Company Profile: Building a Blueprint for success

Part of a 10-property portfolio that sold in  July for $142 million,  Island Shores is an independent living  and assisted living community located  in Neenah, Wis. The community consists  of 162 units and is  about 175,245 square  feet. Blueprint  represented the seller  in the transaction, a publicly traded  REIT. The buyer, LTC Properties Inc., leased  the community to Senior Lifestyle Corp. Part of a 10-property portfolio that sold in July for $142 million, Island Shores is an independent living and assisted living community located in Neenah, Wis. The community consists of 162 units and is about 175,245 square feet. Blueprint represented the seller in the transaction, a publicly traded REIT. The buyer, LTC Properties Inc., leased the community to Senior Lifestyle Corp.

Young healthcare real estate firm enjoys exponential growth in deal volume during first two years.

By Jeff Shaw

When Jacob Gehl, Ben Firestone and Chris Hyldahl founded a new seniors housing-focused brokerage firm two years ago, even they couldn’t have predicted the rapid growth of the business.

The firm — Blueprint Healthcare Real Estate Advisors — was formed on Labor Day in 2013. During its first full calendar year, the company brokered 24 transactions for a total volume of $230 million. According to Firestone, Blueprint is on pace to double its transactions and quadruple its volume in 2015 with 50 transactions totaling well over $1 billion.

Headquartered in Chicago, the company also has offices in Los Angeles, New York and Washington, D.C. All three of the founders are managing directors who previously worked at another commercial real estate firm, but saw an opportunity to specialize in their craft.

“The large firms focus on the food groups for real estate, and seniors housing is a small part of a larger company,” says Gehl, posing a question the trio thought long and hard about during the brainstorming phase of the company. “What if we got rid of office, retail and industrial — the property sectors that other firms spend 95 percent of their time thinking about — and formed a firm that focused exclusively on healthcare real estate?”

The company’s name itself is even a reference to this strategy, says Hyldahl. The founders “had a blueprint in our heads on how to build the optimal healthcare real estate advisory platform.”

Prior to rolling out Blueprint, company executives spoke with industry experts to find out what they would want and need from a seniors housing-focused brokerage. This outreach enabled them to carefully map out the company’s approach and structure.

“We met with a couple of the largest REITs before we started Blueprint,” recalls Firestone. “They told us what we would need in terms of resources to get going, and we’ve worked with them dozens of instances since.”

Part of the company’s blueprint is for the managing directors to have a personal hand in each transaction and to take a “solution-agnostic approach.” In other words, rather than follow a tem-plate, Blueprint uses a variety of services to close a deal.

“Other brokerage firms have found formulas that enable success for individual brokers. In building Blueprint, we went in a completely different direction,” says Hyldahl. “Each assignment Blueprint takes on involves a dynamic team approach, not just an individual.”

Achieving that versatility, however, would require more than three experienced brokers.

 

Finding the right partners

At the company’s launch, Blue-print sold a portion of the company to Housing & Healthcare Finance LLC (HHC Finance), entering into a joint venture with the HUD-specialized lender.

According to recently released numbers from HUD for fiscal year 2015 ending Sept. 30, HHC Finance was the second-largest seniors housing HUD lender with 22 transactions totaling $264 million. The lender also financed $225 million in additional HUD loan modifications. The partnership gave Blueprint clients access to some of the most readily available capital in seniors housing.

“We felt we would benefit from affiliating with a well-respected organization,” says Gehl.

 

Little juggernaut

When Blueprint launched, it did so with just five employees — the three founders along with vice presidents Michael Segal and Ryan Chase. The company expects that it will have quintupled that number by the end of this year, reaching 25 employees across the four offices. This includes industry veterans Tim Cobb and Steve Thomes, who work out of the company’s Washington, D.C. office.

The company intentionally sought out employees with a wide variety of backgrounds in order to understand the seniors housing industry from all angles.

“We have analytical experience on our team from REITs, lenders and appraisers, in addition to our real estate transactional expertise,” says Fire-stone. “We’ve acquired best practices from all over the industry.”

Additionally, the founders say the team is young and energetic, allowing them to even look outside the seniors housing sector for inspiration.

“We go after people who are hungry and have a strong skill set; we like energetic people and bright minds,” says Gehl. “We like pulling ideas from other businesses.”

And the average deal size has gone up along with the employee headcount.

 

Timing is everything

Blueprint’s average deal size has increased considerably when compared to last year, jumping from approximately $10 million to routinely executing transactions greater than $100 million. This spike stems from a combination of the company’s growing reputation in the industry and more investors plowing money into the seniors housing space.

“Prices are clearly going up as more capital floods into the industry,” says Firestone.

The timing couldn’t have been better for Blueprint’s creation. In 2014, a year after the company’s launch, acquisition prices hit all-time highs for most sectors of seniors housing. Meanwhile, development remains extremely robust in most markets.

“We timed it right,” says Gehl. “The markets were in overdrive right as we launched the company.”

But the components of the “perfect deal” for Blueprint are more about the parties involved than the sales price. The company looks for motivated sellers and opportunities for the young, creative minds of its employees to add value other brokers can’t match.

“We look for deals where the solution entails some critical thinking and relationships in the marketplace,” says Firestone. “Those are two of the elements where Blueprint is equipped to add value, so we say ‘bring it on.’”

Despite the growing size and number of deals the company is closing, Blueprint’s founders consider the company a boutique firm because of its solutions-oriented approach. It’s also because everyone at the firm, including the managing directors, has a hand in each deal.

“We tailor solutions to each client and each deal rather than putting it through the assembly line,” says Hyldahl.

 

Will capital keep flowing?

High acquisition prices have many industry professionals wondering if seniors housing is in a bubble. But from Blueprint’s point of view, even if the sector experiences a setback, the widespread interest in seniors housing will minimize any hiccup. 

“There’s going to be a continued increase in valuations, and that’s not a problem as long as cost of capital stays low and interest in the industry stays high,” says Firestone. “The class is still highly attractive from a risk-reward standpoint, so investors continue to flock to the space.”

The growing investor interest in the sector is also helping seniors housing become more widely recognized as a core asset class rather than a subset of multifamily, adds Firestone.

The high demand for acquisitions is going to lead to even more new development over the next two to three years, predicts Gehl.

“You’re going to see a lot of shovels in the ground nationally, especially in places where it’s easier to build.”

But with so many outside factors influencing the seniors housing industry, it’s difficult to make predictions with any degree of certainty, adds Gehl. Influencing factors include the Chinese economy, changes to the U.S. healthcare system and the outcome of next year’s presidential election.

“The result of the presidential election will potentially change the future of the skilled nursing side,” says Gehl. “As far as reimbursement from the government, it’s hard for any of us to know what that will look like.”

Still, Gehl remains a big believer in the stability and strength of the seniors housing sector.

“It’s a need-driven business. There will be customers,” emphasizes Gehl. “That’s why we’re focused on this property type. We expect healthcare to perform great compared to the other major groups in commercial real estate.”