Estimates at the time were in the $12 millionplus range to construct the large, upscale,
5-story, Southern mansion-style retirement,
assisted living, and memory care community.
When Fund VII purchased The Terrace it
was being marketed as an assisted living and
skilled nursing community. On the day Fund
VII took ownership, a full 20% of the building’s units were unavailable for rent because
full remodels were needed in 23 rooms formerly devoted to skilled nursing. At the time
of purchase only 50% of the total units were
leased. Today, there is virtually no part of the
entire complex that the fund has not fully updated or remodeled. Capital improvements
included re-roofing, repainting of the entire
the Fund was able to achieve better margins
and better occupancy than anticipated. The
Terrace was sold for $8.5 million with the
potential for an additional $1 million “earnout” if performance remains strong. So far
GNC has met those performance goals.
Servant Healthcare was the purchaser
and just like the Hilliard, Ohio senior
community they also acquired from
Wilkinson (see article, page 3) they have
chosen to retain Good Neighbor Care to
continue to manage the community.
This milestone event was made possible by an incredible team effort from
leadership at the community, GNC along
with their regional and divisional managers, and Wilkinson Corporation.
Spring 2011
Good Neighbor Care
...From Page Six
The largest cost center, payroll, is managed
by carefully scaling staffing to current occupancy and using real-time electronic clock
reporting. Through coordination of Good
Neighbor Care with a third party specialist, each property tax bill is evaluated, and
challenged where appropriate. All utilities
provider relationships in unregulated states
are aggregated by LPB Energy Management
who then negotiates optimized rates, processes and audits utility bills and provides
reports detailing usage statistics. Expense
control occurs at each stage and results in
enhanced cost stability and budgeting efficiency as well as improved oversight, utilities management and energy efficiency.
Capital Management Services
Seasoned Asset Managers provide oversight services which include managing
lender mandates and requirements for performance benchmarks and capital reserves.
Lenders often require compliance to performance benchmarks like Debt Service Coverage Ratios, cash lockboxes, appropriate
insurance and capital reserve management,
etc. Successfully managing loan performance is a critical support function that al-
to ensuring the facility and its value is preserved and supported.
The care and service
we offer our residents is
directly dependent on
the condition and overall appeal of the physical
buildings we manage.
Good Neighbor Care
has chosen to partner
with two vendors for
building management
and preservation. We
utilize TELS (The Equipment Lifecycle System) in order to manage the routine maintenance functions of each community. This
system provides communities with weekly
reminders as to required maintenance functions and life safety issues that must be
completed. Users then record compliance
with these tasks in the system and reports
are generated for overseeing management
teams as well as the home office.
A second facet to our strategy of effectively managing and caring for our residents and the physical plant in which they
their residents and staff while Holt coordinates the labor, materials and supplies necessary to secure the building make repairs.
Accounting & Finance
The accounting function at the home
office allows for centralized oversight of the
financial management of a community while
empowering the Executive Director to make
decisions and manage the business operation.
Review and analysis of monthly financial
variances include the accountant assigned to
the community, financial analysts, the Executive Director and Regional Director.
The Four Seasons Assisted Living Community in Coeur d’Alene, Idaho, operated by Good Neighbor Care.
lows our caregivers to focus solely on providing the best care possible for our residents.
Facilities Management
Long-term facility management and
preventative maintenance programs are
a part of the Good Neighbor approach
Spring 2011
dwell addresses emergency situations. Good
Neighbor Care has enlisted Holt Construction as our nationwide first responder for
cases of natural or man-made emergencies.
After placing one call to Holt our community leaders are able to refocus on caring for
Human Resources
Good Neighbor Care recognizes that
a community’s success is dependent on
the quality of care provided through their
employees. With a focus on becoming the
See “Good Neighbor Care...” Page Twelve...
9
Q&A with Russ Wilkinson
...From Page Three
Your company Wilkinson 1031, LLC
which put together a lot of what are called
“Tenant in Common” investments also had
challenges. What happened here?
