• December 28, 2016

    Meet John Rijos, chairman and CEO of CPF Living Communities and co-founder/operating partner of Chicago Pacific Founders, an investment fund focused on senior housing. Rijos is a senior housing leader with strong hospitality roots who has recently reemerged in the industry with the new company that some are calling “the next” Brookdale.

    Rijos, who spent more than a decade as president of Brookdale and worked to grow the company’s portfolio from about 20 communities in 2000 to 650 communities, today is at the helm of a new fund and operating company: Chicago Pacific Founders and CPF Living Communities. At $440 million raised for investment, that fund has raised more than its goal to date, and has already begun deploying capital. Rijos felt—and feels—strongly that senior living has a lot to learn from the hotel industry, where he made his first foray into real estate ownership and operations. We sat down with him to learn what he’s most proud of, why he loves going back to “school,” and how he views his “Act III” post-Brookdale.

    SHN: Thanks for participating in this interview about leadership.

    JR: I’ve always been a believer that if you’re going to be a very good leader, one of the first things you need to do is be humble, trustworthy and consistent. The fact that I seem to get so much press really flies in the face of what I personally feel is appropriate. I’ve been with ASHA for so long, and was president of Brookdale for so long, and now we have this new venture and it’s pretty high profile. I feel like I’m doing these things in the hopes that we can get better information, better knowledge, and share it. It’s not about me.

    Tell me about how you got into senior living.

    I was in the hotel business for more than 20 years. I went to Cornell’s hospitality school and I was actually the youngest general manager in the history of Hilton Hotels, at 24.

    Was that two years out of school?

    Two years out of school. It was crazy. I wound up starting my own company, with some backers, and spent 20 years in the hotel business. I sold my company in 2000. I started with one hotel, and when I sold [the company], I had 40. The reason I [made the jump] was, over the previous year or two years, I had two failing parents. Both wound up dying, but I spent a lot of time trying to figure out what the senior living industry was all about. I toured a lot of communities and I was just amazed at how inefficient I thought it was, how completely lacking in hospitality it was. I looked at my core skills in hospitality and said, “Well, that’s very transferrable.”

    I thought then, ‘The world doesn’t need me to build one more Hilton Hotel, but I think I could actually make an impact in senior living.’ It was such a fragmented and fractured business, which it still is today. This was the beginning of 2000; Fortress was in the process of buying Brookdale. Wes Edens and Bill Doniger and I spent time talking about it and I said “Yeah, I’ll do this.” So I sold my company to my partners and I took over as president of Brookdale in the summer of 2000.

    You just jumped right in?

    Just jumped right in. We only had about 20 communities and four under construction at the time. One that was under construction was the Hallmark at Battery Park City [in New York City] and we were open less than 60 days when 9/11 came along. We had to move everybody out of our community because we were two blocks away [from the World Trade Center], and moved them to the Hyatt Hotel in New Jersey for 60 days. Our community became the headquarters for the police to use in that area of Battery Park. Then we later moved everybody back in.

    So they spent 60 days at the hotel?

    I think we had 29 residents since we were only open for 60 days. Here was Battery Park City and we had this $60 million investment and I remember thinking: ‘This is going to be worth zero.’ As it turned out, Battery Park came back so fast and so strong that a year later we were 100% occupied with a waiting list, and it’s pretty much been that way ever since.

    The Early Days

    When you joined Brookdale at 20-plus communities, what did the company look like?

    It was small, very entrepreneurial, very opportunistic and we had very significant backing with Fortress. We started by buying ones and twos and developing a couple of communities at the time, and then, since I really focused on inefficiencies in marketplaces, there began to be efficiencies around the sales process. We were then able to buy portfolios, then small companies, then all of a sudden I looked up three or four years later and we were almost at 300 communities. Then we merged with what used to be called Alterra [Healthcare Corporation] and then we were at 500 communities. Two years later, we went public.

    When you were hired, did you always plan on it becoming big?

    That was the whole purpose—to build a really high-quality organization that could take advantage of synergies in size, just like the hotel business. Nobody in senior living had ever done that. Not only to take advantage of the synergies in size, but to actually create new product lines. …Lenders become very familiar with what they know, so the anthology of senior living was these large independent living buildings, then in the mid-’90s these assisted living campuses, and lenders would only lend against that kind of product.

    As time has gone on, we’ve become a very attractive institutional investment, better even than any other form of commercial real estate. Better than hotels, better than offices, better than shopping centers. If you look at the return over the last 10 years, the average of those businesses is somewhere between 7% and 10%. Senior living has been 14%. …today you can actually go to lenders with new and different kinds of products. They don’t have to be the same, and that to me is the exciting part of the future.

