• March 29, 2016

    Meet Tom DeRosa. DeRosa took the helm of Welltower Inc. (NYSE: HCN) (then Health Care REIT) two years ago and has since led the company through several major partnerships and acquisitions, as well as a company name change and rebranding. As one of the “Big Three” health care REITs, Welltower is hyper-focused on the operations behind its properties. At the same time, the company is facing forward toward the future of health care, including the use of technology.

    We sat down with DeRosa in his Toledo, Ohio offices to learn about what’s in store for Welltower, why leaders need to be able to deliver the good and the bad, and how technology will change the senior living industry—profoundly.

    April is your two-year anniversary [as Chief Executive Officer of Welltower]. Do you think it’s been a success so far?

    Yes, I think it has been a real success. Over the last two years we have successfully repositioned how we think about the business. The business has not really changed, but how we communicate and how we tell our story, and the value proposition that we deliver has changed. And of course, our name changed. First we had to get people to understand that there’s a new way of thinking about the business and our value proposition. Then that allowed us to change the name and get people to accept that name instantaneously. If we would’ve changed the name of the company before we repositioned the business in people’s minds, I think we wouldn’t have had as much success in getting people to adopt a new name for a company that’s been around 45 years.

    Was the name change kind of the shift in vision, for lack of a better term? Was that something that you installed, or was it something that was already underway?

    Yes, that was something that I installed.

    When you stepped into the role as CEO, was the name change the first thing to do on your list?

    It’s a fantastic business platform that has worked extremely well for a lot of years and has driven a lot of shareholder value. But you can look at this company as 1,450 buildings or you can look at it from other perspectives.

    You can look at it as a family of the best brands in senior housing in the U.S. You can look at it based on what happens inside of those buildings. So if I said, we’ve got 150,000 to 200,000 lives of frail elderly to people with dementia and Alzheimer’s, that’s a different way of talking about your business. Or the millions of people who pass through our outpatient buildings every year. We’re thinking about that and about how we influence health care delivery.

    We see the company from a health care perspective first, and a real estate perspective second. I would say historically we saw the the company from the real estate perspective first and health care second. Deeply understanding health care and how it relates to investing in health care real estate is the secret sauce here. That is what clearly differentiates us. We take great pride in our understanding of the industry, which allows us to deliver a whole other level of value to senior housing operators.

    Deeply understanding health care and how it relates to investing in health care real estate is the secret sauce here.

    To be honest, I didn’t love Welltower at the beginning but it’s definitely growing on me. I don’t think I’ve seen the word before.

    You haven’t! It was totally available. There aren’t many names that are available. It speaks to wellness which is the primary activity of what we deliver inside of the real estate, and I think the component of the word “tower”… towers are buildings and [denote] strength and I think that our strength is exhibited by our people, our partners and the quality of our balance sheet and the resiliency this company has shown across many different market cycles.

    Tom DeRosa, CEO, Welltower

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    Do you ever worry about the brand equity? There was a lot there.

    The brand equity has exploded with Welltower. I actually think people are excited by that name. People knew that Healthcare REIT was a very good company with a bad name. Despite having a bad name, this company had developed brand equity because of its people and what it stands for and the quality of its operators and quality of its real estate. I think now we have a name that reflects all of that.

    I know you’re very passionate about the delivery of health care. Despite Welltower focusing on the private pay part of the business for the most part, do you think you will help fix the problem we all know is coming: that people haven’t saved enough for retirement?

    One of the things we are doing is to look at that population and track some data on that population with the help of Johns Hopkins, which is one of the most respected health care analytic groups in the world. They’re going to be working with us to establish protocols around measuring positive outcomes that we’re achieving from offering a wellness lifestyle to this population. Are we reducing trips to the emergency room? Are we reducing length of stay at the hospital? I can tell you we are, but that needs to be blessed by an independent third party that has a reputation for presenting data and analyzing data in a way that is acceptable to Washington.

    How do you track that?

    It’s early days. We’re just starting this process. We haven’t effectively launched it yet but it’s going to be launched very soon. Hopkins is going to be looking at how we create a level playing field amongst these different operators and how we track this data in a way that we can bring it to Centers for Medicare and Medicaid Services (CMS), or Congress, or the President and say: ‘At some point you’re going to have to offer some sort of voucher program for people who are diagnosed by their physicians as having severe dementia and Alzheimer’s.’

