• Posted on October, at 19,

    Meet Watermark Retirement Communities Chairman David Freshwater and President/CEO David Barnes. With a background in finance and architecture, Freshwater happened upon senior living development early in his career after starting a market research firm that took a look into the fledging industry and challenged the conventional wisdom. He later teamed with Barnes, and together they have grown the company from one community to more than 50. Today, with communities in 21 states, the Watermark team continues to develop and manage senior housing with specific attention to systems, processes and people.

    Spotlight on Technology

    Have you thought about licensing the Watermark technology to other operators?

    David Barnes: Yes, it’s funny. We developed it, but it has absolutely nothing to do with retirement communities. It was designed very generically, in fact, even the term “community” is called “organization” inside the database, and then we just wordsmith it to say community. It could absolutely apply to any industry.

    Watermark Connect provides us with a truly unique competitive edge, so I don’t think we would license it to our competitors. We had talked about licensing it to a ma and pa, one-off operator that owned a large CCRC. The problem with that was, it takes a real commitment to do this. For the one-off operator, it doesn’t really make as much sense. Where it really shines is what I was doing today, where I virtually traveled to one of 52 communities, 2,000 miles away, and drilled down for information through this process without ever leaving my office here in Tucson.

    If you’re a one-off operator, you’re there. You can see what’s happening real- time, in person. Our software has proven to be extremely effective coast to coast, and invaluable as we’re evaluating opportunities in China.

    When we started looking at how to partner in China, we had the menu of every policy and procedure, process, out there. Our colleagues in China can look through it and say, “Well, this doesn’t apply in China. This does. Let’s figure out how to localize that.” In fact, we’ve converted Watermark Connect into Mandarin. We’ve created basically a Chinese version called Watermark China.

    That is extremely valuable, because now we’ve captured 30 years of expertise into a system. The magic isn’t a system, it’s how you apply it. It’s the
    commitment and dedication to do it. It’s like Southwest Airlines. Herb Keller wrote a book on it, but one can seem to be able to follow it. It’s the people that make the system work, not the system that makes people work.

     

    We sat down with Freshwater and Barnes (see below) to hear about their first foray into senior housing, their founding principles, and the metrics they look for in their day-to-day operations for Tucson, Arizona-based Watermark.

    Senior Housing News: Tell me about starting Watermark.

    Freshwater: In the early 1980s the market research firm was retained to assess a for-profit senior housing project. While it turned out that particular project wasn’t feasible, we were intrigued by what makes a senior housing project work, because there weren’t that many at that time. What we did find was that Tucson was a great market for this new senior living concept so we put our developer hat on, took the information we had discovered and then endeavored to develop one here in Tucson. But we had no intention of managing it.

    We were so early to the game that there simply were no managers to hire. We basically had to boot-strap our own management company. That’s when my grandmother joins the story, because I took her around to senior housing communities all over Florida where she lived until I found someone I was impressed with.

    My story was: “Hey, I’m starting a senior housing company. I was really impressed when we had the tour. Would you like to join us and create a new community in Arizona?” Actually that’s how we started the company. After our first project was up and running David [Barnes] joined me in ’88 or so. I’m married to his sister, but I was dating her at the time. He came over to a barbecue and casually asked me, “How do you do track your marketing?”
    I said, “we use 3×5 cards.” He suggested he could create a CRM for us to track our leads and also create a property management system for maintenance and accounting. He told me he’d have it done by Christmas, and that was in the summer. We are still developing software to this day, and he still keeps telling me that it will be done by Christmas. He just conveniently neglects to say by which Christmas.

    Luckily, our first retirement community here [in Tucson] was very successful, but the economy was so awful at that time to continue growing our first company, The Fountains, we were forced to manage for others. At the time, because of the economy, the only opportunities we took on to manage were busted deals. We did develop a “Who’s Who List” of clients however, managing upside down communities for an “A” list of lenders and bond funds such as Dreyfus, Allstate, Fidelity, Citicorp, Mellon Bank, Bank of New York and others. But the business plan wasn’t sustainable because these groups hired us to turn the communities around and get them sold as soon as possible. They really didn’t want to foreclose on the assets due to the headline risk.
    In this turnaround role, we did all kinds of wild things to get them sold including replacing the existing management and sometimes even the owners by stepping in as a substitute General Partner. It was a terrible business plan because the better we did, the quicker we got their community turned around and sold, the quicker we were out of the job.

    We had to find a way to own these assets so we could benefit from the big turnaround in value we were creating. But we had no money. So we went on a search for money and fortunately found it in a Forbes 100 billionaire named George Kaiser who backed The Fountains by providing both equity and debt for the next 12 years.

