Richard Hutchinson is a hands-on leader guiding development efforts at Discovery Senior Living

Seizing an opportunity in the assisted living sector, the company has 800 units in the development pipeline in select Florida markets.

By Matt Valley

Seniors housing is one of those rare businesses where you can do well while doing good, says Richard Hutchinson, president, CFO and co-founder of Discovery Senior Living. “I get up every day invigorated to tackle the opportunities and challenges of expanding Discovery and our ability to provide an exceptional lifestyle to seniors. We have such a wonderful chemistry and culture at Discovery that every day is fun to work with the team members.”

Based in Bonita Springs, Fla., Discovery Senior Living is a regional developer and operator of high-end rental seniors housing communities. The company currently manages nearly 4,000 units serving approximately 4,500 residents spread across 14 properties. 

Discovery Senior Living has an ownership stake in nearly all the communities that it manages. About 80 percent of the portfolio is comprised of independent living units. Assisted living and memory care account for the remaining 20 percent of the portfolio. 

The family of companies that comprise Discovery Senior Living — which employs approximately 1,500 workers — includes Discovery Management Group, Discovery Development Group, Discovery Realty Group and Discovery at Home, a Medicare-certified home healthcare company.

The development group is particularly active these days. Discovery Village at the Forum opened in October 2013 in Fort Myers, Fla. The community includes 66 assisted living apartments, 30 memory care suites and 30 supervised independent apartments. (Supervised independent living is a new product designed to provide services to residents who are in between traditional full independent living and assisted living.)

Discovery Village at Naples, a 120-unit community primarily focused on assisted living and memory care, is slated to open in 2015. Discovery Village communities are also under development in Tampa, Palm Beach Gardens, Sarasota and Palm Coast. 

The company also has an ownership interest in, and is the exclusive manager and operator of, the Aston Gardens senior living communities in Florida and The Conservatory senior living communities in Texas. It also manages and operates Regency Pointe senior living community in Alabama and The Preserve At Palm-Aire in Florida.

Prior to co-founding Discovery Senior Living, Hutchinson served as CFO of Aston Care Systems from 1996 to 2006. At Aston, he created the initial strategic business plan and financing for the development of the Aston Gardens portfolio, which had grown to nearly 2,000 units in Florida when it was sold to Sunrise Senior Living and GE Healthcare Financial Services for $450 million in 2006. The communities are largely comprised of independent living units. Hutchinson was the primary negotiator in the sale of the portfolio.

In his current role, Hutchinson’s responsibilities include leading strategic business planning and implementation efforts, securing debt and equity sources, and heading up investor relations. As he says, “it’s a very flat organization.” Hutchinson participates in everything from onsite visits to huddling with the corporate team on a daily basis.

Seniors Housing Business recently spoke with Hutchinson about the near-term goals of Discovery Senior Living, the evolution of the industry over the past 20 years and the changes in the building product.

Seniors Housing Business: The Discovery Village brand was launched in 2012. In what important ways does it differ from the other brands in the portfolio? 

Richard Hutchinson: The Discovery Village brand focuses more on the need-driven product than our Aston Gardens or Conservatory communities, which feature predominantly independent living units. Aston Gardens is our campus-style, large multi-phase community. 

In our mind, 120 units is about the right size for a nice assisted living and memory care community. The Discovery Village model allows us to build in one phase. It allows for absorption to occur over a shorter period of time compared with larger projects. 

Certainly the demand for need-driven product and the lower correlation with the housing market were driving factors when we decided to pursue the development of this portfolio in 2012. Quite frankly, assisted living and memory care was about the only product type that could be financed in 2012 on the development side.

However, the Discovery Village communities have adjacent parcels on which we plan to develop independent living units in the near future to provide a more Aston Gardens-style continuum for our residents. 

SHB: How are the Discovery Village projects funded? How much equity does Discovery Senior Living typically put into a project? 