    John Rijos, Chicago Pacific Founders

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    How do you think the product is going to change?

    You can’t just throw bodies at senior living and hope to make money. You have to use technology, change the design to be more user-friendly for the residents and for the caregivers. I think there will be a great deal more technology in the industry, and more companies that do curated content that can help people.

    What do you mean by content?

    For a company [like those in] memory care, the biggest part is to keep the residents in a positive, engaged framework. If the only way you can do that is to put a caregiver in front of every resident, that’s a very expensive way to do it. A better way to do it is by using [a technology platform] where you’ve got a curated content product and can engage with groups of residents for two to three hours at a time in a very positive way, and also directly one-on-one. Monitoring products and technology are going to make a big difference going forward in terms of how much staffing you have to have and how much time residents need to be around staff as opposed to being on their own.

    The other big thing in senior living, I think—and not everybody agrees with me—is that because people are moving in with more chronic conditions, more physical limitations, and are just older to start with, it’s actually creating a less exciting, less stimulating environment. What I think we need to do, and what we’re trying to do with a lot of design on our end product, is appeal to a younger, still more agile, still more active senior and show them that the social part of senior living is the best part of the opportunity. Not just to have quality nutrition and good agenda of activities and stay alert, but the socialization. You can’t duplicate that by yourself at home alone, you just cannot. I think you’ll see [in future residents] they want more, they want it to be more personalized, they want the communities to feel more residential, they want the activities and engagement to be more substantial than it has been.

    Do you think they can afford it all?

    That’s a big problem. I think affordability is one of the two biggest risks. Developments cost so much, and people are backing into the finance and projection of performance. You have to get the costs under control and be able to appeal to a wider span of the population of aging seniors. One of the things that we’ve done, and we’ve been pretty successful already, is buy communities at very, very good cost per unit then add capex on top of it, but very directed capex that has a very specific value to our customer base.

    Can you take a building that’s older and make it attractive?

    Absolutely. You have to remember that the 20-year-old building was built in the best location. Over the last 20 years we’ve had to move farther and farther out because all of the best sites were developed. When you think about the 20-year-old building, if you can make it fresh, it doesn’t have to be the shiniest penny; it just has to meet the market, do it well, be clean, be in very good shape physically, and then there’s a huge market for that property. The skinny part of the river is the high end. The biggest, widest part of the river is the middle market, and that’s what that product can be re-engineered towards, and that’s what we’ve done a lot of.

    Do you think you’re developing the next middle market product? Is that your goal?

    Some middle market and up. We won’t buy a community that can only do one thing. We focus on adding product lines to whatever we buy to extend the length of stay and provide aging in place for residents as opposed to a single slice of [the continuum]. Between independent living and add-on home care services, we can let people stay in independent or assisted living for a very long time, and now when we’re adding the memory care component specifically and separately to those communities, we have a continuum that families can feel very good about.

    Going from 22 communities to 650, were there any mistakes you made along the way?

    Yes. When we were a small company, it was very easy to have the culture of the company be obvious and present at all times. As we got bigger and bigger, there became more layers to the company. If the company only has two or three layers, it’s easy to keep that consistency and trust. When a company has six or seven or eight layers, when any one of those connectors gets broken in terms of how the culture is delivered, it’s severed from there on down—to caregivers and residents. As I think about the last five or six or seven years at Brookdale, we spent a lot of time and energy trying to make sure the culture was everywhere. It was much harder, and I don’t think I personally did as good of a job as I could have.

    What would you have tried to do differently? Invested more time in it?

    It’s hard, but it’s not impossible. You have to have the attitude that you can do it and that it’s a priority. To me, culture isn’t just something you do from time to time. To me it’s a business strategy, just like the other things you do in accordance to your strategic plan: build in a corporate culture based on trust and integrity. It has to be a part of every single day.

    When did you know it was the right time to move on from Brookdale?

    I lived in Chicago and our office headquarters had moved to Nashville. I was going back and forth between Nashville and Chicago for six years, jumping on airplanes, going to visit 20 communities in a week, and I just said, 13 years is enough of doing this. I want to give back, and being president of Brookdale is not a way of giving back anymore. So I retired from Brookdale, and I went up to teach at Cornell. I created a senior living class at Cornell and I mentored people for their MBA thesis for an academic year, and I really enjoyed it. It just felt good. I got paid a grand sum of $1 at the end of the year to do that, but it was a lot of fun. It was a chance to go back to where my world once started, and give back in a very tangible way for me. But then I said to myself, “I have my energy back, I want to do this again, like we did in the first five years of Brookdale—start small, build big; a really high quality organization—and do it privately as opposed to doing it in the public arena.”