    We grew The Fountains to 19 communities until we sold substantially all of its assets in 2005 to Sunrise. Then Barnes and I started over in 2005, under Watermark. That’s how we got here. We started with a single asset of The Fountains portfolio that hadn’t sold. From that single asset, we’ve grown Watermark to what it is today.

    What was your background?

    Freshwater: Architecture and business. I had an undergraduate degree in architecture. Then I came here the University of Arizona to get a graduate degree in business and architecture. I grew up in Cincinnati and was a Miami of Ohio grad.

    How did you realize Tucson was a good market?

    Freshwater: Like a lot of people in Tucson, they tend to stay on after going to school here, but actually mine was a unique situation in that I was working as a graduate student at a company that did market research. It was owned by a professor and I ended up just taking that company over when he took a job at a different school. Looking back at it, I can’t believe how lucky I was.

    Did you always know you’d go into real estate, with your background in architecture and finance?

    Freshwater: Between my freshman and sophomore years of college, I went to work for a developer in Richmond, Indiana, which is not too far from Miami [of Ohio]. He was building small apartments, like two and three units. One day, I’d showed up for work and he had a pickup truck that was full of 4 x 8 foot sheets of cardboard. He had bought an old firehouse. It was a pretty cool building with really a nice stone interior, all gutted. We took these sheets of cardboard and duct tape and laid out three apartments. We actually made a full-scale model. Then he brought his construction crews in and built walls where we had taped up cardboard ones. He walked me through the economics of the deal by showing me how he planned to charge so much for rent, how he’d get a mortgage loan for 70 percent and how that loan would be amortized over time. I just got hooked. That was the defining moment that I thought, “I want to be a developer. This looks like fun.”

    When you started to investigate senior housing, what were your perceptions?

    Freshwater: When we were studying it, there was one guru firm that basically wrote all the research reports: Laventhol & Horwath. At that time, they were doing virtually all the senior housing and hotel studies. As I read that first senior housing report my market research firm had drafted I was struck by how often we quoted Laventhol. Very naively, I asked our firm’s director, “What if Laventhol is wrong?” He said, “Well, we’re screwed. Every single methodology in the report was based on their formulas”. I then asked, “How hard would it be to check Laventhol’s methodology?” I’m still somewhat infamous at Watermark for suggesting something should be easy, when in reality it ends up being a lot of work. This was one of those cases.

    In response to my inquiry, the firm investigated several retirement communities that were working and communities that were failing, and there were a lot at that time that were failing. We applied Laventhol’s formula and sort of reverse-engineered it and figured out why some were successful and others were failing. While it was a lot more work than anticipated, we found Laventhol’s methology was actually flawed. Their early studies were based on the population of age- and income-qualified seniors aged 65 and older. But when we examined the census in our sample communities, we found the average age was 75 and older. Laventhol’s studies had greatly overstated the depth of the market.

    Those communities that hadn’t failed were ones that had sufficient 75+ population in their market areas to support them. That’s how we determined the one that we had been engaged to study didn’t work and how we discovered that Tucson was a market that had great demographics to support one. Armed with this information, we were able to attract a couple of wealthy Mexican investors to back the development of our first community in Tucson, The Fountains at La Cholla. That’s how it all got started.

    When the market crashed in 1988 after the tax law change and everything was going haywire in real estate, it was at that point that I decided that I would trade my partners my stake in some of our other real estate projects for their interest in The Fountains, because I liked senior housing and the complexity of its operation. It had a lot of moving parts. I thought it could be more than merely a transactional business. It could be a real platform business.

    I put a lot on the line then to transition into this one senior housing community. I not only had to trade my partners all my interests in the other real estate assets, I had to pay them additional cash which I didn’t have as well. So, I raised money from friends and family, including from my grandfather who invested $10,000 with me then. When he died four or five years later, I learned that his total net worth was $35,000 including the $10,000 he had invested in me. I’m relieved I didn’t know that at the time. Those were the early years.

    It seems like there are always some sweaty-palm moments for entrepreneurs, especially early on. It sounds like you took a big risk.

    More from the Leadership Series

    Freshwater: Yes, I would say quite a few sweaty-palm moments. One that comes to mind was when we were trying to buy our second community, before George Kaiser was involved. We were trying to expand and we knew the business model of managing busted deals for others wasn’t going to work long term. When we were about to close on this second community, I had a partner who was charged with raising the $150,000 I had negotiated as our share in the deal, which of course I didn’t have. In the weeks leading up to the closing I was nervous but he kept saying, “It’s fine. I’ve got it under control.” But the day before closing, he revealed to me that he didn’t actually have the money needed to close.