Wilkinson 1031 (W1031) was formed
to create “tenant in common” (TIC) investments and are unlike the legacy funds
we have developed over the years. W1031
matched market opportunities with investors who sold their real estate and exercised
something called a 1031 Tax Free Exchange
into these W1031 sponsored opportunities. Wilkinson 1031—along with countless
other companies in the same field of business—were dealt a near fatal blow from the
downturn in domestic real estate. In some
US markets, apartment rents have dropped
10% to 35% or more. Many of the markets in which W1031 made investments
have been significantly impacted. WC has
invested millions in support of W1031 and
its various endeavors to help support these
investments through the storm.
When one buys assets at or near the
peak of any market there is little room for a
rainy day period, much less the prolonged
kind of downturn we have all experienced.
This is why we are going back to the basics
of how I started this company... and that
starts with buying for a fraction of the replacement cost.
You often refer to Wilkinson’s “legacy
funds,” some of which have hit it out of
the park from a return perspective over
the years. Why did your last legacy fund
(Wilkinson Properties Fund VII) not
accomplish the expected returns you have
often seen with this type of fund?
First off, once all final accounting has
been completed, Fund VII partners will
have received all of their original investment back, plus a small return. Given recent market conditions, I’m sure many of
you can appreciate first-hand what an incredible accomplishment that is.
Overall, however, it’s pretty simple.
First, market conditions changed dramatically not long after the launch of Fund
VII. Of the seven senior communities purchased by the fund, six of them were stabilized and not the fraction of replacement
type acquisitions that had been our core
focus over the years. While we were able to
buy these six communities for a great value
10
value of that $250 million portfolio drop significantly since that time. As Warren Buffet
says about investing, “protect the principle.”
That’s what we did with Fund VII when it
became clear that the markets were peaking.
We have heard that your senior housing
company “Good Neighbor Care Centers”
had to scale back significantly in August
of 2010. What happened here and how is
GNC doing currently?
We purchased Good Neighbor Care
(GNC) in 2004 and grew the company
from managing three communities to a
high of 52 communities in a little over
two-and-a-half years. During that time
company grew to more than 2000 employees. When we sold 34 of the 52 communities in January of 2007 we continued to manage the entire portfolio until
August of 2010. We understood these
communities would eventually move op-
at the time, we paid more than replacement cost…which limited the upside.
Also, those same six assets were held for
just two years. Despite several million dollars being gained from the sale, much of
the gain was chewed up on loan prepayment fees plus the typical costs associated
with buying and selling these communities. From a timing perspective, however,
at the time of the sale we were able to capitalize on a peak in the market.
The seventh community was acquired
from a bank and appeared to be a classic
“fraction of replacement” opportunity. It
took many years to stabilize this asset, but
with persistence and an incredible team this
community finally reached stabilization.
The property was purchased for $3.9 million and sold
in September
of 2010 for
$8.5 million
with an additional $1 million earn-out
potential.
Learning
from Fund
VII
and
Wilkinson
1031s Tenant-in-Common experiences has
Rosewood Apartment Homes ~ One of two multi-family assets in Alexandria, LA
helped shape held by one of Wilkinson 1031, LLCs Tenant-In-Common investment groups.
our
focus
into getting back to the basics of what has
erations to a different company and that
worked for us over the years;
was part of the risk in selling. When GNC
1) Purchasing for a “fraction of replacefinished managing the 34 communities—
ment cost” in down markets.
during some of the worst recessionary
2) Placing and fixing long term non-retimes in history—they were at 94% occucourse debt. (I’m excited about the 25
pancy (significantly above industry averyear non-recourse debt structure now
ages) with operating profit margins above
available with Fannie Mae.)
35% (the upper end of the industry).
3) Hold for the long term and stay away
GNC dropped to 16 communities and
from the lure of a quick flip—which
has already grown back to 19 with several
chews up so much profit—and go for
more in our pipeline.
the real wealth of on-going monthly
Where are WC and companies going?
cash flow. That cash-flow typically grows
For the first time in several years we are
as the years progress and real ownership
beginning to see some significant value and
is realized by letting our residents and
opportunity in the multi-family sector. We
tenants pay down our mortgage.
are close to putting assets under agreement
With all this said, I remain thankful we
in markets that appear to be nearing the botSee “Russ Wilkinson” Page Twelve...
