Meet Sue Farrow, founder and owner of Carlsbad, Calif.-based Integral Senior Living. Now with 60 contracts, the pure-play senior living management company has grown from a single memory care contract Farrow and her fledgling company signed in 2001 to what it is today. With experience across all facets of the senior housing business, Farrow has taken her expertise to grow the management platform from a small business in California to a presence across the United States.
Spotlight on Technology
What’s your take on the adoption of technology in senior living right now?
I don’t know if I necessarily agree with people who say we’re behind; we’re in the business of people. You’re not going to use robots to help shower residents. Certainly we need the technology on the administrative end of things, and now embracing that technology for families to be able to constantly be interacting with their family members, it’s huge. I don’t think we’re late to it, I think we’re a high-touch industry and you can’t replace that high touch.
How have residents responded?
People in the field have embraced technology like crazy. We rolled out our new activities program, which is called Vibrant Life, in 2016; it took two years of planning and putting it together, and a lot of it now uses technology. I was just reading yesterday the comments from some of the family members, because it’s pulling family members into that process as well through technology.
Is there a particular type of technology you see as being needed to solve a problem?
One of the things we did [at Aegis] that was just way ahead of its time was, throughout our communities as we were building them, we had computer stations set up so the caregivers could do whatever they were doing with Mrs. Smith and come immediately log it in, and we had captured all of this data, and wasn’t it wonderful! Well, the downside of that is, we had a whole lot of frontline staff that didn’t speak English well. So it was a wonderful, brilliant idea, but it didn’t work, and suddenly we had a lot of supply cabinets because we had to remove those computers. I love the idea of having firsthand technology for our frontline staff; I think we still probably have a gap in providing that technology, and a gap in the ability of some staff to be able to use that technology.
We sat down with Farrow in Integral’s headquarters near San Diego to learn about how she chose to focus on a management-only model, why she believes relationships are at the core of her success in senior housing, and what she sees as some of the selling points of senior living as a viable career path for the next generation.
How did you get your start in senior living?
I had just moved to San Diego. I was a young pup of 25 and had a couple of solid offers on the table, and one was with a gentleman who was one of the pioneers in senior housing. I was an accountant, and I thought that’s what my job was, but clearly from day one I started fielding calls from administrators and found what I was supposed to be doing, which was senior housing. It was 1975, so I just started my 42nd year in senior housing in August.
I spent 16 years with the Campbells at a company called Camlu Retirement. They were pioneers. They started in skilled nursing in the ’60s, recognizing that there were people in skilled nursing who didn’t need to be there. They started building their [version of] congregate care retirement communities. Crazy as it seems, Bill Colson who started Holiday [Retirement] actually started building communities for the Campbells. A lot of the senior housing industry came out of the Northwest, and that’s where they were as well.
I dabbled in everything and started overseeing all the communities. At the time, we had live-in managers, which of course became Holiday’s core way of doing business. With live-in managers, I’m a young 25-year-old who’s hiring and firing middle-aged couples which was… entertaining. Now it’s the opposite, I’m that middle-aged person who’s hiring those 25-year-olds. It’s certainly come full circle.
Camlu was an amazing environment. I had freedom to dabble in all of these different areas and put my mark on things. I took their accounting system from a manual system to an electronic system. I wrote policies and procedures manuals, which they hadn’t had. Then I decided I wanted to dabble in interior design. Suddenly we have 180-unit, brand new buildings and I’m buying wallpaper. It was just this wonderful opportunity to delve into every single aspect of senior housing.
So you had a good background in operations, finance, the whole nine yards?
The whole nine yards, which has come in incredibly handy. I always say that the numbers tell a story in a community. We can review financials now from a potential acquisition, and we know the story before we even go in. We can tell if there are staffing issues, or morale issues. We can tell if somebody’s keeping their eye on the ball or if they’re not. It’s the marriage of that finance background with the operations, and it’s a good marriage. My CEO and president are the same [way]. They both have that finance and operations background.
Up to present day, you’ve also worked for Sunrise and Aegis and Transamerica Senior Living.