    He and I got on the phone with a Tucson “angel” and we cut a deal that was pretty ruthless, but we closed the deal. Before the paperwork was even drafted, this investor gave us the money needed to close the next day. That was pretty scary. Incidentally, we still operate that community, The Fountains of Greenbrier, in Independence, Missouri, today.

    David Freshwater, Chairman, Watermark Retirement

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    Through that first phase of the Fountains era, as you are moving from the third-party management to ownership, can you talk through that process and how you were forging an identity?

    Freshwater: We were looking all over for money, because that was the key to our future. This was early 1990s. At that time, my partner’s role was to help us find money. We literally traveled the world looking for money. When we found George Kaiser, it was interesting because after all the work we did to seek money, we met him just by chance and he said, “Yes, I’ll invest with you, but I only invest in Oklahoma.” This was because he was based in Tulsa.

    I think at that time, there were maybe a dozen retirement communities in all of Oklahoma. As luck would have it, Citicorp called us about a month later and they had a project in Oklahoma City they wanted us to take over. It was owned by a not-for-profit for which they had provided a big letter of credit supporting a bond issuance. They wanted to know if we’d be interested in taking over the management in the hopes of turning around the performance so it could be sold. We said, “Yes, but we want an option to buy it.” Given that at the time our office was in a two-bedroom apartment in the Tucson retirement community where our copy machine was in the bathroom on a platform over the bathtub, I figure they considered the option a complete throwaway in the deal. They must have thought, “how could these guys ever execute on it?”

    They gave us the option and we closed it with Kaiser two months later, and the rest is history. He liked what we had done on that first deal we bought together and he liked the business plan for turning around failed projects so he later agreed to invest in other deals as a limited partner. After four successful deals, we agreed to roll up our interests into one a single company he would fund. My partner and I became the minority owner of The Fountains company with Kaiser as majority owner and financier. It was more of a corporate deal after that, building value in the organization and with the goal of eventually selling the company which occurred in 2005.

    Was George one of your mentors?

    Freshwater: Absolutely. George Kaiser taught me so much. I owe him, not only for believing in and financially backing me, but for the many things that I learned from him that remain present in the business today. No question he was an important mentor for me, and everyone in our organization too. He was invaluable in terms of helping me guide the business from a couple assets up to be a half-a-billion-dollar business – it wasn’t like I had a great deal of experience doing this. I started that first market research company with $2,000 in my pocket. Senior housing was an invention that didn’t have any history or playbook. All of us in the industry were sort of making it up as we went along. George Kaiser was the perfect mentor to help me and our team navigate all this because he really has a brilliant business mind.

    Is there a particular leadership lesson that you attribute to George?

    Freshwater: Absolutely. The one thing that he told me was really critical, was we needed to know our business better than any of our competitors knew their business. He said, “If that’s not hard enough, I want you to know their business better than even they know their business as well.” That’s fortunately one of the reasons that we are so advanced technologically today, was because he supported that. We have phenomenal proprietary programs and systems that we started developing 25 years ago because of him. By the way, I met with him only once a year.

    Once a year, really?

    Freshwater: Yes. I had a whole day with him once a year. I’d go to Tulsa. We’d start about nine o’clock, and we’d finish when we finished. Sometimes, if we had a bad year, we would talk until nine o’clock at night. The other thing that he taught me was to embrace the things that aren’t going well because you can’t run away from problems. He wanted to know that there are issues but more importantly, he wanted to know what we’re doing about them. He said it made him sleep better at night. This became a part of our company culture. We’ve been very open because of the way we worked with Kaiser and his team. Good news travels fast, but bad news travels even faster. We let our partners know what’s going on and we tell them what we’re doing about it and how we’re fixing it, because nothing ever goes perfectly. Being very transparent actually is comforting to your financial partners.

    …Good news travels fast, but bad news travels even faster. We let our partners know what’s going on and we tell them what we’re doing about it and how we’re fixing it, because nothing ever goes perfectly. —David Freshwater

     

    Besides that one in-person meeting, was there much communication?

    Freshwater: There wasn’t much. His CFO would come to Tucson about once every four months. We figured three months, quarterly, was too often, half a year was too infrequent, so we settled on once every four months. We brought our senior management together, whom we call managing directors, and his CFO came. We’d spend a day, going over everything thing – mainly just working through issues. We never talked about our well-performing projects. We always spent the bulk of the time talking about the ones that were struggling. True to our philosophy, his representative sat there and listened to how we were tackling issues and problems. Every now and then, he would throw in a pearl of wisdom, but for the most part, it was more about his CFO being present allowing him to get to know our management team and our problem-solving approach personally. Through his CFO’s presence at these meetings, Kaiser understood and gained a comfort level with our philosophy and approach. Other than that, it was pretty much hands-off with George himself. He let us run the business.

