Meet Michael Schonbrun, founder and CEO of Balfour Senior Living, based in Louisville, Colorado. The company was founded in 1997 by Schonbrun and his wife, Susan Juroe, through the development of a single community near Boulder, Colorado. Today, the company owns and manages four luxury senior living communities that are focused on lifestyle and amenities—one of which is located in Denver and exemplifies the urban model of senior housing development.
With a background in government and health care research management, Schonbrun made the decision to enter senior housing based on a personal experience he had in seeking a senior living community for his mother, who had been recently widowed at the time. Today, he sees Balfour as a leader in service and plans to pursue slow growth in locations outside of Colorado. We sat down with Schonbrun to learn about how his New York City upbringing has influenced some of his decisions in senior housing, why a good team can make or break a new development, and why his mother would enjoy living in a Balfour community today.
Senior Housing News: Tell me how you got into senior living.
Michael Schonbrun: My mother was a fussy New York woman. My father died unexpectedly, I’m an only child, and it seemed to make sense to have my mother closer to where I was living—which was Colorado. She sent me on a scouting expedition to find a place for her to live, and expected that I would not make a mistake. I looked around and found what I thought was a good place very close by. The developer hadn’t yet finished building, so I flew out to St. Louis where their first project was. I met the owner and operator. We became friends. My mother moved in initially just on a trial basis, but she really liked it. And as a result she settled there, and then I moved again about three years later to Florida; she followed me to Florida. Again, I scouted around South Florida—from Palm Beach down to Miami—found a place, and I thought: “Well, if these places could take care of my fussy New York mother, there is an opportunity here.” She had complaints about the food, the activities, the transportation program.
She’s a New Yorker; she didn’t drive. She didn’t get going until 11 in the morning and all the activities stopped at four because it was largely folks that had grown up on a farm or a ranch—at least in Colorado.
What did you do previously?
I had several different careers. This is my fourth—and I think last. The first was in health policy work for a couple of governors, one in Ohio and one in Colorado, including the deputy health commissioner in the state of Colorado, regulating nursing homes.
That doesn’t sound like much fun.
It wasn’t. If somebody had said to me I’d be in this business 20 years later, I would have said: “Not a chance.” I also ran a research hospital in Denver. I was there for 13 years, and then I did various health care venture capital [jobs], ran HMOs for the state BlueCross plan, and did mergers and acquisitions for a national hospice company. I worked in venture capital in Eastern Europe after the fall of the Berlin Wall, and then came back to to the States and started the company, which is now almost 20 years old.
Tell me about buying your first building. Where was it?
I built it. I decided to look all over the state of Colorado. I lived in Boulder for a long time, but I went east toward Kansas and the plains, went west beyond the mountain communities near Aspen, and concluded that the most underserved area was right where I had started out—Boulder—which had a reputation for being anti-growth. The big companies stayed away and there was an opportunity to do something right where I lived. And a friend of mine, in fact the guy who owned the first community where my mother lived, helped me. I asked him what he thought about a site I had found near a little shopping center with good street visibility.
He said, “I think it’s perfect.” He gave me the name of an architect, the names of several banks to work with, and also an equity provider. It was almost like senior housing in a can, and I just opened it up to get going. The architect said: “I’ve done a hundred of these, leave it to me. You get to pick the paint color.” But I found that even though he had done a hundred of these, the design looked like every other community and there were all sorts of problems from low ceilings to inadequate lighting. The lesson from that was: Hire a good architect, but let me and my team decide where the amenities should be, where the ceiling height should be set, and let us create something that’s different. One of the things that we take a lot of pride in is that our projects don’t look like anybody else’s. They look much more residential, like they could be condo buildings, or clubhouses. That became almost an anti-lesson: Here’s what not to do. The contractor worked out, the equity investor… all of that worked out. But it taught me: I really wanted to build our communities as well as operate them.
Do you still have that community today? Has it changed?
Oh, yes. Some things, like the bones of the building, you can’t change. But we’ve moved all of the furniture around and one of the big things was we changed the carpet and coloring on the walls. In our world, beige is a dirty word. We are really into great contrasting colors, things that are happy and cheerful, and it’s not everybody’s cup of tea. In one of our communities, we have a big red couch right when you walk in and most people really like it.