    So are you trying to build Brookdale 2.0?

    That’s what people keep calling it, but it’s the early years of Brookdale 2.0.

    But you’re growing pretty fast…

    It’s been 20 months and we already have 30 communities we own—whole or part of—and we run another dozen or so through third parties. We still have a lot of dry power. I expect that over the next three years we’ll probably double again.

    What was it like for you to watch the merger of Brookdale and Emeritus?

    I was concerned about it, because when I retired from Brookdale and we had 650 communities, I thought that was hard. So to take on another 400 communities that were basically a different product from what Brookdale was used to, that’s a hard thing to do. You can’t have a merger of equals. Someone has to be in charge. It took them a very long time to figure out how to do that. If you ask [CEO] Andy [Smith], he’ll tell you they’ve made a lot of progress, but I don’t think they’ve closed the final chapter.

    It feels like the ship has turned a little…

    I think it has turned. I think Andy’s added some good talent to the organization in the last six months and I expect that they’re going to do much better.

    Do you think an operator can be that big and still be successful?

    A lot of people would say definitely not. I think the jury’s out. If you ask me where I think we’re going to get our lessons for how senior living should look over the next 10 years, the answer is in the hotel industry. Everything the hotel industry started doing 10 to 12 years ago, senior living is doing now. Ten years ago, what we were starting to do at Brookdale had already been started in the hotel industry 10 to 12 years before that.

    Give me an example.

    Revenue management. Bigger companies are now hiring off-site revenue managers that are independent of the motion of what happens locally in each market. Hotel companies started doing that a decade ago. Hilton, Hyatt, Marriott, Starwood, they all have revenue management departments just like the airlines, and they lever the movements on a daily basis. The big senior living companies are now hiring revenue managers. The move to fresh foods, all-day dining, multiple bistros and restaurants—those are all in hotels. What are you seeing now in senior living? All-day dining.

    What was the experience like teaching at Cornell? What did you learn and what surprised you about it?

    I started the Cornell senior living course because I saw in my career that all of the core skillsets I had moved very well into senior living. Why should [young hospitality students] only go into the airlines and cruise ships and to the hotel business and real estate development? Why not go into senior living where, frankly, their career path will be much quicker because there’s such a lack of talent in our industry? When I went back to teach at Cornell, I convinced the staff that if we introduce senior living as a potential career path, it’ll add more job opportunities. Something like 5 or 6% of the graduating class from the hospitality school now goes into senior living, in some form.

    Is that cool for you?

    It’s fun that they took advantage of the opportunity that I created for them. It’s very rewarding. I learned about the enthusiasm and excitement that twenty-somethings have for their future and that they actually care greatly about seniors. They care greatly about sustainability—things that, frankly, older people don’t care about. If you go on a college campus, you’ll see sustainability programs and green programs. I love that. I love being re-acquainted with that attitude.

    Did you find it easy to get them excited about the opportunity in the industry? Was there an education process?

    There was an education process. The first two years of the class, we only had 30 people, and from then on I had to cap it at 80 because that’s how many seats we had in the amphitheater where we had the class. It would be sold out first week. That was great. You asked me what are the worries I had [about the future of the industry], and I told you about the first one, which is the whole idea around having new technology and new design in buildings and communities. The other one is where future leadership is going to come from. Our whole industry is run by a bunch of old guys with gray hair like me. The next generation needs to come in early. … They shouldn’t come to our business at age 50 after having done something else for 25 years like I did. We want you to come in early and be a part of that next evolution.

    We’re starting to see a little of it from people who came up through the industry.

    We’re starting to, and that’s very encouraging.

    What do you think the industry needs to do?

    We need to do what we’re doing at Cornell, and what they’re starting to do at USC and Washington State, and UNLV. They need to recruit on campus. Young people go where other young people go. They need to have more academic programs on college campuses, whether it be in the gerontology school or the hospitality school or in the tourism program, or life sciences. There needs to be more academic activity around our business, and that will stimulate more people going into the business early.

    After teaching, all of a sudden you just got the itch again?

    We were done with the academic year at Cornell, and through Goldman Sachs I had met Mary Tolan, who was starting this new fund in Chicago. The fund is designed around healthcare investments. Our biggest investment is in senior living, but we’re in all areas of healthcare services. She and I started talking; she’s in Chicago and she’s a very successful businesswoman. She wanted to do this next phase of her life, and over the course of three or four months it became very obvious to me that rather than go do this on my own, which is what I was thinking about doing, it would be more fun and more interesting to do it in a new fund that was in the process of being raised, and together we could probably do a lot more than either of us could do individually.