sold in January of 2007 as we have seen the
Spring 2011
K e y To W i l k i n s o n F u n d s & O t h e r P ro p e r t i e s
Fairfield Gardens, LP
Fairfield Gardens Apartments*
Dover, New Hampshire
125 Units - Multi-Family Apts.
Purchased-Aug. ‘92
Perry Hills*
Ashford, Connecticut
48 Units - Multi-Family Apartments
Purchased-May ‘97
Ridgeview Heights*
Willington, Connecticut
48 Units - Multi-Family Apartments
Purchased-May ‘97
26 Clinton*
Hollis, New Hampshire
108,000 Sq. Ft. Commercial Office
Purchased-May ‘97
Brookstone Estates-Olney*
Olney, Illinois
46 Units - Senior Housing
Purchased-Dec. ‘04
Brookstone Estates-Effingham*
Effingham, Illinois
Wilkinson Properties Fund I
Oak Creek Apartments*
Concord, New Hampshire
Purchased-Sept. ‘93
Stonebridge Apartments*
Ellington, Connecticut
Purchased-Nov. ‘97
Britannia Commons*
Meriden, Connecticut
Purchased-Oct. ‘97
Brookstone Estates-Fairfield*
Brookstone Estates-Charleston*
Charleston, Illinios
Wilkinson Properties Fund IV
Collins Landing*
Weare, New Hampshire
92-Unit - Condo Development
Hartford Square North
Hartford, Connecticut
254,000 Sq. Ft. - Office Tower
Purchased-May ‘97
Brookstone Estates-Mattoon South*
Mattoon, Illinois
Brookstone Estates-Rantoul*
Rantoul, Illinois
Wilkinson Properties Fund III
Woodland Heights*
Milford, New Hampshire
Purchased-Feb. ‘94
Huntington Commons*
Manchester, Connecticut
Whispering Pines Apts.*
Fitchburg, Massachusetts
Parkview Apartments*
Bristol, Connecticut
Purchased-Sep. ‘98
36 Beds - Senior Housing
Washington Courthouse, Ohio
Kingfisher, Oklahoma
Purchased-Mar. ‘06
Timberwood Assisted Living*
Oklahoma City, Oklahoma
72 Units - Memory Care
Santa Ana, California
Weatherwood AL & MC*
Garden Grove, California
Oakwood AL & MC*
Fullerton, California
Granville Villa of La Vista*
Wilkinson Properties Fund VI
Hartford Square West*
Hartford, Connecticut
88,000 Sq. Ft. Office Complex
Wilkinson Properties Fund VII
Terrace at Mountain Creek
Chattanooga, Tennessee
Brookstone Estates-Eff. Suites*
Effingham, Illinois
Brookstone Estates-Vandalia*
Vandalia, Illinois
Brookstone Estates-Paris*
Paris, Illinois
Brookstone Estates-Harrisburg*
Harrisburg, Illinois (Lease w/option)
Acquired-Dec. ‘04
Cottage Landing*
Portsmouth, New Hampshire
Countrywood AL & MC*
North Windsor, Connecticut
65-Acre Industrial Development
Purchased-Jan. ‘97
43 North/Windsor Park*
Mattoon, Illinois
Sagamore Court Apartments*
Carriage Court-Wash.
