Listen to Loe Hornbuckle as he helps educate us on the Senior Living space. Loe helps define the various categories within Senior Assited Living, draws attention to the impact the baby boomer generation will have on the space and discusses differences between Senior Living and multifamily. Loe's companies currently have over $35 million in development.

Table of Contents:

• Where To Listen To The Podcast
• The Man Behind Senior Assisted Living
• Quality Care in Senior Assisted Living
• Investing to Improve the Community
• Home-Like Setting for Senior Assisted Living
• Better Communication Leads to Better Community
• Loe Before Senior Assisted Living
• Dealing With Fear
• How to Reach Loe Hornbuckle

The Man Behind Senior Assisted Living

Darin: Loe Hornbuckle grew up in Shreveport, Louisiana as an only child. He started in the auto industry and then shifted to the senior assisted living space after a very poor experience watching his father in hospice. Loe has a passion for developing assets that make an impact on our elderly community. His company's focus is great food, great care, and great communication.

My business partner on my first syndication deal, Raj Gupta after we closed that deal, it was December 2018. He came back to me like a month or two later and said, "Hey, Darin, man, you should reach out to Loe." I don't know where they met. He said he's just a good guy. I need to get to know him. And so I reached out to Loe, we had a conversation. I don't know if you even remember this, that's going back a few years. I was trying to get a feel for what space he was in and he was in the senior living space and I was trying to stay focused on the multifamily space, so there wasn't a fit for us to work together right then and there, but I think that it's great timing to bring somebody on.

He's the first person I'm bringing onto the show that has anything to do with senior assisted living. So I'm interested in hearing what he has to say and where he sees the market going in the future. With that Loe, if you wouldn't mind sharing how many properties and how many units you're currently invested in.

Loe: Sure. I do remember the conversation and Raj was a good guy. We both got to be pretty good guys if we're connected to him, right?

Darin: Right. Exactly.

What Is Senior Assisted Living?

Loe: I kind of joke a little bit that if you think about it, senior assisted living is the multifamily, right? Because not only are you dealing with a resident, but you're also dealing with their families and their expectations. Right now we've got about 40 beds in Dallas with about 200 beds under construction is our primary focus. We also do some build-to-rent single-family development, but our focus of the show today obviously on the senior assisted living and memory care piece, so we've got about 35 million under construction at present.

Darin: That's awesome. So a high level for people that don't understand the senior assisted living space kind of gives us a 30,000-foot view level on that space.

Loe: Yes. Thank you. I like to do that anyway just because the word senior housing has a meaning. If you're reading the Wall Street Journal, for example, and they're writing about senior housing in quotes, they're talking about multiple different types of housing for people that are age-restricted and in some cases, not even age-restricted, it's just dealing with your care needs or cognitive impairment.

Think about it as in this business, there's a struggle, there's a spectrum of healthcare and hospitality. So on the very far end of the hospitality side, you have independent living, active adults, these are age-restricted communities that are often built around golf courses or tennis clubs, or some other sort of amenity where people who are like-minded and have similar interests gather together.

Most people in independent living might still be driving for example. And they're older than you might think, even though generally 55 or 62 is the cutoff, but a lot of them are the seventies, eighties, that type of thing.

Independent, Senior Assisted Living, and Memory Care

Loe: Then you move into senior assisted living, memory care, which is usually considered part of the same class. Those are people that need assistance with their activities of daily living. So that's things like going to the restroom, taking medication, proper nutrition, exercise. Things that you need to get through the day. Now, it's starting to move to the healthcare side of the model. And then on the other end of the spectrum, you have skilled nursing. It could be long-term or short-term. And those are housing units where there is a full medical overlay, a nursing component, and often a physician component overlaid and their needs are generally a little bit greater.

Over the years, the line between independent living, senior assisted living, and memory care into skilled nursing has gotten blurry. However, the thing to understand is just on one end you have the hospitality side, and on the other side you have the healthcare side. We're in the middle where we have both a blend of hospitality and a blend of healthcare. I don't like to think about them as one asset class, because actually, they're the upstream-downstream providers to each other.

So the issue for us is that you can sometimes see independent living having occupancy going one direction and you could have senior assisted living or memory care and skilled nursing going in another. So they aren't necessarily part of one asset class because they do move independently of each other. Like the average age in assisted living for example is around 87. And so obviously when we talk about things like the baby boomers, I usually try to go through the whole show without mentioning the baby boomers. So I apologize.

The Baby Boomers' Impact

Loe: I'm gonna make fun of the baby boomers as it relates to senior assisted living right now. So the oldest baby boomers are 74, 75. The vast majority of those people are not yet interacting with the senior assisted living memory care part of the product, but they are interacting with the independent living side of things. So that's the Margaritaville's of the world. The large, massive properties and sometimes smaller where people are moving into age-restricted communities. One of the reasons why I'm so bullish on the industry term is that the big demographic stuff doesn't hit for 10 or 15 years in our business.

In the last 30 years, everyone's been talking about this wave of baby boomers and it's been called the silver tsunami. But fundamentally, again, if the oldest person in that demographic wave is 74, 75, our average age is 87. Then on average, they aren't interacting with the product. So the baby boomers just refer to a generation of people born between 1946 and 1964. It's termed from when soldiers came home from World War II and they did what soldiers do when they come home from war and they started making babies. And so that's the baby boom.

Strangely the millennial group is larger in terms of sheer numbers, but in terms of economic impact, the baby boomers are pretty much undeniable. If you go back and look at the last 60 or 70 years of America, if you've just got in a business that happened to serve the baby boomer demographic, you probably did very well. And so a lot of people that talk about senior assisted living or skilled nursing or memory care are often talking about this silver tsunami that's coming, these baby boomers that are coming.

Quality Care in Senior Assisted Living

Loe: They're right, but they're wrong in so much as it's not here yet. And so it's something that's coming down the pipeline.

Darin: Depending on what segment you're in.