    Can you talk about when you sold the portfolio to Sunrise and Arcapita?

    Freshwater: Looking back at it, it wasn’t planned. It wasn’t like we’d put the company up for sale. It actually happened quite by accident. As a result, we didn’t really value the management company and the platform that we had put together. Sunrise came in and purchased the assets of the company. While I think they may have valued what we were doing, there was no actual economic value ascribed to the platform or company. From that experience, we now understand that the management company, its people and systems really are quite valuable.

    The only real disadvantage of having Kaiser as a partner for so many years, if I could say it, and this will sound bizarre, I was quite spoiled because as the CEO I spent literally, maybe 30 seconds a year on financing. I never had to go to banks. I never needed to find equity partners. I never raised a dime from private partners. Mr. Kaiser provided 100% of the funds for everything — for expansion, new development, renovation — any expenditure. It was more of a corporate set up: money would come in from rents and it would go out the next day for renovations, come back in in rents and go out the next in expenses. It was certainly not run like a typical real estate firm in that regard.

    Here’s the sort of disadvantage: for 13 years with Kaiser before selling it and starting over again, I realized I had developed no relationships with investors or lenders. When we started Watermark, we had to establish all new banking and equity relationships because we had not been in the game for all that period of time we partnered with Kaiser. I suppose I shouldn’t complain but many of my contemporaries had established a stable of investors – private capital as well as institutional investors– over that same period.

    The only real disadvantage of [having a single investment partner], and this will sound bizarre, I was quite spoiled because as the CEO I spent literally, maybe 30 seconds a year on financing. I never had to go to banks. I never needed to find equity partners. I never raised a dime from private partners. —David Freshwater

    As you started building the company again with that one legacy property, can you talk through how the current iteration of Watermark came together?

    Freshwater: We grew three here, four there, and one here, until we got to 10. Arcapita came to Tucson, and we made a presentation to them about how we would manage The Fountains if we got it back. They were going through things, saying things like, “Well, do you have the systems and procedures to manage assets like The Fountains?”

    I remember my answer when they asked that question. I said, “No. We don’t have the systems and procedures and that sort of thing to manage assets like The Fountains. We have the systems and procedures that were designed to manage those assets exactly. Not ‘like them.’”

    We still had all of the chart accounts in our books and brought them up on screen. We brought up where they were when we sold them, and where they were then. In fairness, there was a recession in between.

    We said, “Here’s what we’ve evaluated. Here’s the immediate moves we’d make. Here are some of the things that we know could be improved. This was the decision that was made here or there, mistakes that we had made earlier that we knew we had to reverse.” They caucused out in our courtyard, then they came back in and said, “We think we need to have you meet a couple of other folks from Arcapita.”

    I think we changed their mind that the small 10-property company could take over these 16 and do a good job with them.

    We went from 10 to 26 overnight. That was huge.

    You’ve since built relationships with capital partners, and more recently have built a partnership with Singaporean conglomerate Keppel Corporation. What was the motivation behind that?

    Freshwater: David and I are people-people. When we started back over, we developed operating tenets that were important to us. Number one on our list: We wanted to enjoy what we were doing. We wanted to get up every day, despite problems and issues, and have fun. We wanted to surround ourselves with a team and with partners that got it, were professional and loved what they did. We’ve been very successful at doing that. We’ve had great partners that we’ve enjoyed dealing with. We’ve had a great team that we value and cherish. I hope they feel the same way about us. So, everything’s good. When we considered selling a portion of our company to an outside group, the first thing that we were concerned finding people that would be a match with our values. Could we find folks that really understood, valued and shared our operating principles? In Keppel, we feel we have.
    From a business perspective, while Singapore is in Asia, it’s business climate, economy and laws are an awful lot like the United States. We found people there that are just phenomenal. They’ve got a great sense of humor, they’re going to be fun to work with, they share our values, in terms of honoring the team first and putting the team in front of almost everything. We got to know each other over a year before we made the decision to proceed with the transaction.

    We have found Keppel to be very collaborative. They understood that if it doesn’t work for us, it’s not going to work for them, and if it doesn’t work for them, it’s not going to work for us. The rest of it was strategy. We do have a fledgling Asian platform. It’s a toe-in-the-water kind of approach for us in Asia, with operational joint ventures in place. There’s no way David and I were going to invest significant money in Asia being based here in the United States. And neither of us was interested in getting on a plane every month for a 17-hour flights to Asia — not at this stage of my career. Actually, I should say, at this stage in my life.