Every single one of those companies added another piece. The Campbells, and Camlu, where I spent the first 16 years, were very under the radar. They were a national company, but they had a mom-and-pop feel to them, so they weren’t going to conferences, they weren’t on boards, they weren’t that kind of an ownership group.
When I joined Transamerica and operated Transamerica’s portfolio, I went from this mom-and-pop kind of feel, under the radar, to wooo! A $41 billion company that really wanted us visibly out there at conferences and on boards.
What was their portfolio like?
We had eight communities; most of them were fairly large. I kept saying, “We have to grow, we have to grow!” and so we proposed a big business plan to the boys at the top of the pyramid, and it would get shot down each time. Finally one morning I woke up and I was like, ‘They don’t need to grow; I need to grow.’ Paul Klaassen had been calling me for some time, and that was the time when Sunrise was looking to expand out west, and only had two communities on the West Coast.
I went to work for Sunrise, and boy was that fast and furious. We were doing acquisitions, it was a wonderful marriage both for Paul and for me because I knew the West Coast intimately, and I could tee up properties I thought we could acquire. When I was at Transamerica, I was called in by [Aegis Co-founder] Bill Gallaher; Bill knew a prior employee of his was working for Transamerica and he asked her to inquire if we would be willing to come in and critique his original plan for his first senior housing building.
Because I had a relationship with Bill and I worked for Sunrise, I was able to bring Sunrise and Bill together. Actually, we negotiated the first right of refusal for the next six communities he had coming out of the ground. Some of the original communities that were opened by Sunrise in California were actually built by Bill Gallaher—which also happens to be the way that Dwayne Clark, who was with Sunrise, and Bill Gallaher met, and voila, Aegis was formed. The whole West Coast team of Sunrise basically became Aegis. That new opportunity with Sunrise was really a nice, prescriptive way of opening communities. There was certainly a very clear formula to it, and we were rolling them out in a crazy manner in terms of how many were coming on line at the same time.
Then going to Aegis, it was the opportunity to start a company from square one, which kind of had the land selection piece down. We knew the development piece, but now we got to create something literally from square one, and if you know Dwayne, if you’ve interviewed Dwayne, he has a thousand new ideas a day, a thousand! He was great at allowing us to really think outside of the box. [By that time], I was at Aegis starting to think, ‘You know, it’s really time for me to think about doing something on my own.’
I left Aegis and actually worked with a group that were multifamily housing folks that were also thinking about getting into senior housing. They had formed a little shell of a company called Integrated Senior Living, and so the first thing I did for them was change their name. At the time, Integrated Health on the East Coast was having a lot of problems. We had a crazy time at a retreat, I brought a dictionary with me. We liked the logo, so I opened it up to i’s and we just had the best time—“Ignorama Senior Living” or “Impossible Senior Living.” It was a good, fun brainstorm, and we didn’t travel too far; we came up with Integral Senior Living, and still have the same logo today that that little shell of a company had way back.
Integral Senior Living really came about in 2001. It got to be incubated; the beauty of it is, I was able to incubate it in the multifamily housing offices. I had the back of the house already in place, which was great. I actually made name tags for the guys on the multifamily housing side and I’d take them to meetings with me so that we looked like we were bigger than just me.
So they weren’t actually a part of your team?
No, no, not at all. But it was fun! They’d come out of those meetings saying, “We feel so stupid. We’re not saying anything.” I’d say, “It’s just perfect, don’t worry about it!” So we got our first little contract in 2001. One little contract. It was a property in receivership up in Aliso Viejo. This was a lender I’d known from the late ’70s that had done some refinancing of some of our Camlu communities. I knew that the property was in receivership, and I went to meet with him and just said: “You need a good operator in there.”
More from the Leadership Series
That was John Fogerty, who’d been in the industry for a very long time, and he said, “I’ll give you a shot at it.” I’ve never formed relationships in this industry with the thought that I would capitalize on them at some point in the future. I’ve formed relationships in this industry out of being really interested in what other folks are doing and sharing passion and vision with them for the pure joy of being in those relationships.
And now you manage 55 communities?
We actually right now have 60 communities.