Loe: Exactly. If you're in independent living and you're talking about the senior housing umbrella, if you're talking about an active adult, there are absolutely resorts that are like, "Hey, we play grateful Dead music and The Rolling Stones, come live with us." It's that kind of mentality as opposed to a lot of care needs. Now saying all that, and in my communities in Dallas at one time I had someone as young as 33 and as old as 107 living with me. So it's not as though baby members are not involved in senior assisted living or memory care, it's just they're not involved at such a level that it's a demographic trend per se. It's more of a one-off or an outlier more so than the whole group of people.

Darin: That makes sense. It's very interesting to me because I read and see a lot of places going up. It just makes sense to me as the population continues to age, that is going to be a bigger and bigger asset class to take a look at and it's also a very wealthy demographic. The baby boomers have a lot of money. Into their aging lives, they're going to want to spend that money on quality care as they age so I'm interested in that.

One of the things I wanted to understand was the difference between multifamily like good markets, between multifamily and senior assisted living.

Differences of Senior Assisted Living From Multifamily

Darin: Like with multifamily, we think of, we want to be in markets that are landlord-friendly, that have population growth and income growth. Those are the major factors. Is it the same in your asset class or is it more about aging?

Loe: Well, a lot of it is the same. A lot of the areas that are targeted, the Floridas of the world, the Texases of the world are very hot for senior assisted living, memory care, and other forms of senior housing as well. But a lot of that's more related to weather than anything just because obviously as people age, they usually like to be in a little bit warmer climates. There's absolutely a connection between the population.

Darin: And low taxes aren't bad either.

Loe: Yes. There's a migration that happens. So for example, if son or daughter is the primary caretaker for mom or dad, who's recently widowed, they relocate for a job, then there is sometimes the following effect that happens where mom moves nearby, maybe lives with them for a couple of years and then they might transition to assisted living or memory care facility. So jobs and population growth are certainly connected, but more so you're looking for supply-demand imbalances because you can have a successful senior housing market where the job situation isn't very good. You could have a market where say 20 or 30 years ago, a lot of wealth was created in that market. Then now the population's on the decline, and usually, the people that hang on are the people that no longer need those jobs.

So if a town is very much based around a factory or plant, the plant closes, usually, the older folks don't necessarily move away because they're not chasing that anymore.

Supply and Demand

Loe: They're living off a fixed income, they're living off savings or other investments that they made. So they're not necessarily interconnected. You're looking for those kinds of supply-demand imbalances. Our company really does focus on secondary and tertiary markets and I'll explain why in a second. The idea for me really is senior housing, I'm using the term as a catchall, is very much overbuilt in quite a few markets and part of the reason why there's a lot of people who have bought into this baby boomer story. The truth is if you build something and your customers are coming in 15 years, or maybe five years ago, they're coming in 20 years, then you're not focused on that demographic wave.

I think there was a lot of people that got caught up in the demand, demand, demand, demand, demand side of things, and didn't study the supply side. So you have some markets that are overbuilt and that have those challenges and I'm bullish on the long term but you got to get to that first edge of the wave to sort of meet that.

Darin: Put you on the spot, what would be some of those markets that you think are oversaturated?

Loe: So Dallas is always in the top five, which is where I chose to start my operation. I liked that because I feel like I've been successful in Dallas, which is a very challenging, difficult market. We usually outperform the market, then that's kind of a market. I think San Antonio is one. I studied the Texas markets mostly, so I don't look at a lot of overbuilt numbers nationally.

Senior Assisted Living Is a People-Driven Business

Darin: Now when you're bringing these markets up Dallas, San Antonio, are you saying that those are attractive markets or those are markets that are oversaturated?

Loe: Because they generally always find their way on the overbuilt list. Now what our company tries to do, the reason we focused on secondary and tertiary markets is we find it's very difficult for a secondary and tertiary market to be overbuilt. No one's in a boardroom in New York trying to solve a senior housing problem in a ring city of Dallas, which is a nice perk. The land is less expensive. We develop mostly and so that's kind of an attractive feature. And honestly, because the rent sometimes is not necessarily related to the same metrics you would find. You can often find similar rents in a suburban market as you would an urban market, so there's an opportunity there for good potential.

One of the things that I want to clarify that makes this different from multifamily for your listeners is this is a people-driven business. So when I do apartment shows, just imagine for a moment that you've got a leasing agent with a client and you're showing them apartments. Then the apartment's the wrong location, it's maybe a little out of their price range, but they love the leasing agent. How many times are they going to lease that place? Most people would say not very much in multifamily.

But in assisted living, if you resonate with a person, with a team, with the caregiver, the executive director, you will often make decisions where it's not the perfect location, not that perfect price, maybe the room is not exactly the room that you want because you're really in the people business.

It's a Service Business

Loe: It's very different, whereas multifamily is more location, price, competitive based. It's more of a commoditized business. Senior assisted living is much more of a service business and so what you have to do is if you're going to go into competitive markets, you have to have a compelling, unique selling proposition so that you can outperform the market. A lot of what we try to do is build a product class. I'm sure we'll get into later in the show, which allows us to get our unfair share. Look, if we get our fair share, fine, we're doing good analysis on the markets, but if we have to, we can roll up our sleeves and we can compete and we can challenge competitors because our model is superior.

Darin: That makes sense. One of the things that is just high level that I think of in terms of, and I am lumping them all together when I say senior assisted living is that multifamily. You mentioned it is commoditized, it's a nice affordable place to live and it's real estate, where senior assisted living I think of has two components. Has the real estate component, the location, the actual amenities of the property, but then there's like you mentioned, it's very much a service business. There is very much an operations component to it that is very much different than multifamily. Multifamily you could have a leasing agent or maybe two or three leasing agents depending on the size of the property and then some maintenance personnel, but it's very different. Operations is a much bigger component in your world.

80/20 Principle in Senior Assisted Living

Loe: As a good rule of thumb, just depending upon what kind of ratios you run and how you run your organization, we'll have anywhere from 0.8 to one employee per bed, right? So if you have a hundred beds, you have almost a hundred employees. If you have a thousand beds, you have almost a thousand employees.  Even if you cut that number in half, still 500, just think about how many apartment units you have to own to have 500 employees, so it's definitely a service business.