    Are you on track to where you wanted to be from when you started it?

    We’re ahead. We raised our whole fund, we capped it out—we actually raised above subscription—so we had $325 million in the fund, and we had so much interest in our senior living that we did another $115 million as a sidecar investment just in senior living. We actually have $440 million that we invested.

    How much real estate can you buy with that?

    About $200 million of that $440 million is senior living, and you can leverage about 70%, so I think you can get to a billion dollars fairly quickly.

    When do you think you’ll get there?

    Pretty fast. I don’t know the answer. I know this: I’m not going to force deals just to get deals. We have 30 communities and we actually have a very attractive yield on every single investment deal. Now, I expect that to continue, and if it doesn’t, I won’t make the investment.

    Are you still seeing a lot come in?

    The pipeline has been very active for us because being Chairman of ASHA and president of Brookdale got a lot of people’s attention about me, and so we’ve had a very direct series of sources for deals. My goal is to get it all invested over the course of four years, but we’re going to be very opportunistic. I think that some of the developments that are in the ground now or just opening will not do as well as people think they’ll do. Keeping powder dry to be the second buyer might be a very attractive way to invest it.

    Back to Brookdale. We’ve started to see Brookdale employees who have worked their way up the ranks, now breaking off and doing their own thing. Is that cool for you to see?

    I think that’s healthy.

    Any advice for them?

    Don’t try and raise $440 million in two years. It’s a lot of work.

    Leadership

    Let’s talk a little bit about leadership. What’s your definition of leadership?

    I don’t think I have a single definition. I think leadership is a series of traits that starts with being trustworthy. Trust is something you gain by the drop, and lose by the bucketfull. If you treat people right, if you create a servant leadership environment…

    I’ve been hearing that word a lot more lately.

    Well, at Brookdale, in the last four or five years that I was there, that was really what held us together. We thought about ourselves in that way. For leadership in general, you can’t be this autocratic leader anymore and get respect. You have to be a participating leader. You have to create teams, teams that have to feel value. To bring value to that team, it has to be real, it has to be consistent. Humility is important in leadership. Consistency is important in leadership. Being positive is important in leadership. Being a team member and making sure that everyone who is part of your team feels valued. Those are things that are important for leaders to be successful.

    During your career, what’s been your biggest challenge and how did you overcome it?

    The biggest challenge was coming into senior living from hospitality, because I knew how to do that—I’d done it for 25 years. My thinking was, all those core skills would transfer into senior living, but I did not know the care business. Would I learn that well? Would I learn it effectively? Would I be a good leader in an industry where I was coming in as president, not as some junior department head? That to me was the biggest thing. The great thing about Brookdale was, we were a small company, so I was able to learn as I was doing it. I surrounded myself then as I do now, with really talented people. I learn from them.

    What’s the biggest risk you’ve taken in your career?

    I think what I’m doing now is kind of interesting. Only because this is Act III for me. Hotel career, Brookdale career, and now I’m doing a third act. I don’t consider this risky, I think it’s interesting. It was a risk to leave the hotel industry for this industry.

    When you left the hotel industry to go to senior living, why was that the biggest risk?

    We were an industry of very disparate parts. Before Brookdale became Brookdale, there was probably no company that had more than 50 or 60 or 100 communities. It was a very fractured business. Completely disaggregated. For me to think I could go into this business that I felt was kind of like my teenage acne years, and make a big difference when it was hard to even think about how you create a really big brand, high-quality company—that was, to me, the fun part of the risk. If we could actually start aggregating, and do it well and have an important value system and a good delivery system, that was going to be exciting. Even today, of our old inventory of units around the United States, 60% of all of those buildings are companies that own 10 or less [communities]. And half of that, so 30%, of the entire inventory of companies are ones that only own one community. So how does a company that only owns one community actually compete? It’s really hard. That’s why I’m doing what I’m doing in the third time around. I think we can already, after 30 communities, we can buy that one [community] from that one family in a way that can be very attractive for us as part of a new group to be aggregated.

    You can’t be the only person bidding on those assets. Does your reputation and history give you a leg up?

    On three of the deals we’ve done, we were not only not the highest bidder, in one case were actually the lowest bidder. But when you buy one-offs from people who live in that community, they still feel a responsibility. They built it, they owned it for 15 to 20 years, they’re moving on because they’re done with that part of their lives, but they’re not moving on from their legacy of that building. They want to make sure it’s getting run right, by the kind of people they are proud to be associated with. So at least in a few cases, that was a real opportunity for us.