    Keppel wants to grow Asia and they like what we’re doing in the United States. I think they’ll have feedback on what we’re doing, but they like the way we’re growing in the United States and what our strategy is here. And we like the fact that they have a presence in China, Korea, Vietnam, Singapore, Hong Kong and Malaysia. They’re based there, have established operations in and understand the nuances of doing business in each of those countries. I’m sure that in 10, maybe even 5 years, the Asian component of Watermark’s business will be much larger than the one here in the United States. So, from a strategic perspective, the deal makes good sense.

    The other thing that was really important to David and me, is that they are long-term players. They’ve been in business for 50 years (as of August of this year). And they’ll be in business 50 more years from now. This sort of guarantees that Watermark will be around for many years. It’s important for our team to know that long after we’re retired, there’s going to be a lot of opportunity going forward with this company.

    In terms of the strategy going forward for growth, what do you think about where we are in the supply cycle and how that’s playing into what you’re thinking about acquisition and development?

    Freshwater: We’ve been very selective in the last couple years. Brooklyn Heights, Westwood, Napa, San Ramon, just to mention a few, are pretty high-barrier-to-entry places. When I first I looked at market for seniors housing in Brooklyn, it was unbelievable. You take a couple mile radius around Brooklyn Heights and you see no competitors. We have a ProMatura market study and there are thousands of age and income qualified seniors and zero competitors. There’s good reason for that because it is so difficult to find land or a building to convert for this use and when you do, it’s so incredibly expensive. Developing in Westwood has been difficult and when it is finished, it will be a phenomenal property.

    We’ve been looking at other niches to play in within the senior housing market and ways that we might position ourselves differently. For example, we’ve recently concluded negotiations with a national resort spa operator. While we are not quite ready to announce the venture, when we do, we hope people will be as excited about the prospects this will bring to senior housing as we are. It will definitely bridge the gap between the Silent Generation and the Baby Boomers that no one’s yet done. It will be a very exciting concept to bring to market.

    And of course, there’s expansion in Asia as we spoke about earlier. I think Asia is very exciting. The population is there. The cultural trends are changing. It’s almost like deja vu, in terms of looking at the United States when we first started and seeing the culture changing there. In many cases, it’s almost identical.

    You say the cultural trends are changing. Is that the tendency not to want to move away from family in your older years?

    Freshwater: There’s a couple of things. If you look back at our history, it was that way in the way in the United States. Grandparents lived with their sons and daughters or grandkids. That’s the way it was. If a senior really needed a lot of care – too much for the family to provide – she moved to a rest home. Then, cultural norms changed and both husbands and wives began both working and people’s lives changed. This is exactly what’s happening in Asia now. They’re urbanizing as people are migrating from rural areas to cities for employment. We’re finding both husband and wife are working. And because real estate is so expensive in the cities, many families have to live in tiny apartments. In the case of China, all of this is complicated by 20 years of population control that created unique dynamics in both the labor force and cultural norms. As a grandkid in China, you’ve got four grandparents to care for because of the single child policies. All these things are converging and will rapidly change the landscape of senior housing there.

    It will really take off there when the senior herself says, “I don’t want to live with my kids.” That was the catalyst for senior housing in the United States years ago. At some point in the future, seniors in Asia will be saying, “Hey, I don’t want to burden my kids. Not only that, I don’t really want to live with them, because I’ve got my own life that I want to live.” That’s certainly going to happen as cultural norms change and wealth among seniors increases there. With more of the Asian countries becoming more “Americanized”, for lack of a better word, there’s just more wealth. When that wealth shifts more to the senior population, there’s going to be an explosion in senior housing.

    LEADERSHIP

    How do you define leadership and specifically what does leadership mean at Watermark?

    Freshwater: All businesses are unique but in this business more than probably others, we struggle always with this concept of autonomy versus control. How much control coming from Watermark is too much and how much is too little? We know, the industry knows, this is not news, this is not even worthy of writing, that the executive director is the most important position in senior housing. Far more important than David or I am. It’s critical to have great executive directors, but it’s not enough to have great ones because to keep them, you have to give them the authority to make decisions.

    Where do you get your ideas and inspiration for where to take the company? Are there books or authors that you would like to highlight as really informing your philosophy.