Yes, a service business, definitely a human resource business, more so than it is a real estate business. Real estate is very important and it's an important part of the story, but we assign the 80/20 rule. Maybe multifamily is 80% real estate, 20% the team. People can argue about that all day long, but senior assisted living is probably the inverse. It's probably 80% team, 20% real estate.

Darin: And if you think about that hundred beds or hundred units like in a multi-family property, a hundred units you could manage that with one leasing agent, one maintenance person. And you're saying a hundred beds are a hundred employees almost.

Loe: You've got all the caregivers and nursing. All those things.

Darin: So much more cost-intensive. So with that, I would imagine having an efficient and operations business is critical to the success of any of your projects.

Loe: It's 80% operations, 20% real estate. So a lot of what happens there is your ability to lead and hire and find the right people and cut through people that have the right heart and attitude for the job and train those that do have the heart and attitude to do it to be a good assets for the team.

ROI in Senior Assisted Living

Loe: It's a different experience. I've managed a 400 unit apartment complex. That was the last job I had before I started Sage Oak. So definitely have been on that side of the equation, respect and love multifamily. We do that either passively or we also develop multifamily, but my primary business is focused on hiring great caregivers and building good teams, and making sure we have good nursing oversight for our residents.

Darin: So talk about a project in your space compared to multifamily. Are the returns to investors comparable, or are the returns better in your world versus multifamily? And where do you find the investors? Talk about both those things.

Loe: Yes. We're developers and so if you're comparing us to someone buying an existing multifamily deal versus us developing a senior housing deal, a lot of multifamily deals are kind of in that 15 to 17% internal rate of return sort of pool. A lot of our deals were kind of in that 20 to 25 pool. So there's a greater risk involved in development. We think we can de-risk it, but generally, the perception is development is a little riskier. You have delayed on when you get returns and then also, obviously the operational intensity of the business means that there should be a little bit more of a risk-reward for investors. So yes, you generally will see a little bit better returns.

Look, you can see great IRRs in things that have no management, like self-storage, for example, or multifamily. But on average I would say, yes, they run a little bit higher cap rate. Like a national average cap rate for an assisted living might be seven and a half or 8%, whereas multifamily is probably close to five and a half cap.

Finding Investors

Loe: Whatever the number is whether market A, B, or C. As far as finding investors there's a lot of elements. I think one thing we've tried to do on our end is trying to find investors that sort of resonate with the idea of sort of conscious capitalism, sort of impact investing. At the end of the day if you're going to deploy a hundred thousand dollars, let's just say the returns are equal and in one version you're renting an apartment and you lease it to somebody. It's good. You feel pretty good about what you do. In the other version, you might be changing someone's life because they’ve fallen 10 or 15 times in the prior facility. They come to you with a broken hip and they're just like, "Please help me stop mom from falling."

You have somebody with dementia that maybe is an elopement risk and has gotten out of another facility. Or somebody with congestive heart failure that needs to keep their legs propped up and the other facility couldn't stay on top of that and so they were constantly having problems, maybe more medications. So all the stories that we hear people resonate with.

A lot of our investors have personal experience. Physicians love this as an investment because they understand certain elements of it. Secondarily a lot of our investors have had a grandparent, a mom, a dad in senior assisted living or memory care or skilled nursing and so they've gone through that process. If they believe that as we do, we've built a better mousetrap, so to speak. Our model of care, our physical plan is better, our philosophy is better then it allows them to invest in something they feel good about.

Investing to Improve the Community

Loe: Darin, do you like children?

Darin: Absolutely.

Loe: Okay. Perfect. And who doesn't love kids? And what if I had an investment that would help you empower children, would you be interested?

Darin: Yes.

Loe: It has 300% returns. How does that sound?

Darin: That sounds fantastic.

Loe: Awesome. It's arming child soldiers in Africa. How do you feel about it now?

Darin: Yes, it's a little different.

Loe: So my point always was that there are things that don't matter what the returns are, people would never in, right? For some people that line is tobacco. Or for some people, that's oil, for some people that's arming child soldiers. But look, some people invest in arming child soldiers because someone does it. So the point I'm trying to make is there's a line for investors and I wanted to flip that on its head and say, "What if you could put your capital to work, get better returns, and also help people?"

And so when you hear things like, "Oh, wow, a lot of employees." On the one hand, that's a lot of hassle for the person running the deal. If you're an investor, you can feel good because you've added jobs to a community, oftentimes the community that you live in. So there are all kinds of elements of conscious capitalism that exist. Not only are you investing for dollars, but you're also investing to improve the community, to improve things.

Anecdotally, when we go through like metropolitan planning commissions, or zoning boards, we don't get a lot of pushback when we're installing clean, safe, affordable senior housing. But you could get push back for apartments and other things and we've had that experience on sort of side-by-side plats before.

Giving Back Is Vital

Loe: So the communities generally really want this stuff and so people feel good about investing in these types of things. That's a big thing that we talk about. The answer is how I get investments, we get in awesome relationships. People like yourself that have an audience, and we tell our story, and if it resonates, it resonates. That's a big part of what we do.

Darin: Look, I had no idea how you were going to answer that and it surprised me. It makes sense that there's a component to it that’s kind of emotional that if you've had somebody in your life that has had to experience that. And whether you've had a positive experience or negative experience it still may be something that you're very passionate about and wanting to give back to other people. So they either have just as good or better a situation or to avoid a poor situation if you had a loved one in a poor situation. So that makes a lot of sense. It's just like any other private placement deal I would imagine that once somebody has a positive experience, one, they have that positive impact and they could see the project going well and helping people.

Then two that the returns are attractive, they want to come back and do more. And they want to tell their family and friends and colleagues. So I would imagine you get growth from positive experiences.