Hutchinson:  We utilize a capital stack to fund our developments similar to what we used when developing the Aston Gardens portfolio. Now, as before, that would include a typical 75 percent loan-to-cost senior debt strip with another 10 percent subordinated debt strip. For most of the Discovery Village communities, the remaining equity is provided by Discovery and an affiliate of Henning Holdings out of Des Moines, Iowa. 

Jeff Henning runs Henning Holdings and has been a fabulous partner for us in the development of the portfolio. We have known Jeff through social events for some time prior to becoming our partner. His construction company is actually our general contractor on most of the communities.

We have been able to leverage relationships that we have created over the past 20 years to source both the senior and subordinated debt. These financial sources include Community & Southern Bank, Synovus Bank, National Healthcare Investors, Red Capital Group, Sims Capital Management and KeyBank, among others. All have been supportive partners.

At this point, we have no immediate divestiture plans. We are quite satisfied with developing and operating our entire Discovery Village portfolio into the foreseeable future. 

SHB: What is the distinguishing characteristic of Discovery Senior Living in your view?

Hutchinson:  What truly sets us apart is our culture of accountability and performance, the metrically driven processes that we utilize to run our day-to-day operations along with the sales-centric approach we take in each facet of our business. We benchmark virtually every activity we undertake and set incremental goals. That has allowed us to be highly consistent in our results, especially on the sales side. These qualities have the added advantage of attracting a talented group of team members at our corporate and regional offices as well as onsite. 

SHB: Take me back to 1996. What was your strategic business plan at Aston Care Systems with regard to what would become known as the Aston Gardens portfolio? I ask because the seniors housing industry wasn’t as mature as it is today and there wasn’t such rich market data available on supply and demand. What were the challenges you faced? 

Hutchinson:  Certainly this industry had been around for decades before the mid-1990s in different variations, but it had not really been considered an institutional- or investment-grade industry. Thomas Harrison, co-founder and current CEO of Discovery Senior Living, and I had a similar experience in our former lives as developers and builders of master-planned communities with lots of amenities. Naturally, we approached the seniors housing business from an independent living, lifestyle-oriented mindset. 

Included in our common history was the development of Sun City Center in Florida, which is a large active adult community. We were familiar with providing varying types of housing, amenities and services to seniors. As the residents of that community aged, our entry into seniors housing made total sense. 

We desired to build up to 10 Aston Gardens communities that focused on major population centers in Florida. The seniors housing industry was not well known back then, and the independent living sector was even less known or understood. Add to that our plan of offering independent living, assisted living and memory care products in a rather large campus with no operating history that we could point to, and it became clear that we had our work cut out for us. 

I am certain we would have been turned away if we did not have the strength and phenomenally successful track record of our company founders — Alfred Hoffman Jr., who is still one of our partners today, and the late Don Ackerman. Their ability to have us focus on the future and not just on the industry as it was known at that time is why the Aston Gardens product has stood the test of time and continues to be one of the pre-eminent portfolios in the industry. (The portfolio is currently 97 percent occupied.)

As we found out along the way in executing our game plan, success is never a straight line, and so we had to pay a fair amount of “dumb tax” before we figured things out. Of course, the benefit of having those battle scars is that it has made us a much stronger organization. 

SHB: Compare and contrast the seniors housing product being built today versus the mid- and late 1990s. What are the most striking differences? 

Hutchinson: The profile of the independent living and assisted living consumer has changed a fair amount between the 1990s and today, and unsurprisingly their wants and needs have changed as well. The assisted living communities built in the 1990s, while certainly constructed to be efficient in delivering care to the residents, lacked many of the amenities that we see in today’s designs.

Our Discovery Village communities now include movie theaters, larger resident rooms, warm water therapy pools, Internet cafes, pubs and many of the same amenities you find in independent living communities. Conversely, the independent living communities provide much more wellness and care-related spaces than they did 15 to 20 years ago. 

Technology has also become greatly intertwined in the design of new communities. For example, we now have smart cards in our Discovery Village communities that act as a hotel-style entry key to residents’ rooms and common areas. In addition, the smart cards act as point-of-service cards to be utilized by residents to make charges to their monthly bill at the beauty or barbershop, the sundry store or for guest meals in restaurants. Lastly, the same card acts as a healthcare information card that can be swiped by emergency responders and our care staff to access a resident’s critical medical information. 