    Freshwater: Yes. This is more of a David [Barnes] question and while answering, I’ll give him a great compliment, that won’t sound like one, but it really is, actually. I never met someone any better at operationalizing ideas than David. He can take a concept from a book, a newspaper article, something from your publication, from an airline magazine, and say, “Wow, that’s cool.” Four months later, it’s part of the culture of the company, and that is no small feat. I say it’s not a compliment because a lot of the stuff that we do is “stolen” from articles that we’ve read. For example, we read somewhere about a community that peddled memory care residents around in a specially designed tricycle. David immediately thought this was a wonderful way of getting people out. It’s phenomenal. So we operationalized it in several communities. Within a few months, purchase orders were written, bikes were ordered and now they’re up and operating with policies and procedures written and in place to support it. Sounds simple, right? But it really isn’t.

    A lot of success comes down to evaluating talent. David took a concept from a book several years ago called The Talent Wars, I think. Those concepts were operationalized and made a part of our culture perhaps 20 years ago. Most recently, we have been working with Lindsay McGregor and concepts from the book, Primed to Perform. David has incorporated a lot of her philosophies into our company, which are in some cases radically different than the norm. In fact, none of Watermark’s sales people at any of our communities are commissioned based on sales. We are seeing very positive results on this as we align the motives of our sales associates with prospective residents. Our sales associates are paid to help seniors and when you come from that space, the natural bi-product is increased census.

    TECHNOLOGY
    We’ve already touched on how Watermark has been on the technology forefront. What’s your philosophy?

    Freshwater: It has been from the beginning because of David [Barnes], it’s in the DNA. That’s another thing, he’s rare. He’s a real people person, yet he’s a systems guy. It’s really an interesting mix.

    The industry has lagged in terms of technology adoption. Do you think that’s improving?

    Freshwater: It’s much better than it was. They’re getting closer and closer but there isn’t one solution yet that incorporates everything that we need.
    Part of it, is that the technology is not quite there yet. Part of it is, there may be some that have the ideas but they may not have the financial backing.

    How do you think about the experiences that you want to give the Watermark residents and how do you think about enhancement?

    Freshwater: Several years ago, we knew that things were changing, from the GI generation to the Silent Generation to the Baby Boomers. We hired a demographer who studied all of our markets, where we were at that time, and where they were headed. The shocking thing was that we realized, we were in a trough. Talk about the Age Wave, the explosion of seniors and realized that we really weren’t in it, based on birth rates and immigration policies back when people were born that are now moving into our communities, senior housing is in a market plateau.

    We can expand business by doing a better job of attracting more people to our communities. Of course, technology has helped because it helps people live longer. Even though there weren’t as many people born, there are more people living, which is good, but then we also need more people to choose us. Part of what we looked into during that period of time is what were those factors that people are looking for?

    As we move from the GI Generation and to the next two generations of residents, without question, the biggest driver will be choice. For the GI Generation, the industry sold, “You write one check and move in and we take care of everything for you.” We’ve all heard this industry being compared to a stationary cruise ship. To some degree, that was probably exactly right, but we know that residents want choice. Multiple dining venues, creative living and rental structures and unbundled services are the way of the future.

    The next generations of residents aren’t looking to be entertained but rather they’re seeking meaningful engagement. We used to invite residents to the lobby to listen a local musician’s rendition of “Tie A Yellow Ribbon ‘Round the Old Oak Tree”. Now in our communities it is more likely they may be taking piano lessons or teaching a class on music theory. Those two principles, and there are several others too numerous to mention here, are the guiding principles of Watermark communities in the future. Engagement versus entertainment and choice versus everything bundled.

    Now, this is easier said than done. We’ve developed and designed programs to promote resident engagement, like Watermark University, where we’re encouraging residents and family members and team members to teach or lead courses on their passions. What do you like to do?

    I play tennis.

    Freshwater: Then at a Watermark Community, you might teach a tennis course, or if you’re a fly fisherman you might teach a class on tying flies or the history of fly fishing. If you enjoy photography, you might enjoy leading a class in photography. Whatever your passion — be it Roman studies, cooking, dancing or beer — whatever passion you bring — Watermark University supports engagement at all levels. Engagement on the part of the our associates versus just coming and doing your job gives them a sense of greater self-worth because you’re not just an employee, you’re an instructor. It’s also great to invite the residents’ families to get involved. , When you’re paying $5,000 a month you may be surprised to be asked to volunteer. That’s a concept that doesn’t work, but to be asked to share your passions is a different story. We’ve had some of the most incredible compliments, where people have come to us and said, “My mom’s in your memory care and I teach this class or that class., While she no longer recognizes me, I get to spend a day or week teaching this class where I just get to be with my mom, enjoy her as a person and not get hung up on the fact that she no longer recognizes me.”

