Developer uses deep analytics and strong marketing to bring a new type of product to market.
By Jeff Shaw
The executives at Caddis believe that the seniors housing industry is trailing behind other sectors in two important areas: data analytics and branding. Of course, that just gives the developer a leg up in the markets where it decides to build.
The Dallas-based company, which started and still specializes in the medical office sector, owns 17 Heartis-branded seniors housing communities totaling 1,768 units of independent living, assisted living and memory care.
The existing properties are largely located in the Houston and Dallas markets, with expansions planned or underway in Chicago, Milwaukee, Atlanta, Pennsylvania and Florida. Projects currently under construction include five communities totaling 720 units.
“We’re healthcare providers first and real estate experts second,” insists Jason L. Signor, the company’s CEO. “The love for the senior goes through everything in the organization, thinking of them from a care perspective and not just as providing money for our real estate.”
The company was formed in 2008 and entered the seniors housing industry in 2011 when an operator needed help designing and developing a new community in Murphy, Texas. Caddis completed the development in 2013 and sold it following stabilization in 2015.
Despite divesting of the property, Caddis saw the value the seniors housing industry offered. Signor believed he saw a smarter, better way of developing senior living projects.
“We did that project as a joint venture and found out along the way that we knew more about seniors housing than most companies thanks to our healthcare background,” says Signor. “The sophistication of the operator wasn’t very high on that project, so we decided to launch our own seniors housing brand — Heartis — in 2012.”
Since that first project, Caddis has held every development it has built “and our intentions are to continue to hold them for the time being,” says Signor.
Taking a page from hotels
Heartis is a play on the idiom “home is where the heart is.” Unlike most seniors housing company names, though, it is not the name of the operator, but signifies that a property is owned by Caddis and meets the company’s standards for quality.
Third-party management agreements bring in highly vetted operators to the community, but under the Heartis brand. The same way a business traveler might know what to expect from a Hyatt hotel despite not being operated directly by Hyatt Hotels Corp., Caddis wants seniors to know what to expect from a Heartis seniors housing community. In other words, Caddis pays an experienced operator to manage the property based on specifications that Caddis sets forth.
“We own the operations and the real estate in the same entity,” says Signor. “We’re very similar to a hotel model. We established a brand standard that our operators have to work under.” Those standards include everything from dress code and dining to activities and care.
“We’re working with two operators right now and are currently interviewing others for our expansion in the East,” says Katie Kleinsmith, senior vice president of senior living. “Our goal is to have a strong operating team with a national or regional operator, where it can concentrate on a condensed number of units and have a regional team on-site.”
Caddis fully owns the Heartis brand, along with the collateral, website and e-mail addresses for both the brand as a whole and for individual communities. Anything related to that brand is run through Caddis, not the individual operator.
“The operator is responsible for executing the brand, but not for managing it at that higher level,” says Signor. “We have sophisticated, MBA-level people that can manage that. It also gives us the buying power of a larger brand.”
Heartis’ marketing is meant to appeal to middle-income seniors, offering high-end amenities and high-quality care in brand new buildings at a price point only slightly above older, competing product in a market.
Since the majority of costs at a seniors housing community are related to care, Caddis believes it can offer the same level of care as its local competition in a newer building for only a slight price increase.
The idea, according to Signor, is to offer residents a choice between an old, dilapidated building versus a brand new Heartis building at a monthly price difference of only about $500. The cost difference is negligible, but the quality-of-life difference is tangible.
“We have smaller units to keep the lower price point,” says Kleinsmith. “As care increases, the residents pay more, but the entry point is one that pretty much everyone can afford.”
One-bedroom unit sizes in Heartis communities average 678 square feet for independent living, 427 square feet for assisted living and 400 square feet for memory care. The average monthly rents are $3,213 for independent living, $3,773 for assisted living and $5,500 for memory care.
The company enjoyed the Heartis branding project so much that it decided to take the same approach to parent company Caddis, totally refreshing the brand and redesigning its home office.
“We were able to really bring the Caddis brand to life within our office,” says Signor. “It’s clean and extremely efficient. You will not see a bunch of granite and wood paneling or expensive finishes. We’re very practical, efficient and cost-effective. That’s who we are.”
A data-driven approach
Caddis executives pull no punches when providing their views on the state of branding and design in seniors housing today.
“We found other brands to be very stagnant. A lot haven’t adapted or evolved over time. How many have ‘garden’ or ‘park’ or ‘leaves’ in their insignia or name?” asks Signor. “There’s no differentiation. When you look at an operator, you can’t tell one from the other.”
A 32-member focus group helped develop the Heartis name and brand. A marketing and public relations firm helped perform a brand audit to ensure that Heartis stood out against the competition. Caddis intentionally selected a firm with no connection to seniors housing.
“We wanted to go in with a group that wasn’t encumbered by the things that generated the seniors housing brands that all look identical,” says Signor. “This was a complete, fresh approach to developing a new brand in a new industry from scratch. It was very methodical.”
The internal marketing team is made up of people who first specialized in marketing, then learned the seniors housing industry later. That’s a reverse of the industry standard, where marketing professionals start in seniors housing and rise through the ranks. Promoting from within seniors housing only results in a myopic view of marketing, according to the Caddis leadership team.