Loe: Like anything else, I think the investment side is a separate business. You have to treat it as a separate business. You've got to plant seeds, you've got to water those seeds. You have to till the soil, all that.

Investing as a Farming Enterprise

Loe: We think about investing as a farming enterprise and not a hunting enterprise. I probably do, I don't know, 10 or 12 shows in the last couple of months and we don't have a raise coming up. We don't anticipate having a raise necessarily anytime soon. And it's just because we just really enjoy getting into relationships with people and finding more about what they want to learn about. Some people don't want to invest in something that's going to take two or three years to develop. And some people don't resonate with that story.

Some people don't like the operational risk, but some people do like that stuff. And a lot of times, especially in real estate, I think people sometimes lose track of the kind of having a balanced thought-out portfolio. For example, if someone's successful in one space, they just pound that space over and over and over again, but I would argue sometimes that's risky.

So if you're successful in self-storage, there's no harm in having 5% or 10% of your portfolio allocated to multifamily. Having five or 10% of your portfolio in say energy or something else. And then senior assisted living represents one of those other alternative asset classes that I think has a compelling story. A lot of it is about just getting in a conversation with people and realizing that look, if the stock market crashes or if jobs go down, it doesn't necessarily impact senior housing in the same way that it would affect apartments.

So it's a way for you to have a non-correlated asset and provide some value for some people. So that's part of our story and kind of what we talk about.

Development Deals in Senior Assisted Living

Loe: I love energy investment because it's pretty uncorrelated with what we do. People are going to need care for mom or dad if the price of oil is $50 a barrel or $75 a barrel.

Darin: Absolutely. You guys do a lot of development. I haven't been involved in any development deals. I'm in one retail development deal now. But in any event, it's been presented to me that it's, the initial investment is getting from just ground to getting it developed, then at that point you could end up getting out of the deal or potentially continue. Are your deals structured that way as well?

Loe: I'll explain a little about our structure and then answer it directly. So we're pretty vertically integrated right now. I hate using that term, but it's just something everyone understands. I know I'm going to walk you through how we are. So we find the land, we raise capital to take down the land. Then we build, we develop in-house, and then when the construction is done, I operate. We do everything except for the vendors we hire like architecture and civil. So basically one of our partners is a builder and developer. One of our partners is capital raising and operations. And so we do have a very good system and process.

As people understand development, they realize there are lots of different ways you can get off the bus. Sometimes you find land, you sell it. It's a transaction. You get the land through certain entitlements, then you sell it. Sometimes you can get the land shovel-ready and sell it. You can build the product and sell it to the end operator. You can build the product, get it full and sell it to someone.

Ways to Exit

Loe: There's a lot of different ways to exit, but because of our sort of various skillsets along the way. Our investors are generally in deals for seven to 10 years, which is a typical timeline for us. And then secondarily, we've designed sort of two products and we think this is a great way to engage with different types of people. So we find a piece of land, we'll go get a land loan for it and then we'll budget. Because land development's expensive, you could spend several hundred thousand dollars with due diligence and with architects and concepts and civil engineers before you ever even meet with the city. What we'll do is we'll offer a product that looks a lot like 18 months, two-year hard money for land.

Maybe we'll give investors a 12% or 15% return, and they get two things. They get that return at the end when we sell to the next phase. So we're going to our customers, but they also secure the first right of refusal in the next phase. For people that know that our deal sometimes at that lease-up construction phase fill up pretty quickly.

As an example, on our last project, we had $1.5 million for a land deal that we did. And that 1.5 pledged a little over 2 million for the next phase. So we had almost a 33% increase over that initial phase. What that allows us to do, and I'm sure your ears are turning, it gives us two different products. So we can have people that interact with us that's like, "Look, I want to be involved with you guys for 18 months, two years, make my percentage straight coupon I'm out of the deal." And some people do that.

The Two-Phased Procedure of Senior Assisted Living

Loe: Then other people are like, I want to stay on the whole way. And so it does a couple of things. It gives investors different products to think about, but it also allows us to kind of reset the internal rate of return clock because it's two separate transactions. Sometimes it might take three or four years in certain cities to find a piece of land and start building anything on it. Well, if we break that four years up, pay investors into two years and start that clock again. It doesn't put as much downward pressure on the internal rate of return because the internal rate of return, your enemy is the clock. Money today is worth more than money in the future and so obviously if you can break it up.

That allows us to really have a couple of different products and then also solve some investor concerns and it also de-risk things because some investors would say, "Hey, get it to reduce municipal risks, get it to where the rent land is shovel-ready and then I want to invest." Because their fear is not the operations, not the demographics. Their fear is a government saying, "Hey, we don't want this." Kind of nitpicking your sidewalk width for example. So that's our way of doing things. We found it's worked well and our investors seem to resonate with that sort of two-phase procedure.

Darin: That's great. Like you said, you have different investors that have different needs, different wants, different fears and to be able to satisfy the needs of multiple different types of investors is key. And to let them either stay in, all the way through, or get off the bus as you said at different stages that's attractive as well.

Relating Loe's Personal Story

Darin: Maybe things have changed, but I recollect that your projects were a little different than what I would kind of envision. Like I'm driving on one of the freeways in Dallas and I go by a senior assisted living facility. It looks kind of like an apartment complex or it looks kind of like a hotel and I know, it says senior assisted living. I know that they have a lot of other amenities in there and staff and whatnot. But my understanding was at least at some point you guys were like buying up single-family homes and then renovating them and making it homier for these people to be involved in rather than be in a big kind of hospital-like facility.

Loe: You got the recollection correct and that's a great starting point to answer the question. So good question. Single-family homes sometimes referred to as residential assisted living, residential care homes, are kind of their little niche in the space. It's how I cut my teeth, it's how I got in the business. And it's the model of care that I think is superior for a lot of things.

I think your food, your care, your communication will be better in those environments. And that's our company slogan, great care, great food, great communication. However, there are some challenges with that model. And so what I do is just relate it to my personal story. When I had one care home, eight residents, I worked hard. When I had two care homes, 16 residents I worked twice as hard. Then when I had five care homes I didn't have to work as much. There are scaling problems with that business.