    The cost of this [care today] is $8,000 per month. That’s pretty staggering. You have to have significant assets to afford that. What we hope is, at some point in our lifetimes, you’ll see the U.S. government starting to, for people who have assets below a certain level, offer them some sort of voucher that helps defray that cost. If they don’t do that, the government is going to wind up paying a multiple of that by waiting for them to show up in the ER and then lodging them in a hospital bed.

    Your comments so far have been all about operations. This surprises me a bit given you’re the CEO of a health care REIT.

    You need to really understand the operations of the health care delivery business, and lead with that understanding. That will govern good decisions in how you deploy capital into real estate. If it’s the other way around, you’ll make mistakes. If you’re just looking at capitalization rates today and making decisions [based on] ‘Gee, my cost of capital is 6, cap rate’s 8, deal, let’s do it,’ and then deal with what you bought, I don’t think that’s the right way to invest in health care real estate. It’s different in other sectors of real estate. In health care real estate you’ll make a mistake if you’re just dazzled by a higher-than-average cap rate.

    Do you think that’s a problem with the industry right now?

    I think that it is a problem. It’s what allowed a lot of these private REITs to be able to [get into the market], because of the spread differential and cap rate in health care versus other sectors of real estate.

    It was right for the private REITs to jump in and offer retail investors a 5% annual return because they knew there was plenty of real estate they could buy with a seven or eight in front of it, and ultimately what they did was create a lot of dysfunction in the market. They drove cap rates down, and they bought a lot of bad real estate.

    Look at David Hamamoto’s group, NorthStar. There’s a perfect example. They went out, raised money, and bought a ton of real estate and drove cap rates down. They never saw a deal they didn’t like. I understand they’re looking at strategic opportunities now. The person they hired to lead that effort, as I understand, might not be there anymore. When all of this was happening, we kind of stood back and put the brakes on a bit. Our operators aren’t going to do business with those folks just because they’re offering cheap money. If they’re all about the best deal, they’re not going to be a partner of ours. The value proposition is much broader with Welltower than it is with any other participant in this sector, and if they don’t embrace that, I’m very happy to show them the exit door.


    We’ve been talking a lot about the industry, but I’m more here to talk about leadership. What’s your definition of leadership?

    Leaders are people who inspire others to move in one direction or the other. You have to be able to look people in the eye and give them good news, and you have to look people in the eye and give them bad news. You have to be able to set a vision, a strategy, and articulate it clearly to get people to move with you.

    Leaders are people who inspire others to move in one direction or the other. You have to be able to look people in the eye and give them good news, and you have to look people in the eye and give them bad news. You have to be able to set a vision, a strategy, and articulate it clearly to get people to move with you.

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

    The biggest challenge that a leader faces is when you have people on your team who have an agenda that is in conflict with the agenda you’re trying to set. That’s always a challenge for a leader. I’ve had that experience a few times in my career, in different places.

    How do you overcome it?

    You have to very clearly articulate your agenda and make sure people understand the agenda that everyone helps to set.

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

    When we sold The Rouse Company, that was a big risk.


    Because this was a company that had been around a lot time and was a real fixture in its community. It was founded by a very great man named James Rouse who I think was the only real estate guy to win the medal of freedom. You don’t hear about that too often in the real estate business. We sold the company to General Growth [Properties] and it was a risk to sell the company, but we believed that it was a greater risk, given the headwinds we saw in the industry, to remain independent.

    We also realized that it was probably in the best interest of the shareholder to sell the company for cash, which as it turned out was the right idea [but] was a very big risk. It was almost a $13 billion company. We believed it was in the shareholders’ best interest, and then we had to convince them that it was the right thing.

    What’s the best piece of advice you’ve gotten in your career?


    Who would you consider to be your mentor, if you have one, and why?

    I’ve had different mentors at different parts of my life. I would say the person that I try to be most like is my wife. She is selfless, smart and kind and I try to bring those qualities to how I live my life and how I do my job.

    How did you meet?