In our world beige is a dirty word. We are really into great contrasting colors, things that are happy and cheerful, and it’s not everybody’s cup of tea.
One of the things I found interesting about what Balfour is doing is that you typically only do high-end development. Why?
In the early days, it was nothing more sophisticated than: What would my fussy New York mother (who grew up poor in Brooklyn but married well and lived on Park Avenue the last 40 years of her life) want? My friends and even the other kids who lived on Park Ave. called her the “Princess of Park Ave.” because that was the way she carried herself. I began to think: What would she want? What would be appealing? At the time, I looked around and found everybody else seemed to be taking care of wealthy successful people, but they were unimaginative in their decor, the buildings looked the same, and I said: There’s a niche here.
That is sometimes a challenge because the talent pool in senior housing—especially folks who understand how to cater to wealthy, fussy, demanding people—is very small. We have to work hard at finding them. We’re not always successful, and then we have to be prepared to say, “We’ll train you and if after a reasonable amount of training you still don’t get it, you’ll be happier somewhere else and we will be happier with someone else.” That’s the issue.
Why were people so hesitant to work with you to build your first urban project?
To some extent, like in every other business, very few people are going to stick their necks out. They all want to do the tried-and-true. Lenders are reluctant to lend if they can’t tell their investment committee there are five other projects just like it. The same is true for equity providers. Chicago was actually one of the few places that had any senior housing like it.
The biggest one in Chicago that was purpose-built, The Clare, had major problems. The Clare opened up right at the beginning of the recession. People kept saying, “Show us an example.”
Fortunately AEW and I had something of an early relationship. They had done one other deal with us which was actually the only acquisition we did, a memory care facility. And they said make it a little smaller, increase the number of assisted living. We had the great majority independent. In hindsight, the original allocation between independent and assisted and memory was probably right because folks that need assisted living don’t necessarily utilize everything that a vibrant downtown area has, but they were the only ones to have the guts and goodwill to take that leap.
How’d you convince them?
How long did it take?
It didn’t take all that long, probably just a few months. They wanted us to alter the size of the project. We went from 280 units to a little over 200, and we went from roughly 25 to 30 percent assisted and memory to almost 50-50…people said either I don’t get it or I get it, but I can’t convince my investment committee.
Why wouldn’t they get it?
Because there were so few examples. And the cost-per-key was high, and they said, “Well, the suburban product we’re building in Oklahoma City is a half or a third of this cost.” That may be true, but it’s not downtown. We had to imagine.
It’s hard to get bankers to imagine.
The other part was both AEW and Balfour wanted a non-recourse construction. Even though I believed in the concept, I didn’t think I wanted to take everything that I had made over the previous 15 years, slide it into the middle of the poker table and say double or nothing.
You still put $3 million up—that’s still a lot of money. You and your wife did that, right?
We believed in it.
Do you have any other more urban projects in the works?
We’ve been looking. We actually took a run at one in Brooklyn, which was an existing building to be converted. But we couldn’t quite get to the price that the seller wanted. We also have looked in San Diego and Irvine, California. At the moment neither one is really going forward. The cost is very high, but we think the concept is proven. We’d love to do another one.
It seems pretty trendy right now.
Yes. There’s a lot of discussion around older people moving into the cities, and the underlying concept is that the senior housing community doesn’t have to provide all of the services in an urban setting. We do have an extensive transportation program, but we don’t need to shuttle everybody. They can walk or take an Uber.
Any desire to build on Park Avenue?
You know, yes. However, there are now two projects in Manhattan, one at 56th and Lexington, and the other one at 93rd and 2nd, which are Omega and Maplewood properties. And the irony is I grew up at 92nd and Park, that was around four blocks away. I had my bar mitzvah at 55th and Madison right across the street. It was almost like the universe was taunting me saying: Here are your shots. I think they’ll be very successful, but the point is — and we see this in our community down in Denver — people saying “If I’m spending $12,000, a month, it had better deliver.” The housekeeping should be immaculate, the menu choices should be good. The service should be good.
SENIOR HOUSING TRENDS & TECHNOLOGY
Let’s talk a little bit about trends. We are seeing NIC data show signs of real occupancy pressure. How do you think operators get through this rough patch?