200-Unit vs 20-Unit Complex

Loe: What happens with a lot of investors or a lot of entrepreneurs is you have this class of entrepreneurs that want to be hands-off. They want to be investors. And when you're starting an operationally intensive business, it's got to be big enough for you to hire everybody you need otherwise you're going to have to do some of those things. So I was the manager, I was touring the facility. I had help, but I was having to do a lot of things that when you go buy a hundred-unit apartment complex, you wouldn't necessarily have to do.

To relate that to your audience it's the difference between buying a 200 unit apartment complex that has all the scale versus buying a 20 unit apartment complex, where you don't necessarily have that scale. And you might be paying someone like, "Oh, I'll give you half off your rent and you be the property manager." type of arrangement.

Imagine though that on that 20 unit building you couldn't find a property manager. You had to self-manage. So that's the way it works in RAL. There isn't a viable, not yet, maybe there will be. We've talked about it with some people and some thought leaders in the space. There's not a viable model for third-party management of the eight or 10-bed facility, because it's just hard to scale.

Now go back to the other end of the spectrum. That big senior living facility that you were describing, it has flaws. There are technical and structural flaws in it. Generally, they have lower ratios. So in a residential care home, you might have a one to four, one to five, one to six caregiver to resident ratio.

Planned Care Home Community

Loe: But in a big building, you might have a dedicated person that goes around doing activities all day. It's unlikely you can afford that in an eight-bed facility. In a big building, you'll have transportation. Unlikely you'll be able to afford to have a van and a driver for a 10-bed facility. And so you can just kind of imagine there are all these things that a big building has, gyms and chandeliers and underwater treadmills, and all kinds of stuff. Then you have these little care homes that are just cooking good meals, taking good care of people, you feel like you're at home and it's all positive.

And so the latest evolution of our company and what we're going to be doing basically for the rest of our lives is a permutation of the two. So we took all the advantages of residential assisted living and all the scaling advantages of a big building and we decided to build a product that is a campus of care homes.

A typical project for us, we call it a planned care home community. You pull up, it looks like a neighborhood instead of 3000 square foot houses there are 9,000 square foot houses. Instead of having a family inside, they have 16 beds for assisted living and memory care inside, all on one campus. You'll have a central sales and leasing office. You have all the advantages and benefits that you would have with a big building. Transportation, a park setting to wander in and get some vitamin D especially important for our seniors, but you also have the love and care of being in a small setting. And you can be in house one and you can never see anybody in house five if you didn't want to.

Home-Like Setting for Senior Assisted Living

Loe: So we're just taking that building instead of building three, four, five stories. We are all single stories. So we're doing horizontal development. I don't have a single set of stairs or elevators in any of our communities. We do in the office, but in terms of where the residents reside, it's all single-story, no elevators, no confusion. It's absolutely a home-like setting, but we have all the advantages of a big building.

And the primary advantage we have is we have access to financing. It's more conducive for commercial. One of the biggest challenges you'll run to in residential assisted living is when you go to find a new property, how are they going to appraise it? Are they appraising as a single-family home? Or are they going to try to pretend that something you've never done before is going to be appraised as a vibrant business? Refinancing is a little bit easier if you have a vibrant income stream. You can prove over two or three years when you're first starting. Residential assisted living can be very equity intensive because it's hard to find debt. And so like right now, my Dallas portfolio, which we're refinancing, we might be at 40% leverage.

Not that you wanted to be at 40% leverage. It's because we had no other choice other than to raise a lot of equity. And, as you know, when your leverage is low, it means that your returns for investors will be depressed a little bit because you can't lever debt and so obviously you're more equity intensive. That cash flow is sort of feeding the beast that the investors into return thresholds are.

Senior Assisted Living Campus

Loe: With these other communities, we can go in and get very traditional 70, 75%, 80% financing and it does flip the whole thing on its head. Then of course now the real key to the whole thing is you've got your whole team, you've got an executive director, you got an assistant executive director, you have nursing oversight, you have activities, you got a sales and leasing person, marketing, all on this one campus, but we still have all the advantages. It's still an open kitchen. There are still no long hallways. We still cut down on falls. It still feels like home.

If you've got dementia, you're not confused because you spent 50 years in a house, and all of a sudden you're in this big glass apartment building. So we have taken the best of both worlds and put them together.

Darin: So what does the campus look like in terms of size? So you talked about 9,000 square feet and I think you said, 16 beds in that. So how many buildings, how many units in one campus would be typical?

Loe: Great question. So we'll usually look for a minimum of six acres, but we have a site as big as 20 acres right now. We plan on selling off part of the parcel to possibly a synergistic partner. Our project in Denton. You'll have to come to visit us sometime, but our project in Denton we're putting in roads right now and we also have a chunk of the land for sale because we bought 20 acres. We didn't need it all.

Darin: I think I remember when you were raising for that a while back.

Infection Control Is Key

Loe: Probably we've developed about 10 acres of that for senior assisted living and memory care. We found that our magic number is when we first do our first phase, we like to start with about 80 beds as a minimum. So that would be five 16 bed houses. Our project in Denton has 96 beds to start. Every time we do a project it's that number of buildings plus one because we have an independent sales and leasing office where the admin team is contained. So we'll build anywhere from five to six to 10 acres. And we want to try to create a nice park setting so if someone wants to go on a walk or visit, we've got nice walkways and landscaping so they can get outside and be outdoors.

One thing that I want to just make sure that everyone understands because when this is being recorded. I don't know when it'll be released, but as of right now, we're in the middle of COVID, right? You've got a big pandemic and that it affects the elderly especially, and especially the elderly that have comorbidities, i.e, people in assisted living and skilled nursing. We don't have a single case of COVID in our Dallas operation, not one.