Courthouse*
Elk City, Oklahoma
Unicorn Properties, LLC
Brookstone Estates-Tuscola*
Wilkinson Properties Fund II
Elkwood Assisted Living*
Marysville, Ohio
Wilkinson Properties Fund V
Fairfield, Illinois
Brookstone Estates-Mattoon North*
Carriage Court-Marysville*
Tuscola, Illinois (Lease w/option)
Acquired-Dec. ‘04
Carrollton, Georgia
Tenney Mountain, LP
The Villages at Tenney Mountain*
Plymouth, New Hampshire
460 Acre Condo/Hotel Development
Cottonwood Ranch Associates
Falcon Ridge
Yakima, Washington
840 Acres - Residential Development
Purchased-Jun. ‘95
Park Place, LLC
Park Place Apartments*
Stafford, Connecticut
Turtle Point, LLC
Turtle Point*
Tuxedo Park, New York
Residential Mansion
Carriage Court, LLC
Carriage Court-Grove City*
Sunflower Gardens*
Valley View Gardens*
Fullerton Gardens*
Richman Gardens*
Fullerton, California
Oakshire Properties Fund II
Brookstone/Emerald Glen-Olney*
Stephenville, Texas
La Vista, Nebraska
Tenant-In-Common
Properties
Brooklyn Place Apartments
204 Units - Multifamily
Evansville, Indiana
Purchased-Feb. ‘05
Olney, Illinois
Bayview Club Apartments
Robinson, Illinois
South Duff Community Park
Bremen, Georgia
Willowbrook West
Brookstone Estates-Robinson*
Grace Assisted Living-Bremen*
Grace Assisted LivingDouglasville*
Indianapolis, Indiana
Purchased-June ‘05
182 Units - Student Housing
Ames, Iowa
West Lafayette, IN
Purchased-Jan. ‘06
Douglasville, Georgia
University Plains
Hilliard, Ohio
Rosewood Apartments
Cincinnati, Ohio
Pecan Grove Apartments
Carriage Court-Hilliard
Carriage Court-Kenwood*
Carriage Court-Memphis*
Rockford, Illinois
The Fountains of Troy
Sycamore, Illinois
The Fountains of Shiloh
Clinton, Oklahoma
Waterford Gardens
Dunwoody, Georgia
Purchased-Aug ‘07
Adobe House
Petaluma, California
Purchased-Dec ‘08
Wilkinson Dev. Fund I
GNC of Sterling
Sterling, Illinois
New Construction; Opened-Aug. ‘08
Grand Victorian of Pekin
Pekin, Illinois
New Construction; Opened-Jun. ‘09
Grand Victorian of Washington
Washington, Illinois
New Construction; Opened-Sep. ‘09
Wilkinson Asset Management
Third-Party Operations
Brookwood Apartments
404 Units - Multi-Family
Began Operations-May ‘09
Villages of Bent Tree Apts.
Pristine Pines of Wexford*
Angelwood Assisted Living*
Roswell, Georgia
Norman, Oklahoma
75 Beds - Memory Care
Vacaville, California
Leased-Oct. ‘04 - Sep ‘06
Lancaster, Ohio
The Veranda
Cheswick Village Apts.
Pristine Pines of Franklin Park*
Grand Victorian-Sycamore*
Coeur D’alene, Idaho
Purchased-Aug ‘07
Alexandria, Louisiana
75 Beds - Memory Care Facility
Eugene, Oregon
Lease Assumption-Oct. ‘04
Grand Victorian-Rockford*
The Four Seasons
Winchester Village Apts.
Rambling Oaks Courtyard
Good Neighbor Care-Vacaville*
Montoursville, Pennsylvania
Purchased-August ‘08
Alexandria, Louisiana
90 Beds - Memory Care
Springfield, Oregon
Good Neighbor Care-Eugene*
The Hillside
Reflections Apartments
Rambling Oaks of Norman
Good Neighbor Care-Springfield*
Danville, Pennsylvania
Purchased-August ‘08
Ames, Iowa
Purchased-Jun. ‘06
Memphis, Tennessee
Grove City, Ohio
Carriage Court-Lancaster*
Weatherford, Oklahoma
Vintage Knolls
Oklahoma City, Oklahoma
Sewickley, Pennsylvania
Purchased-May ‘07
Wexford, Pennsylvania
Purchased-May ‘07
Began Operations-Nov. ‘09
Began Operations-Nov. ‘09
Good Neighbor Care
Third-Party Operations
Country Manor
Davenport, Iowa
Began Operations-Jan. ‘11
Orchard Park of McKinney
McKinney, Texas
New Construction; Opens-Apr. ‘11
Troy, Illinois
Shiloh, Illinois
* No longer held by Wilkinson related entities.
Spring 2011
11
Russ Wilkinson
management opportunities from other
owners. Both of these companies now have
some of the finest talent in the country.
...From Page Ten
Good Neighbor Care is currently opentom of this cycle. Some of these apartment
ing a brand new development community in
communities sold three to four years ago for
McKinney, Texas very soon and pre-leasing
$60,000 to $100,000 per unit. We are curis over 50% (see article, page 3) which is inrently making offers in the $5,000 to $50,000
credible for this market. Again, it’s all about
per unit range, depending on the situation.
the team. That’s why we are seeing this kind
Most of the assets are now bank owned. This
of success. There are two more GNC deis the type of opportunity I love to see because
velopments
coming out of
the ground in
the next few
months also
in Texas. We’re
also working
hard to finalize a 25-year
lease/management deal on
two
senior
communities
in California.