Here’s the crazy thing about third-party operators: right now we have 60 contracts; 47 of those are up and operating, 13 of those are pre-leasing development projects. For third-party management, it’s a crazy time right now. It’s a seller’s market. The positive is that we make a huge impact on the bottom line for owners, but the negative is, they sell them. We’re often able to continue on with a new owner, but then there are the deals that get done with owner/operators or REITs that have their own partnerships, so we have to say goodbye to communities as well.
For third-party management, it’s a crazy time right now. It’s a seller’s market. The positive is that we make a huge impact on the bottom line for owners, but the negative is, they sell them.
So why did you choose to focus on management? You had experience in all of these other areas too.
That’s a great story. Those multifamily housing folks were my original partners in Integral Senior Living. They were ownership partners, but they weren’t partners in the “operations” part. There were four of them. They had been incredibly successful raising debt and equity to do multifamily housing. They were the folks that were supposed to be doing that while I did the operations. We chased about four or five deals and got them under contract with the goal, originally, to have proprietary interest in at least 50% of what we operated. They were very comfortable with third-party operations because they had a third-party company for their multifamily housing business. But, they weren’t able to execute on the money end of it.
Going back to those relationships, I had a dear friend in the industry come to me and say, “You know Sue, not saying this is going on now, but you don’t want to become known as somebody that gets properties under contract and then can’t execute. You don’t want to become known as somebody who’s wasting people’s time, or known as someone who people don’t think will be able to execute.” So I went back to the office and said to those four partners: “We’re not going to do this anymore. Let’s just concentrate on being the best third-party operator.” That really did change the course at that period of time. I subsequently bought them out.
When did that take place?
It was 2008. You need different partners at different times along the path of a company. I didn’t bring any other partners on, so for a very long period of time I was the 100% owner of the company. Subsequently, my two key people are part owners in the company as well.
That’s literally the way it unfolded. We are known as third-party operators now, and we do it extremely well. We started with turnaround properties with the worst of the worst—probationary licenses, horrible physical plants—and really formed our reputation on turning even the worst of the worst around.
What a way to sharpen your skill set.
It also led us to create policies and programs that have a huge amount of flexibility in them. We don’t have a homogenous product; nothing looks like anything else in our portfolio. We’re managing a property right now in Costa Mesa, [where] the highest priced unit in the community has an $11,000 per month base rent. In contrast, we once operated a community in Roswell, New Mexico, where we the rent was around $2,400. They’re totally different physical plants, totally different levels of service. So consequently, it forced us to create programs and systems that could accommodate every different kind of community. All of our programming has a non-negotiable framework around it. Inside of it, every single community can customize it for their group of residents, their community, their price point and still make it all flourish. That’s been fun. That also means you attract an individual to lead that community who loves the opportunity to make an impact on the programming in the community.
Such as, and I could never figure it out in other companies—I’ll have them remain nameless—why everybody in the country had to be eating meatloaf on Thursday night. Standardized menus never made sense to me. I know the underlying goal of that is you control costs. Well, if you’re good at what you’re doing, and a person has a budget and they stick to that budget, really not everybody needs to eat meatloaf on Thursdays.
So we have a program called Dining by Design, and in it is a framework, and there’s non-negotiables in it, like there has to be linens on the table all three meals a day. If a resident is in Community A and they like purple and green linens, I don’t care, as long as there are linens. Clearly they have to meet nutritional values and all of that, but I can attract a culinary services director that’s very creative, that’s in tune with what his group of residents want, and then he can create a menu around that and still have whatever his budget is, be it high-end, midpoint, or lower. So you hire these amazingly creative people who flourish in this environment where they have freedom to make choices that make the most sense to their residents.
What was the biggest risk you took in the process? What did you learn from it?
Number one is we didn’t bring in investors, so this has been mortgaging the underwear drawer and savings and personal lines of credit.
Was that a scary time?
Yes and no. There were sleepless nights over making payroll next week, but on the other hand, not so much. When I started off on this venture, I knew that if it didn’t work, I could go get a job anywhere.
Do you attribute that to the relationships you had built?
What was your biggest lesson learned in starting the company? Was there anything you would’ve done differently?
I have a lot of great instinct, which allows me to let things unfold as they should. I’m not sure I would’ve done things differently—certainly had we brought investors in earlier on we could’ve grown more rapidly in the early years. The other risk was, because we do what we do well, properties get sold, so when we had fewer properties, the thought of losing two was a big deal. Now, not so much.