Look, our team has done a great job, but one of the secret sauces is our model is superior to infection control. If you think about that big glimmering shining building that you drove past in your reference, when you're driving down the highway and DFW, how many hundreds of people come to that front door every day? And so when you've got something that, like the flu or norovirus, or in this case, COVID it can get into a building pretty easily.

Proper Segregation of Residents

Loe: Then once it's in there, it's very difficult. You have somebody who wanders, it's very difficult to isolate and so you've got an outbreak on your hands and that's what we've seen all over America. When the counting is all said and done, I think about 30 or 35% of all deaths in the United States from COVID will be directly related to long-term care facilities. So it's a big, big problem in long-term care.

First rule the thumb is to keep it out the front door. What's the best way to keep it out of the front door? Segregate your residents into smaller population clusters so that the visitation numbers go down. Now you've got 10 people to watch, 12 people to watch coming to the front door, not a hundred. And so those 16 residents have, say, 10X a reduction. That 10X reduction in exposure. And then God forbid you to have an outbreak, it’s contained in one building.

But you don't have to have any intermingling between the two houses or the three houses or the five houses. They're all separately licensed, self-contained. So in the pandemic and especially these small settings have performed very, very well. Of course, I think of COVID as an accelerant, whatever trend we were having in the system, whether it be economic or whatever, COVID seemed to accelerate that trend. I think this push to become smaller and more boutique and more intimate was already happening in the business. Now COVID is like, "Oh, by the way, in addition to the better care, better food, better communication, you may have like a fraction of a chance of contracting a virus as you do in a big setting."

Keeping the Virus Under Control Outside Senior Assisted Living

Loe: Sometimes we're talking about 20X, 10X differences in rates of infection. I couldn't give you a number because right now we're at zero and present, I can't multiply zero times anything.

Darin: That's huge to have that experience. And what you say makes a lot of sense in terms of having separate buildings and being able to control it if there is an outbreak in one. Now I imagine that you have staff that bounces from one building to another building. So if that person was to contract it, they could potentially bring it to other buildings. But it sounds like it's very high on your guys' list to control who's coming in, who's going out and monitor that.

Loe: So far about 70% of our close calls have been visitors and about 30% have been staff. So you're right. Look, the best thing you can do to help long-term care facilities gets the virus under control outside. Because, at the end of the day, none of us are self-sufficient, right? We have food come in, we have hospice, we have family visits.

When visitation was banned we saw a lot of premature death from just people being very lonely and having dementia and not understanding why their daughter or their son or their loved one couldn't come to visit them. So there are no easy answers here. And our model wasn't perfect. I could get a phone call today that we have our first case in Dallas and you'll look, it wouldn't surprise me. Maybe the answer that we have is that it's not our turn yet and we'll have our turn. I hope that never happens.

Giving People a Choice

Loe: But what I will say is from a mathematical point of view, the fewer number of people you have come to the front door, the better off you are. The better you design your facility for the sight lines. It's not all that hard to go into a senior assisted living facility. And if you're like, maybe you're not all that concerned about it. You're like, "I'm going to take my mask off and give my mom a hug and kiss." That they may not see you, but in our facility, it's a little harder to get away with that stuff and so we can sort of police visitation better.

Obviously, with our campuses designing great outdoor spaces, it's easier. Look, elevators, those are a place where you can't socially distance and you've got to touch a lot of things. So there's just a lot of different things that all sort of add up.

Our zero cases is a combination of half a dozen things all coming together. But I'm firmly convinced that the model itself, this is based on talking to other operators in space, the model itself is just far superior for infection control. I think infection control is going to be on everyone's top-of-the-mind awareness for a long time. And so that's a secret sauce and something I think is going to propel our business is that look, all things being equal, you got a 10X less of a chance of contracting something deadly, pretty powerful.

Darin: The other thing. I'm 50. So I think I have a long way to go before we get there, but what you guys are providing is different. It's a different slant. So it's a choice.

Better Communication Leads to Better Community

Darin: You end up having people that need this type of care one way or another, right? And if everybody just built the big facility and people didn't have a choice, then there are certain people that just don't want to go into one. They want something homier, more friendly and so you're providing an alternative. And like you said, great care, great food, great communication. I mean, care is extremely important. Food can be neglected at times, but people like to have good food, man. So that must be one of your components.

Loe: You nailed it. And we think the secret for our company is communication. The sort of the third one because anybody that's ever interacted with American healthcare has dozens of, "I wish they would have communicated with me better" stories, right?

Darin: And you're talking about the family?

Loe: Both. Any number of things. We take communication very seriously. So seriously it's in our slogan. It's a commitment that we make to families. But to your point, it relates to something your audience understands, we both invest in apartments.

I don't think you hate single-family homes, right? You don't hate them. I don't hate big buildings, but I think that apartments and single-family homes offer choices to the client. There are some clients that a single-family home rental makes a ton of sense for and there are some clients that an apartment rental makes a ton of sense for. It's just a battle of market share. There's a certain number of renters, what's their preference?

Some people want to go into the big shining. They want to work out every day. And they want to hang out with 20 people in a little private movie theater.

Keeping Senior Assisted Living Less Intimidating

Loe: They want to jump on a bus and go gamble or they want to jump on a bus and go to Luby's or Piccadilly or whatever they want to do. That's the lifestyle they want to have. They want big activities and there are other people. We talk about it all the time in everyday life, are you an introvert or an extrovert? Well, that's a fundamental question for seniors too.

If you've been an introvert your entire life, who wants to go live with 200 other people? You've gotta go to restaurant-style dining with 50-60 other people. If you happen to be losing your memory, and maybe you're at that early stage where you're aware of it, you're embarrassed. You don't know the people. You're shy. So what do you do? You self isolate. And you spend all day, every day in your room. You see a lot of that in a big building.

But when you go to a care home or a residential senior assisted living facility, like what we're talking about, a lot of people are in the common area because it's bite-size. It's more like Thanksgiving every day than it is a 40 or 50 person dinner in a restaurant-style dining setting or these activities that have so many people. So it's just less intimidating for certain people.