    That’s a cool thing, right? It’s developing relationships and providing a service to us, as well, and to the rest of the residents.
    On the idea of choice, we’re reimagining and examining how we’re doing things and how we charge, so residents have the ultimate opportunity to build their own lifestyle and a program that makes them thrive.

    DAVID BARNES, PRESIDENT/CEO, WATERMARK RETIREMENT

    Senior Housing News: How do you think about and define leadership?

    Barnes: I think leaders do a really good job of communicating vision, training, acknowledging and coaching associates. They also provide people with the tools in order to execute on that vision.

    I think leaders do a really good job of communicating vision, training, acknowledging and coaching associates. They also provide people with the tools in order to execute on that vision. —David Barnes

    We’ve actually developed in-house systems that mirror that very philosophy. We have the ability to see what policies our associates have read and attested to, what training they have taking and how they are engaging in our vision.

    In the early part of our career, we were managing by e-mail. We were constantly reacting to whatever was going on. We built a whole leadership platform around this philosophy of setting expectations, training around those expectations and acknowledging and coaching performance. We had to do that because we’re based in Tucson, Arizona. We’re in 21 different states. We figured out pretty early we weren’t going to be managing from Tucson. We had to create a platform that people can really get to the information they need to be successful.

    I don’t think people wake up in the morning saying, “How can I do a bad job today?” People want to do a good job, to be challenged, achieve and make a difference. It’s our job as leaders to give them all tools and communicate clearly so they can excel.

    For leadership training we have a program called Leadership by Design (LBD). The part that I find most fascinating is the section around communication. There was a gentleman, his name is Fernando Flores, and he basically looked at high-performing teams and linguistically, what did they do differently than other teams? He really studied their communication style. We’ve adopted that philosophy, and we really looked at how you move things into action. How do you not get complacent? How do you make sure you create an innovative and strategic company that is constantly reinventing itself?

    That’s been the hallmark of our culture. Richard Baxter, one of my first mentors created the framework for the LBD program, Richard Baxter. He also coached both me and David [Freshwater]. It was a great experience to really get some very specific leadership disciplines and leadership distinctions and practice them. I facilitate the LBD four to six times a year. It keeps it sharp and fresh in my mind. Leadership by Design training is actually my favorite part of my job,

    David described one of your leadership strengths as being able to take an idea from a book or somewhere else and be able to operationalize it. Can you describe your perceptions of David’s leadership?

    Barnes: David and I joke that sometimes we subscribe to MBLBR, which is Management By Last Book Read. David is a true visionary. David and I do have a similar gene that we want to be the best at what we do and we are committed to being the very best operators in senior housing. We’re both very curious and we strive to continually improve. We’re always seeking opportunities to learn and grow.

    David and I do have a similar gene that we want to be the best at what we do and we are committed to being the very best operators in senior housing. We’re both very curious and we strive to continually improve. We’re always seeking opportunities to learn and grow. —David Barnes

    The ability to translate vision to reality is my strength, but you’ve got to have the vision side of it. David has that in spades. He’s been at the forefront of challenging us to think through what’s next for senior housing. What’s next for Watermark? How can we reinvent ourselves?

    My job is to make sure that vision is operationalized and that when you walk in a community, you feel that it’s different. You see the equine therapy actually working, and you have the University of Arizona not just to tell anecdotal stories about therapy, but actually studying what is the efficacy, what happens when humans interact with horses and what makes that so powerful? That’s as a good example of seeing David’s vision and then our partnership coming together on how to execute on it.

    What’s your technology background and approach?

    Barnes: I have a Degree in Management Information Systems and a minor in math. I’m a very systemic/systems thinker. Early on we really looked at how we were going to do this in Tucson, Arizona knowing that we were going to be all over the United States. How do you deliver information to people and how do you view and use information to lead and succeed and remain in constant improvement?

    That was the intent of the technology that we’ve built. We knew early on that a key to our success was going to be the associates who worked in the communities. Those are the people who are making the biggest difference. They’re the ones who are there every day, leading and training, building cohesive teams and delivering on The Watermark vision of creating extraordinary and innovative communities where people thrive.

    In terms of building the systems that Watermark has, can you talk about the extent to which that’s done internally versus working with vendors?

    Barnes: It was originally all done in-house. We had three programmers in the beginning. Now, we have one programmer who maintains the system and an outside third-party group that is doing our new development, so it’s a hybrid development team now.

    What about all the other ancillary technology that’s coming into the space like wearables for residents or EHRs? How are you thinking about incorporating those things?