Wilkinson
Asset
ManageWilkinson Properties Fairfield Gardens, LLC was one of the original
ment
currentWilkinson Funds and its success helped coin the term “Legacy Funds.”
ly
manages
more than 3,300 apartment and student
with a little TLC and strong management,
housing units. I am really excited to have
there is great potential for developing good
our own management infrastructure to
cash flow... even in this down market. When
oversee upcoming multi-family acquisitions
markets strengthen, the cycle will most likely
along with the team’s interest in doing more
repeat itself with the potential for increased
third party management for other owners.
asset value and cash flow growth.
What would you suggest to someone just
As we begin acquiring assets once again,
getting started in investing?
we will continue to grow both of our manOne key to true wealth is the simple conagement platforms, GNC and Wilkinson
cept of living with in one’s means (or income).
Asset Management. We will also build Their
The second step is saving a strong percentage
operational base through new third party
Good Neighbor Care Centers, LLC
...From Page Nine
employer of choice in the communities in
which they operate, Good Neighbor Care
has dedicated resources to support their
communities in the areas of employee relations, development, recruiting, and benefit
management. Processes and procedures are
standardized where appropriate to increase
efficiency and ensure consistency in operations and management. Good Neighbor
Care’s Legal Affairs/Risk Management is
involved in many different components of
both administration and operations within
the management of Good Neighbor Care’s
community oversight. This department’s
philosophy is to act whenever possible with
12
transparency in its relationships with regulators, communities, and other partners.
Technology & Systems
All the fundamental system support functions for resident care are in place today at
Good Neighbor Care, including: marketing,
resident care, staff management, billing, and
personnel tracking. These are fully functional
systems developed in-house over the years.
Good Neighbor Care’s vision is to migrate
increasingly to more web-based technology
solutions. The new web based solutions are
easy to implement on new properties, require
less in-house support staff, are user friendly,
and fully integrated electronic packages. This
of one’s income for investments. Use those
savings to invest into assets that generate income and wealth. I love buying in down markets and buying the basic “fixer upper” type
deals such as duplex and four plex apartments
or even single-family homes. One of my initial
real estate purchases was a home I purchased
with $3,500 down. Three years later I sold the
home and the $3,500 grew to approximately
$17,500 dollars, which I then re-invested.
How long do you plan on being involved
in leading Wilkinson Corporation?
Some of the wisdom writers say real financial success tends to come to a person
well into their 50s, 60s and 70s or later. If
this is true then I am potentially coming into
my prime as I am now 54 years old. However, I never really see myself as retiring, although my team may tell me otherwise.
Do you think the US Economy has hit the
bottom? What about Real Estate?
From Black Monday in October of 1987
through the end of 1991 was the approximate
length from high-to-low of that particular
downturn. The current situation started in August of 2007 and most feel it is a much more
significant recession than the one that began
two decades earlier. As bad as it has been, it does
appear that the trillions of dollars of liquidity
that have been pumped into our economy have
helped to temper this incredible recession to
some extent. With that said, there are still massive real estate challenges working their way
through the system, and pending challenges
because of the lack of new financing available.
The crisis in the Middle East along with the
federal and state budget crisis will continue to
challenge the recovery. However, this all spells
O-P-P-O-R-T-U-N-I-T-Y to me!
transition to fully integrated web-based solutions will be completed in 2011.
Good Neighbor has the experience of
building, managing and optimizing the performance of a national portfolio. The company is in the process of expanding its business once again and has recently engaged in
new third party management agreements
with national lenders (REO’s), redevelopments and new construction projects.
C o n tac t I n f o r m at i o n
Wilkinson Corporation
402 East Yakima Avenue, 15th Floor
Yakima, Washington 98901
Telephone: 509-965-4240
Toll-Free: 888-493-8235
Fax: 509-965-8535
www.wilkinsoncorporation.com
Spring 2011

Wilkinson Family of Companies Emerge from the Doldrums of a

Transcription

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