What is the biggest challenge of being the pure-play management company?
Oh boy… we’re constantly having to feed things in the pipeline, so it’s constantly getting out there, circling back to those relationships.
Being top of mind for when that opportunity comes?
Absolutely. We never stop that new business development process. It’s an interesting challenge right now, clearly, because we are seeing properties sold at such low cap rates. We’re seeing people pay on pro forma, so we have ownership groups now whose expectations are that they’ll have the same return on investments no matter what they’ve paid for their communities. Couple that with the pressure of higher salaries. It’s a very interesting time, because it’s great for the seller and great for the buyer, and then it gets handed off to the operator that needs to take the community that somebody paid a lot of money for, and shine it up even more.
In terms of ISL’s growth path, where do you see growth ahead?
We were west of the Mississippi for a long time. It wasn’t that we weren’t being called to do the one-off in western Pennsylvania or the little tiny community in Georgia, but because that’s the way we conduct business, we want people to be in the communities multiple times throughout the month. You can’t do that in a one-off in Pennsylvania. You can’t do it right and we’re not going to take anything on that we can’t be committed to having regionals in the communities consistently. We knew it had to be a portfolio that was enough of a size that it would help us jump the Mississippi, and that happened two years ago. A four-community portfolio, very large, independent buildings, allowed us to jump the Mississippi, and we’ve just taken off from there. So we’re in 18 states right now.
How many regions do you have?
Right now we have eight regional operations folks.
That’s sizeable. Do you envision more growth ahead?
Our thoughts on the size of our company really go back to our mission, vision, values statements. We won’t allow our culture to get diluted by size, so that will dictate what size we will become. We constantly check in as we grow to be sure we are still walking our walk and talking our talk. If we ever feel we have reach the point where we are in danger of not holding to our values, that’s the time we’ve reached our ultimate size.
Your management team comprises women in both the CEO and President/CFO roles. Was it a conscious decision to build a team with women in leadership roles?
I don’t think it was a conscious decision.
I’m always looking for who the best talent is, and people who, quite frankly, will work in this environment where, while it seems like ‘Oh cool! I get to be creative and put my stamp on this,’ it’s a lot of responsibility. If you’re a person that likes to be told exactly how to go about your business every day, this is not the company to be at.
We had gotten to a size where a controller was no longer enough, and we really needed a CFO, so I had heard that Tracee DeGrande had left Aegis and was working in a non-profit arena. I went and interviewed her, came back and sat with the team and said, “What are people going to say if we hire yet another woman?” We actually had that conversation. What are people going to say? And then I said, “Do men sit around a conference room and say, ‘What are people going to say if I hire another man?’” The answer is no! If we really are hiring the best talent, let’s not worry what sex they are.
But I’ve given it more thought than that. If I had a male and a female equally qualified, equally would fit in their role, I would probably still hire the woman only because I know we would communicate in a different way, if that makes sense.
“What are people going to say if we hire yet another woman?” We actually had that conversation. What are people going to say? And then I said, “Do men sit around a conference room and say, ‘What are people going to say if I hire another man?’” The answer is no!
There are only three senior executives in our company and they are women. As soon as you go to one level down we have a lot of men in key roles–VP of finance and accounting, divisional VPs of operations, and other roles. If we had a lot more folks at the top tier then it would no doubt seem more integrated.
Any advice to other entrepreneurs looking to start their own operating company?
Be prepared. Trust your instincts. Make sure you’re surrounding yourselves with people who are smarter than you. Make sure you’re tapping into all of the relationships you’ve formed over the years, because people are more than willing to help, and that’s one of the things about our industry, right? How inclusive it is.
What is your definition of leadership?
For me, leadership is hiring talented people and understanding their strengths, tapping into them and then watching them go. It’s putting people in a role, giving them all the tools they need to be successful in that role, and then not micromanaging them. At the end of the day, for me, leadership is all about practicing the golden rule every single day. It really is the core of our company.
Who are your mentors?