“The usual marketing executives don’t have a classic training in brand management and marketing,” says Signor, who himself has an MBA in marketing. “Our marketing background allows us to use more sophisticated measures and data analytics, different tools to get a better grasp on our brand, and push that out to our consumers via mass media and the Internet. We get a better quality product at the end of the day from a marketing perspective.”
Much like making sure to avoid stereotypical images of the industry, such as foliage, the Heartis brand also aims to put a more positive spin on the industry through marketing. Many brands market to the care side of the equation, which Kleinsmith says is the “least attractive part of senior living.”
“They want to overcome the guilt among adult children and talk about how to handle frailty. Our whole brand is based on the idea that seniors can have fun. Our mission supports that quality of life.”
When it comes to advertising that brand, Caddis used a study of 1,500 existing senior residents, combining demographic and consumer spending data. This study has enabled Caddis to strategically target potential residents with advertising campaigns.
“That allows us to be smarter with media. We know what radio and TV stations they’re watching, and can send out mailers based on a census block rather than a blanket ZIP code,” says Signor. “We look at where our consumer comes from. If we’re going to spend money on marketing, we want to make sure we hit the right group.”
Caddis as a whole is a big believer in data-driven results, and the company identifies expansion markets using that same approach.
Caddis is moving at a fast clip as far as new development. The company targets approximately $200 million in seniors housing construction starts every year, usually between four and five new communities at an average development cost of $40 million each. The company has five seniors housing communities currently under construction and six additional developments planned.
The portfolio growth is funded by a combination of internal capital and low-leverage construction loans, usually at a loan-to-value ratio of 50 to 55 percent. The company also partners with a few investment funds powered by high-net-worth individuals and family offices, which provide approximately $150 million a year for Caddis to expand.
“We doubled our revenue in a two-year span, and I think the sky’s the limit on that,” says Signor. “We’re closing a fund intending to buy $500 million in medical office acquisitions, and in the near future we’re doing the same thing with a $150 million fund for the seniors housing space.”
The next hot development targets for Caddis are Milwaukee, Atlanta, Pennsylvania (Pittsburgh and Philadelphia) and Florida (Tampa and Sarasota), although none of its 17 communities currently open are located in those markets.
The same deep-dive analytics that provide marketing data also help Caddis decide where to build next.
“Our market study is based primarily on basic supply and demand, as well as our ability to secure licenses and the workforce necessary,” says Jud Jacobs, executive vice president of development. “Once we’ve picked the macro market, we do site selection based on a more empirical analysis. We look at the results and pick the most advantageous location.”
The company largely focuses on the top 20 U.S. metros with high barriers to entry. When Caddis enters a market, the company seeks to have between 400 and 500 units spread across the area, meaning there must be multiple development sites.
For example, Caddis currently is developing two communities totaling 350 units in the Atlanta area. The company is looking for a third site to exceed the 400-unit threshold.
“We don’t want to do one community per market,” says Jacobs. “We want to do a group of three to five assets. That gives us scale and synergies to reach a critical mass in each market.”
Rumblings of potential overbuilding concerns don’t seem to faze the executives at Caddis. They are quick to note that even in overdeveloped major markets, seniors housing is such a local business that it’s about finding the right submarket, not the right macro market.
“Here in Dallas, we have no proposed developments in Frisco, Plano or McKinney because there are too many other projects in the ground,” says Signor. “We’re in areas where there’s really no development. People in Arlington or Fort Worth would never drive to Plano to visit a loved one. It’s over an hour commute.”
“We try to look at it from a data analytics point of view, using GIS (geographic information system) like retailers do,” continues Signor. “We’re looking for the hole in the market before someone else exploits it.”
Although Signor says the company is not opposed to acquisitions, its desire to only own buildings less than three years old makes those opportunities few and far between. To date, Caddis has only acquired one seniors housing property and developed the rest. “Development is the core of the strategy,” says Signor.
Although the company is open to the idea of a “capital event” such as a sale or recapitalization several years down the road, its present strategy is to hold all its properties indefinitely.
“We believe in the increasing demand in the seniors housing space due to the projected demographic growth over the next 15 to 20 years,” says Signor. “Given that roughly 60 to 70 percent of the market’s seniors housing supply is over 20 years old, most of the competing communities will become functionally obsolete as the market demand begins to peak. The Heartis portfolio of new communities will be ideally suited to capture that increase in demand.”
The company has also grown its home office, expanding its space to accommodate a team of 55. Thanks to the office culture and recent rebranding, employee retention has seen incredible improvement, rising from 67 percent in 2013 to 91 percent in 2016.
Signor credits this dramatic increase to a variety of strategies to keep employees engaged and interested: a new open-office floor plan, semi-annual workshops for sharing ideas, diversity in hiring and a rounded conference room table with no head, meaning everyone has an equal voice at the table.
Jacobs was quick to credit his CEO for the continued growth of Caddis.
“Jason won’t brag on himself, so I’ll brag on him,” says Jacobs. “He has a background in civil engineering, has an MBA in marketing and is chairman of the Texas Business Hall of Fame. He’s a great thinker, a great leader and the biggest reason our company is successful.”