SHB: In 2006, Aston Care Systems sold the Aston Gardens portfolio to Sunrise Senior Living and GE Healthcare for $450 million. What was the reasoning? 

Hutchinson: We were actually not planning on selling the entire portfolio. In fact, we were in active negotiations with another party to sell 80 percent of the portfolio. We were going to retain 20 percent of the portfolio along with the management contracts. Part of our equity group included friends and family-type shareholders. So, we wanted to provide them with the ability to liquefy their investment. Some of us wanted to continue on and grow the company, including the development of the for-sale senior condos. 

Clearly, Sunrise Senior Living had another plan for us. So, quite literally on the eve of us signing a letter of intent with another group, Sunrise sent an unsolicited offer letter to us, and the amount of the offer was quite compelling as compared to our to-be-signed letter of intent. We decided that it would make more sense from a fiduciary standpoint to sell the entire portfolio, including the ability to manage the properties, and just focus on developing a new portfolio of product. 

SHB: In 2009, Discovery Senior Living bought the ownership interest of Sunrise Senior Living in the Aston Gardens portfolio and partnered with GE to manage the properties. What led to that move?

Hutchinson: In 2008, prior to us closing on this deal, Thomas Harrison and I had been biding our time awaiting an opportunity for re-entry into seniors housing. We heard from a colleague in the industry that our former portfolio was struggling mightily, and that folks at GE were desirous of making a management change. At the time, Sunrise had an absolute perfect storm that was occurring that made it very focused on divesting its non-core assets, which very much included its independent living assets and more specifically the Aston Gardens portfolio. 

After a fair amount of discussions with GE, we convinced them that, given our intimate knowledge of the portfolio, we were the right group to turn around the assets. Then we entered into negotiations with Sunrise to purchase its 25 percent interest, and luckily we were able to strike a deal. At that point, we began the hard work on a detailed five-stage repositioning plan. The management change was well received by the residents, and we were really happy to be back. That energy really propelled our first year of the turnaround. 

SHB: In September 2013, Kayne Anderson Real Estate Advisors partnered with Discovery Management Group and Discovery Senior Living to buy out Discovery’s previous partner, GE Healthcare, in the Aston Gardens seniors housing portfolio in central and South Florida. How did all that transpire?

Hutchinson: We very much enjoyed our partnership with GE. As a matter of fact, we continue to work with them on a variety of opportunities. But it was time organizationally for them to divest their interests in the portfolio. So, Tom and I met with the senior team at Kayne Anderson at the beginning of June 2013. That was the first time we met them. Honestly, we spent a fair amount of time talking about culture. In a very short period of time, we knew that Kayne Anderson’s culture and the way they viewed this industry and the opportunities in the industry was just an exceptional match for us. We’re super pleased to have Kayne Anderson as our partner now. We had a great run with GE as our partner, and we’re all doing things together even today.

SHB: You served in the military from 1986 to 1994, including a tour during Desert Storm. Thomas Harrison, CEO of Discovery Senior Living, is a combat decorated veteran of the U.S. Navy and served in Vietnam with the 3rd Marine Division. Al Hoffman Jr., a co-founder of Discovery Senior Living, served in the military as a fighter pilot. He was also the U.S. Ambassador to the Republic of Portugal from 2005 to 2007. Is that by coincidence that each of you has such a strong military and/or public service background? More importantly, how has that military background benefitted you in your current role? 

Hutchinson:: Commonality of personal values often binds people together, and clearly our backgrounds made us very compatible. When we discuss what we believe are the critical components of success in our organization, we express values such as leadership, character, work ethic, decisiveness, personal accountability, service to others and most importantly integrity. We are proud of our common service to our country, and we have many other team members who have both a military and civilian service background. Again, we’re always looking for those qualities that I described, and not surprisingly, folks with a military or even public service background predominantly hold those qualities.