    So what’s the best piece of advice you’ve received in your career?

    Never give up. I never give up. I had cancer when I was 44, so 19 years ago, and I remember waking up from the exam and the doc was saying, “Get your affairs in order, you have about six months to live.” I told him he was full of [it]. I was going to fight it and I was going to live and I was strong enough to believe that I could. Six months later I was cancer-free, after going through all of the battery of processes you have to go through. That has always been what drives me. I just never give up, in anything. I don’t give up on people. I don’t give up in business and I don’t give up in my personal life.

    Who would you consider your mentor to be, and what have they taught you?

    I’ve had a couple of mentors. One of them was my former partner from the hotel business who’s retired and has been for a long time.

    What’s his name?

    Tom Kalebic. He’s a very low profile guy. I was very young, 28 years old when I started my hotel company. He was 10 years older and my partner along with another partner of ours. He was a great advisor, a great mentor; he was very consistent, he was always present in how he thought about stuff. He didn’t spend time thinking about what happened last year, or five years before; he was always present. That attitude about being present and being consistent fueled everything I’ve done over all of these years. Another person who’s been really important to me, but was only with me for a short time, four or five years maybe, was Bill Sheriff, who was our CEO at Brookdale. He brought such a passion to what he did. He believed in it so deeply; that was really important to me too. A old friend of mine is one of the most prominent restaurateurs in the country. I always said to him, “Why do you own so many? Why do you keep adding to your business?” “Because I love doing it, I love doing it.” By the way, anyone who does something that they don’t love doing is not going to do it well.

    What was his name?

    Richie Melman, Lettuce Entertain You.

    I want to talk a little about attracting talent to the industry. Say I’m about to graduate from college. What would be your pitch to me for why I should focus on senior living?

    This is still a very fractured business; it’s looking for leadership. You can go to a hotel company for 10 years to then become an assistant general manager, and 10 years later become general manager. Or you can come into our business and become a trainee day one, on the fast track to being an executive director in three to five years, becoming regional director three to five years later, and president of your own company within 15 years of today. If you learn the business on all sides, including the real estate side and the finance side, you can become an owner. You don’t have to work for somebody forever. Once you get your skills developed and you understand how to buy and how to finance, you can be your own boss.

    Do you think the industry needs more entrepreneurs?

    Absolutely. A lot of the ownership are people that have come to own their communities because they came out of the skilled nursing world, or they came out of the real estate world, but to actually have your core skills developed In senior living and be entrepreneurial at the same time, that’s a real advantage.

    It seems like it’s a good time too because there’s so much money that’s attracted to the industry.

    [We’re experiencing] institutional quality investment on the part of both equity and finance. When you’re in a business where the growth on the senior side, the 80-and-above, is growing by kind of six times the normal population, and supply is growing by about 4% right now…If you find good sites and good opportunity, you can be very successful for a long period of time.

    How important is technology for senior living providers today?

    It’s enormously important. At $15.00 an hour, you can’t just throw more bodies at them. You need technology to take the place of people and to actually be more current and more present.

    When you acquire a building, do you put new technology in?

    We put tracker systems in, we put measurement systems in, so if people fall we know about it. We use state-of-the-art technology to be very aware of where residents are, what they’re doing, and if they’re in a safe, healthy place at all times. In the care side of the business, in memory care, even as recently as a couple of years ago, the average amount of time being spent providing care for a resident was about 6.5 hours per day. Now, because people are living longer with dementia and memory care, it’s getting up to 7.5 to 8 hours per day, per resident. If that’s the case, you can’t just keep charging more, because we already talked about the affordability [issue]. Technology already has to start coming into play. Technology can create positive engagement instead of people doing that; that’s where the more successful operators will spend their time over the next few years.

    Why do you think operators have been slow to adopt technology? 

    It’s mystifying. We have cutting-edge technology in our buildings as soon as we buy them; just like when we replace carpets, we add technology.

    Do you think the consumers going to drive them, or just the business information?

    I think competitors will. Because if you have to figure out how to make a newer yield, having more people being paid more money, and you can’t charge for it because of the affordability issues. You’re going to have to come up with a Plan B. Plan B is technology that does some of that work for you.

    Last question: During your career in senior living, what are you most proud of?

    I’m proud that we’ve taken a small business and made it a very large business, a very recognized business, that institutions and investors now see as a viable way to invest. That wasn’t the case 16 years ago. The other thing I’m most proud of is that both at Brookdale and now at CPF, we’ve developed real talented people. We’ve given them their start, we’ve given them their opportunity, and they’re running with it.