    Barnes: Wearables are a really interesting innovation. We’ve been researching and looking at wearables for a couple years and we’re nearly ready to deploy our first installation from the ground up, that includes wearables. One of our initiatives around wearables is the concept of creating a Thrive Index that monitors resident engagement related to the seven dimensions of well-being. We are partnering with the University of Arizona on creating the Thrive Index and together, we’re studying how it impacts resident well-being.

    What would you want to see on a CEO dashboard, what metrics?

    Barnes: We use extensive benchmarking and monitor a myriad of metrics.

    One of the things George Kaiser also taught us was the value and importance of benchmarking. We have three full-time analysts who benchmark just about everything. We’re constantly looking at resident data, costs, departmental associates per square foot, everything we can to ensure the most efficient, effective operation achievable with the highest rates of resident and associate satisfaction. We look at all types of benchmarks and compare them across our portfolio.

    We also benchmark against ASHA. We really believe in the power of having that data. Because as you go through a budgeting cycle, what’s budgeted becomes the norm and then next year it – right or wrong – becomes your baseline for decision making.

    When you benchmark it, though, you might recognize opportunities and say, “Wait a minute, we should be producing a 32% margin and why are we at 28%?” We always take a big picture view at budgets because however high a number may be, there might be a reason for it. Executive directors understand which priorities will yield the highest outcomes and satisfaction levels, so we stay in close communication. We connect via web demo with executive directors on a rotating basis to learn and strategize. “How are we competing? How do we compare to ASHA metrics? How are we comparing to other similar properties inside Watermark?”

    Oversupply. How concerned are you?

    Barnes: There’s a lot of money trying to get into space. You’ve got home builders that are now doing senior housing, and that’s all fine and good. They’ll get better and better at it, just like we got better and better at it. Some of our communities are 10, 15, 20, 30 years old. We understand that we’re not always going to have the latest and greatest physical plant, so we develop and deliver on incredible signature “Watermark” programs, we recruit and retain the best people, and really differentiate ourselves in ways help people thrive. We’re bracing, preparing for more and more competition. We’ve seen it over the last 10 years. There have been plenty of shiny pennies coming into our markets. For the most part, we competed really well because we have that edge of well-known, well-established communities, with solid systems, leadership and programs, plus our absolutely unrelenting desire to innovate.

    We are constantly innovating, launching new programs and initiatives like Watermark University, In The Presence of Horses, and many more. In fact, our Thrive Memory Care has quite a few Watermarks within it, including our Naya caregiver program, Thrive Dining, Meaningful Moments and our Personal Pantry program to name a few.

    We know that innovation is critical to our success. We know that if you don’t innovate and stay in a state of constant improvement, someone’s going to build right next door and sell on the basis of being the shiny new penny.

    Speaking of developing, we have quite a few communities in development and that’s been extremely exciting. Our roots were in buying existing communities and turning them around or expanding them. In the last several years though, we started building more and more again.
    We’re very optimistic, so we will develop what makes sense to develop, while anticipating an increase in new competition. As you know, the demographics of the aging population in America over the next 12 years is staggering. One of the biggest keys to success will be talent recruiting.

    That’s my next question. Staffing.

    Barnes: That’s going to be the biggest challenge. We have a pretty good competitive advantage, in that we have a very strong culture that we’re known for. In fact, a key focus I have right now is how to maintain culture while we grow because we’re clearly growing. We’re at 52 right now, we’ll be at 100 before you blink your eye. How do we make sure you don’t lose who we are, what’s made us successful, and how do we really focus on that to ensure the vision and culture we’ve built over three decades continues for the next thirty years or more? We’re working a lot on systems and structures and programs to maintain our culture. It’s going to be a big challenge, but we’re up for it.

    One other question that occurs to me is the increasing integration with health systems and senior living. Where do you see that going and is that part of the strategy?

    Barnes: That’s something that David [Freshwater] is actually really focusing on, right now. There’s almost this resistance in our profession to being part of the health care system. There is a feeling that we are private pay and not part of the hospital or medical delivery system. We really view that as short sighted and unsustainable. We want to be We want to be a part of why people are aging well and achieving the greatest level of well-being across every dimension of wellness. Health care plays a role in our well-being and we want to be part of an integrative system that provides solutions. David and I are looking to be far more proactive on that front and figuring out how to better integrate into the health care models, so that we’re part of it and it becomes a. A natural progression as you head towards higher and higher levels of care. Right now, I think there’s a lot of resistance. It’s complicated, it’s challenging, but it’s got to happen and we want to be ahead of that curve rather than reacting to it.

    To wrap up on a personal note, what do you do for fun, and how you blow off steam when you’ve had a stressful day?

    Barnes: Well, I’m a pilot, so I love to fly, and I am a fly fisherman, so if I can combine those two things it’s a good day.