The other thing is what's your mobility like? The harder it is for you to get in the hallway, the shorter you want that hallway to be. So if you've got to go a hundred yards down a hall, take a left, go 50 more yards to get dinner, maybe go down an elevator, that's a chore. But if you're just 50 feet away, like in a traditional single-family home, it's less of a chore.

Making the Switch to Senior Assisted Living?

Loe:  And so we fundamentally see changes in behavior when you change environments. Western medicine, unfortunately, doctors probably will learn a whole lot more if they just went to your house. Because they'd see how you are living, they would see what the challenges are that you have. You come to the office, they don't talk about your diet, they don't know what the physical layout of your house is. It's like, "Look if you have mobility problems and you got a hundred stairs at your house, probably a problem."

And so for us, it's all about just, like you said, creating choice and giving different options. We think it's a better way for a lot of people, but it's not for everybody just like a big building is not for everybody, just like an apartment's not for everybody, just like a single-family rental isn't for everybody.

Darin: Though Loe, let me ask you this. It's obvious through this discussion that you have a lot of passion for what you do. And you also mentioned that you did apartments, you had a 400 unit apartment complex that you managed before getting into this. Why did you make the switch?

Loe: Well, I know the exact day that I decided. There are two things. There's one humorous story, which is why I left the apartment business, but the other thing was just like some of the investor's personal. My dad got sick in 2013. I was quitting my job and was going to do some traveling and his health deteriorated and we stopped our trip and came home early. He ultimately passed away and he was in hospice and he had a terrible experience.

A Tragedy That Resulted in Better Ideas

Loe: I spent the better part of the year, which was a statute of limitations in Louisiana, trying to figure out if I wanted to sue the hospice company. Around the time that this was coming to a close, I discovered the residential assisted living model. Now during that year, I was working at the apartment complex. I discovered the residential assisted living model. So it wasn't linear. I got into the business because my heart was open and I was exposed to these concepts.

And I got into the business for capitalist reasons. Then I started realizing like, okay, these are like my grandmother's. It was like this is away from me to honor my dad and that all happened. The moment that I got out of the apartment business was pretty funny. I worked at a property that was probably like 30% section eight. It was a good property. I'm not a huge kid guy. I love the elderly way more than I like kids and we had a lot of kids at our property. As summer was approaching, the way that property worked was during business hours, during school, it ran great, and then when that bus pulled up and the kids got off it was free for all. I was the manager, the assistant manager, most of the time so I was running around and I took my job seriously.

And I remember I was walking the grounds and I knew summer was coming. I saw these kids and they had broken up this, I guess, random concrete thing from a barbecue pit or something. They'd smashed the concrete up and they were smashing the air conditioners of this apartment complex in Fort Worth with the concrete.

Loe's Religious Awakening

Loe: They're destroying where they live. They are just being kids. I get it, I did dumb things and I was a kid too. But I'm like, "I don't have any kids and I don't want to have a hundred kids that I got to deal with over the summer. So there's no way I can survive a summer." The company was putting the property up for sale and so I was like, yes, I knew it was a short-time deal and they did a good job. They offered bonuses to employees to stay through the process of the sale.

I was a little unique. So I was doing it for my education. The money wasn't important to me. I just was dreading going through the summer and I said, I'm just not doing this and then the senior housing thing happened simultaneously. It was all just lining up. I'm very lucky. I stumbled onto my calling if that makes any sense. So a very fortunate situation.

Darin: You know what? Sometimes lucky, sometimes the big man upstairs points you in a direction. And sometimes you have to be open to opportunities and then take action when they come by because look, everybody gets opportunities, but not everybody takes action on them. So I applaud you for that.

Loe: Yes, absent my father. There's no chance I would be in this business. I think it's a 0% chance. But when people say that God works in mysterious ways, not how I believe, but I do think it's amusing to think about as God works in mysterious ways. In my case, it was kids smashing an air conditioner with concrete. That was my religious awakening.

Loe Before Senior Assisted Living

Darin: So I do believe in stuff like that, but in any event let's go back, man. So how'd you grown up? Where did you grow up? Do you have brothers, sisters? Tell me.

Loe: Well, this is quick for me because I'm an only child.

Darin: Only child. Where did you grow up?

Loe: I grew up in Shreveport, Louisiana. It's a lovely place. You go for the gambling, you stay because you got shot. So that's where I grew up. Look, Shreveport is a great place to grow up for me because I went to a great school and I got a lot of great opportunities.

Darin: What was the school?

Loe: Caddo Magnet. They had a great magnet school that fed in from the whole parish, which is like our counties. It was a great school and I learned a lot. There's a lot of opportunity, but I just knew that Louisiana wasn't for me. So as soon as I graduated, I didn't even take the ACT, and Louisiana runs on the ACT system. Most other colleges run on the SAT. I took the SAT, got fortunate, and got a scholarship to the University of Texas, which I quickly punted away after a year.

I did a good job inside the thing I got a scholarship for, but the educational component was lost on me a little bit so I took a summer off. Thought I was going back to college, saw an ad in the paper for selling cars, thought that'd be a fun summer job, and 12 years later and a bunch of promotions I was running a car dealership, and one of my business partners is a car dealer to this day.

Getting Into Real Estate

Loe: When I sort of laughed, I said, "Hey, I'm going to start a company. Would you be interested in helping finance that and be a partner?" And he's like, "Absolutely, you've done great for me." So that's my version of Silicon Valley. It's one of the few industries where you leave a company and they might bankroll your new endeavor. It doesn't happen a lot in the car business, but in my case, it did.

So I was able to learn a lot at the car dealership about sales and marketing and risk and lending and all that stuff, but it just didn't touch the heart. And so I said, let me get into real estate. And I've been doing real estate since '07. So I had about seven, eight years where I was at the car dealership and then at night I was the leasing manager, and my business partner managed the maintenance and repair side of the business. I've been in real estate for a while. I just sort of made the leap to being full-time and doing something entrepreneurial back in that 2013, 2014 window.