I think they have to up their game and deliver higher-quality service. I’m still a believer that the market is under-penetrated in most markets. There are some exceptions. Colorado actually is probably one of the markets where there’s a lot of building and probably pretty close to stabilized, but in other parts of the country, three to five percent of the income-eligible folks are living in an independent living or assisted, and it could be eight to 10 percent. How do you convince people that the quality of life is [better]? If only I had a nickel for every time somebody said to me, “If only I had known what life would be like before I had moved in, I’d have moved in much earlier.”
So with all these new communities coming out of the market, do you think it’s even more important for people to figure out what sets them apart?
I do. I think this is true both architecturally and in terms of design and service. If you can deliver a five out of five, residents will tell everybody. Of course, if you’re delivering a two, they’ll tell three times as many people.
Do you think the industry is doing a good job investing into technology up to this point?
I think it’s really just beginning. We’ve tried to be an early adopter, but it would be nice if there was more competition.
Right now we have a sophisticated financial system, Yardi. And we have a sophisticated marketing system called Sherpa, and the two systems don’t talk to one another. Sherpa is better on following residents than Yardi, and Sherpa doesn’t have a financial system. I imagine we’ll find some smart 19-year-old IT guy who can make the systems work with one another.
But right now we don’t have that on board, and we haven’t found that person yet. I think there’s a big opportunity there and we should be investing in it because it would help the communities. Secondly, even if you’re safe in your home, you’re still going to have a lonely existence waiting for your busy adult children to come visit. And in fact I think that’s one of the underutilized niches even in our high-end space, where people say, “I can afford a housekeeper, I can afford a driver, I can afford a chef, and don’t ever have to leave my house.” However, who do you talk to about the latest Donald Trump tweets or what’s happening in North Korea? It’s probably not your housekeeper. If you can be at lunch or dinner with people who have had life experiences like yours and could live anywhere but they choose to live in your community, you have that vibrancy, which I think really makes everything hum.
I remember when The Clare [CCRC] was being built in Chicago and everyone was wondering that for people who already live in downtown Chicago and can afford everything The Clare is providing: Why would they move in?
There was an explanation in New York City. The doorman in my Park Ave. apartment would take out the dry cleaning and bring in the Chinese food or food from the deli. Why walk? But when you’re in your apartment, you don’t have a common area for playing bridge with other people, or discussing world events, or entertaining. One of the things we really stress is that in a Balfour community, it’s your home and that means not only you’re comfortable there, but you take pride in it; you are happy to invite friends to come visit; and your grandchildren are happy to come because there are things for them to do there. We have fish tanks in all our communities. Kids will come and sit for an hour, mesmerized by them. I remember going to visit my grandparents, whom I loved, but it was boring. We try to be very kid-friendly and encourage people to bring their friends.
With providing this high-end experience, do you have to go with above and beyond what people are used to in order to make your residents happy?
We have to at least provide them an environment similar to where they lived before. Presumably they will have had housekeeping, landscaping, and health care. But we need really to be preparing for the country-club crowd, so that level of service needs to be there. And ideally if it’s better than what they had before, then it becomes even more competitive. One woman said to me in terms of design, when she was moving into the Riverfront Park project, she said, “All my life I’ve lived in homes with the real wooden doors. Why, at this point in my life, in what may be the last move of my life, should I go to someplace with plastic doors?”
We may need not to have doors as heavy as her [former] front door, because it’s not the one to the outside world; it’s just to the hallway. But it gives you that touch and feel.
What’s your definition of leadership?
To begin with, I think we should not be afraid of hiring people smarter than we are to work with our company. Secondly, I think we need to give them a vision that is compelling, that makes them feel good about showing up to work during every day—and then get out of the way. Make sure they have the tools to make their work easier and make it fun, and giving them bragging rights.
To begin with, I think we should not be afraid of hiring people smarter than we are to work with our company. Secondly, I think we need to give them a vision that is compelling, that makes them feel good about showing up to work during every day—and then get out of the way.
Part of leadership is finding exciting projects and giving [employees] a role to help design and manage those projects, and then reward them. And one of the challenges, especially when you go further down to the first level of care, the so-called resident-facing housekeepers and dining services and maintenance [employees]…it’s hard work. You’re dealing with people who are certainly old and can have days that they’re not really feeling their best, and you’re going to be confronted with grouchy people.