Carl Campbell was one; he’s in his 90s and just literally last year sold the last of his senior housing communities. He exemplifies for me that person who created an environment that let people thrive and be creative and bring their own personality to the role. He is a very gentle, wonderful man who did very well in the senior housing business, but is as humble today as he was when I first met him.
Paul and Terry Klaassen [are other mentors of mine]. I had the benefit of going to work for Sunrise pre-IPO. Becoming public changes you as a company—it has to, rightfully so. You have a whole other audience you’re beholden to. I got those wonderful years where Paul and Terry were just clearly the heart and soul of the company. Their passion for what they did was overwhelming. I can remember long, long conversations with Terry about why they were doing what they were doing. She’s an amazing woman. Absolutely amazing. For me, it wasn’t quite so much fun post-IPO, when a lot the company started to become standardized. But those are probably the key people for me.
What are some of your greatest strengths as a leader?
I have a lot of passion. One of my strengths is being able to get people aboard this crazy little thing we’re doing here. I mean, I love the people that come here to work for us today. But you can imagine, when we had three properties… ”Hey! We’re doing this great thing over here!” and I’d be talking to somebody that’s working at Emeritus, right? And they’d be like “Oh, really? I’m going to leave this nice cushy job and go work for a company that has three properties?” But I have the vision and I can paint the picture and I can be excited about it, and thank God I’m not a person that would do dishonest things, because I could line up those people to go rob banks as well, right? I think it’s my ability to get in and work right alongside people and just have joy in doing it, and passion in doing it. I never lose sight of the vision, ever.
On the flip side, any weaknesses?
If you’re the kind of employee that needs me to constantly be checking in…That’s not really me. I’m not going to pick up the phone every day and have a conversation with you; it’s just not me. Trust might be an issue too. I’m incredibly trusting. I wouldn’t want to change that, but it has come back to bite me a couple of times.
Say I’m about to graduate college, what would your pitch to me be as to why I should look to senior living as a career?
We’re not a very sexy industry, particularly. I actually did some work with USC and I’ve talked to some of their gerontology classes. Certainly for one thing, there’s no lack of opportunity in our industry. But also, I think this is an industry that would appeal to millennials. Millennials are kind of all about that social, that relationship–
And a cause, too.
Absolutely! For me, it’s like a perfect marriage. Then take it down to our company where you get to come into an environment and actually bring your creativity to it, that’s another thing millennials love. They want to put their stamp on something. They do, of course, all think they know better how to do anything, but that’s great as well. I love people who walk in here and say “Well, I think I can”—well, great! Show me what you’ve got! I think it’s a perfect marriage. Now we have to get that message [out there].
What about developing the next generation of leaders? Is there anything that ISL does in particular?
We’re huge on promoting from within.
We have one of our divisional Vice Presidents who started with us as a business office director in a community, and got to be promoted to an ED. We handed her over to a really difficult community after that, to see what she could do. She became director of operations, then VP of operations and now is a divisional VP. We have a lot of stories like that. One of our executive directors here locally started out as a receptionist for us.
If you had an executive dashboard that you looked at every Monday morning, across your whole portfolio, what would you be looking at for your top three metrics?
A top priority for us, and for all in the industry, is the people part. I’m going to want to know if we have people issues. If we have folks on the bubble, we need to deal with those issues immediately so that they don’t start to negatively impact the operations of a community or of our corporate office.
I’m a numbers person by background, but my dashboard would not be so much about the numbers. For me—and we train our staff even in the field on this, down to our frontline staff—there have to be three things happening in a community: we have to have fantastic quality of care and services for our residents, we have to have a great working environment for employees, and we have to have a really healthy bottom line.
People don’t want to talk about people making money out of caring for seniors. Well, if you don’t make money,
if you don’t have one of those three things, you don’t have the others. We don’t apologize for making money; we have a passion for working with seniors that’s at our core. We just happen to know how to make a good business out of it. It goes back to Carl Campbell at my first job at Camlu, and he was a CPA by background—he said, “If you give people the best quality of care at the best possible price, the bottom line will follow,” and it’s absolutely true. So it’s not my first look, but if you think I don’t look at that, especially during budget time, I’m looking at those profit margins just like everybody else, but I wouldn’t every Monday morning want to be looking at that. I’m more concerned about the people part of it.