    College. We’ve been married 31 years.

    What are your greatest strengths as a leader?

    I’m a good communicator. I’m a good storyteller and the storytelling skills may help me get people to buy into the vision. I like people.

    Would you say you have any weaknesses?

    Yes, I think I always need to listen.

    What was the best piece of advice you would give people who are just starting their careers?

    Look for a place where there is a culture of mentorship, where people are rewarded for helping people go up their learning curve. I think that’s probably the most important thing.

    I’ve been told by many people you focus a lot on the culture here.

    We focus a lot on culture. You can’t set strategy unless you have a good culture. We deliver a lot to our employees, whether it’s knowledge or ways to acquire skills through in-house corporate education programs. We keep them well by feeding them well and we have a state-of-the-art gymnasium and a great campus. We have [Shinola] bikes for people to ride around campus. We give back to the community in lots of different ways and it’s a value of the company. Not only the Toledo community, but on a national basis. Culture really is hard. It’s a competitive strength of this company. People are happy here.

    Say I’m about to graduate college. What would be your pitch to me on why I should come to the senior living industry?

    It’s open territory to build a career. There are so many places where one could put a stake in the ground, and so few people who want to do that in this industry.

    Do you think the industry does a good job taking those people on the front lines (executive directors) and giving them a pass to climb the executive ladder?

    When you can identify good executive directors, they do have lots of opportunities. I don’t know if the industry has established great entry points into the industry and I think there should be more focus on that. How do you take the best and brightest who are coming out of universities today and actually provide them a path where they can build a career in this industry? We’re thinking of lots of different things. We’re looking at targeting people who are looking for an encore career. I think we have to look at different pools of people. This is a perfect industry for people coming out of military service. If you enlisted in the army and did a tour duty in Afghanistan… When you think about the skillset that one learns doing an all-night watch on a base in Afghanistan, I know there are lots of skills that can be of use in a post-acute or senior housing building. I think we have to do a better job of reaching that population and figuring out how to train them, how to provide the ability to enter the industry in a path that will lead to a successful career, not just throwing people into a job. [We need to] actually invest in recruiting the right people, screening and taking people that have potential and putting them in a structure where they can be successful, and I don’t think we’re there yet.

    Do you think we’ll get there?

    I do, and we’re doing our part to drive that with our operators.


    You keep talking about technology. What’s some of the technology you guys are looking at with your operators to start doing this tracking with Johns Hopkins?

    It’s very early days for technology entering this business. There are some of the most prestigious acute care providers for instance in the United States, [but] most of their doctors can’t get a Wi-Fi signal in most of their buildings.

    It’s probably the same in assisted living.

    It’s the same in assisted living. There are still a lot of assisted living buildings that have not made the investment to offer Wi-Fi throughout the buildings. This is the most basic level of technology.

    Technology will profoundly change the senior housing industry. It has just scratched the surface, that’s what’s so exciting. We know that because of our platform; we have the platform that can drive technology to our family of operators that they otherwise individually could not take advantage of. We can help them finance it, we can make certain levels of investment, we can expose them to things… everything from lead generation to managing their staffing and hourly employees, to tracking how medicines are administered in the building, to how our residents communicate with their physicians. It’s a very wide open frontier.

    Technology will profoundly change the senior housing industry. It has just scratched the surface, that’s what’s so exciting.

    Why do you think that is?

    It’s still a mom-and-pop industry for the most part.

    Really? Even though you have Brookdales of the world?

    That’s a big company. Sunrise is a big company.

    Is it just because they haven’t had to [invest in technology]? That’s what I always wonder.

    A lot of it is, that has not been their primary focus. The primary focus of all of these operators, whether it’s Brookdale, whether it’s Sunrise, whether it’s Brandywine, is care. Their primary focus has been to drive a good level of care and they do that really well and that’s where their resources have been focused.

    I don’t think [that], because this is a private pay business, they haven’t had the same pressure to make investments in technology that perhaps [other] sectors of health care [have] had, whether [the demand comes from] government or insurance payers. Something like PointClickCare [a cloud-based electronic health record system], there’s a business and a platform that can drive a lot of change in this sector. I think it’s early days for them.

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