I’m not sure you can pay them enough to tolerate that unless they really feel this is work that’s rewarding to them, and there’s upward mobility. Really strong management all the way through is important, and it starts at the top. You may not need to be cleaning dishes right next to the dishwasher every day, but in a pinch you need to be willing to do that. You certainly need to be able to evidence that level of care and support. Then you need to hold people accountable. We have beautiful buildings and it sometimes feels like the building is so pretty, the staff doesn’t have to work that hard. That’s wrong. You can get away with that the first month or two of the building, but you can’t by month three.
What’s one of the biggest challenges you’ve faced?
Finding talent. The senior housing world for the most part doesn’t hire people from the hospitality world. Hospitality, fine dining, and hospitals are antithetical. Nursing homes are arguably the same. We need to find people who are experienced in senior housing or can come from related fields. To some extent, when we’ve gone out to the hotel world, we’ve not had results that were up to expectations. It’s a bit of quandary. They may know food and beverage and cooking, but the leasing is totally different. If there’s AL and memory care, and not IL, then you’re dealing with health care issues and regulation.
You take people from the nursing home world, which we have, and their focus tends to be on expense control, because reimbursement is fixed, and making sure that regulatory compliance is good. Well, in independent living there is no such thing as regulatory compliance.
What’s the biggest risk you’ve taken in your career?
Probably putting three million dollars into Riverfront Park. One of the catch-22s for a company like ours, that is not part of a large corporation, is to attract equity, and then debt and … get the entitlement in place, and ideally architectural drawings far enough along that they can begin to get priced. In this day and age, where real estate is hot, nobody wants to give you control of the site without either your buying it outright, or your going hard on a very hefty deposit. And the architectural fees, especially if it’s not a little project, can run up as well. The challenge for us going forward, is that we probably can only do one of those at a time. And we’d like to do more than one at a time.
What’s the best piece of advice you received in your career?
Right when I was getting started, there was a very, very successful real estate developer who did not work in senior housing. But he’s developed in the mountains of Colorado and also in Denver and also back east. I said, I’ve got two projects I want to start now. And he said, “Michael, if you do two and one succeeds, another flops—you’re done. Do one to get it built and operating, and if it works, do more. I decided to do only one and it worked. And the first one was a difficult birth. If I had had to manage that and manage a second project, and it was only me at that point, there never would have been a second.
Were you ever worried that first community wasn’t going to work?
All the time. The architect who designed the building and said, “I’ve done all of these before, so just stand back and pick the color paint”—he mis-measured the building and submitted to the city 78,000 square feet when in fact it was 87,000. Actually the city planner before construction said: “Your building is bigger than what you submitted.”
I was relying on the architect. He said, “Well, you have to go through entitlements again.” I said, “It’s the same building.” He said, “If it were off by two to three percent, the city will allow that kind of [thing]. But this is a more than 10 percent change.” The result of that was it added seven months to development. It was a period of very high inflation in Colorado, 1996 to 1997.
As a result, the building costs went up a million and a half.
Let me guess: You never worked with that architect again.
Never. He cut his fee significantly. But it still didn’t make up for that mistake.
Whom do you consider to be your mentor, and how has that person helped your career?
There are three people. One by the name Ralph Nagle, who was a developer of senior housing. Ralph not only encouraged me to go into the business but to do it on my own rather than join his company. But he opened up all of his files, gave me access to all the senior executives. He could not have been more helpful getting me off the ground. The second guy is the one who gave me the advice about doing one project, a guy named Harry Frampton. And the third is the fellow who recruited me to my first private-sector job after I left government, and he both recruited me and saw me having potential. I never had seen myself running a hospital.
Would your mother like living in a Balfour community?
Absolutely. She’d be delighted. And I’m sorry my father didn’t live long enough, because he never understood what I was doing in government.
I find it interesting that you spent so much time in government, yet your communities do not rely on government funding.
Yes. There’s some irony. And the other part of the irony, which you may not know, is my wife Susan Juroe, who’s my partner, and is really responsible for all the interior design and for getting Robert Stern to be the design architect, is Republican. And she used to work for a Fortune 500 company in affordable housing. The liberal Democrat, limousine-liberal husband is doing the high-end. Go figure.