Darin: So I'm not letting you off the hook yet on growing up. So you're back in Louisiana, you're an only child, mom and dad, are they entrepreneurs?

Loe: Not really. My mother was a pharmacist. And my dad was an accountant. He did buy one rental house. So I got that. He had bought one rental house. So I did get that experience. They were very supportive of me. My parents were always the classic, we don't care what you do just try to be happy. I think they did that part right.

Mindset When Growing Up

Darin: What was your mindset growing up? Did you think that you were going to be a business owner at some point, or were you just going through the system?

Loe: I probably, as a kid, thought I was going to do something in like comedy or acting or something. Then I thought I was going to be a lawyer for a long time. I got into the debate and that was the perfect combination of acting and comedy and public speaking. But I don't know, I think I would have been a good lawyer. I think I would have enjoyed being a lawyer, but there were also a lot of supply-demand problems with being a lawyer. There's a lot of people in law school and it seemed like anybody that didn't know what they wanted to do became a lawyer.

And I don't really like research that much. I would have been like the trial lawyer, a litigator, I think probably is what would have happened or I would have done something in sort of the negotiation side of the business. That's what I thought I was going to do so.

I went to the University of Texas. I was getting my degree in history because history was the highest acceptance rate in law school. And then took that semester off and all my friends were like, "You're leaving college to sell cars in Louisiana?" I'm like, "That's the plan."

Darin: So talk to the listeners about some time that you had fear. It may have been when you left to go startup, you may have said, "Am I making a smart decision, a bad decision?"

Dealing With Fear

Darin: Or when you left the car business and you're going to start up your own company, but most people that I've talked to at some point they run into fear and they have to find a way to push through it.

Loe: So at the car dealership, I sort of told myself for a long time that I was always a number two. I saw myself as a number two. I didn't think I was capable of being a number one. And I think the reason is, is that I've had this experience where I can let myself down, but I can't let other people down if that makes any sense.

Darin: Yes. I mean, sometimes we're our toughest critics, right?

Loe: Yes. Or just, I could lie to myself, but I'm not going to lie to my best friend. I'm not going to lie to my business partner. And I'm not going to lie to an investor. So I didn't understand the time that I could create structures and systems where I could be the number one, but I was accountable to other people, accountable to employees, accountable to other people. That was just the maturation process. When I left the dealership, I wasn't afraid mostly because if you can sell. Maybe I go somewhere else and I start in the worst situation. I left on good terms. So I think I probably could still go back to the dealership if I wanted to, we've made some relationships or whatever. I always thought it would be there.

The time that I was the most scared is when I first started becoming a developer. I've only in the last, like two months, even allowed myself to call myself a developer.

Developing Senior Assisted Living

Loe: I might've said I was a developer in conversation, but I didn't believe it. And I was just like, "I'm developing." But now with our buildings at a stage now where it starts to hit me, that things are going to exist after I'm gone and this was a field and now it's something and people are going to go through the end of life in celebration here. That process went very well, but the part that I had fear is there's a lot that you can't control in development. When someone like me, who's like you pays me to get the job done, whatever it takes, type of guy, that can be tough on you. And when you feel out of control.

So I've been developing in a pandemic in two markets, two different states. You have all that stuff and the supply chain stuff, and that's very scary, but then you also have Lake Charles got hit by two hurricanes. It's the only metro area in the history of the United States to get hit by two hurricanes in the same season.

Just a total statistical anomaly. That's scary. And when you're like getting force majeure claims. So I sort of joke and say that I'm probably like the most force majeure claims for two developments in history. I feel like that's me because I think I'm up to like five force majeure claims. People can go their entire career without a force majeure claim and I have five on two projects.

Darin: So explain what that is to listeners. What is that?

Loe: The short version. Look, I'm from Louisiana public school so I don't know that I should be trying to.

Force Majeure

Loe: I know a little French, but basically, force majeure is something that happens beyond the control of the contractor, subcontractor, or the counterparty to your contract. So much so that they can't honor the contract any longer. It doesn't mean they get to back out. It just means they can reprice the contract. Sometimes means they can back out. So in the case of a hurricane, that's a major natural disaster.

The size of the first hurricane that hit Lake Charles was nothing short of devastating. And just imagine you're a roofing subcontractor, and now every roof in town needs to be repaired. Plus you've got supply chain issues and so a lot of subcontractors are like, "Look, I need to get out of the contract and you can just sue me or do whatever you got to do because I'm printing money over here by going to do these other things."

To their credit we had an amazing general contractor in Lake Charles that's just done a phenomenal job. They have been with us every step of the way, and they could have walked away easily. My business partner in Denton is the general contractor. So I hope that he doesn't abandon the job at any point in time of trouble. But some subcontractors are like, "Look, we got to increase material prices. We got to do this. We got to do that." So essentially the subcontractors told people that we can't honor these contracts. I don't know if you recall during COVID and lumber prices are still high.

Darin: Shot up pretty quickly.

Loe: So you sign an estimate for lumber at 400,000 and then next thing the lumber's 700,000 or 800,000.

Effects of Pandemic on Business

Loe: And so they can't eat that and stay in business and so that's what force majeure is, are these events beyond their control. And obviously, COVID is a source of major force majeure claims as well as a hurricane. And then I had two hurricanes and a pandemic in Lake Charles. So that's scary, and that kept me awake at night and ultimately the way I sort of reframed all that now because I'm not dead yet, it took a lot of grit. I told my banker as a joke, I'm like, "Look, man, if we bring this project the way I think we're going to bring it and you get all your money like you're supposed to, you should loan me anything I ever want ever again."

Darin: I get a lifetime pass.

Loe: Lifetime unlimited credit with this bank. And that's how I think about it because ultimately there's been a lot of projects that have been stalled out as a result of COVID or as a result of natural disasters and we've dealt with both. We shot ourselves in the foot a couple of times too. So you take all that together I am a changed man.

Darin: But Loe, what's the next big stretch goal for you, man?

Loe: It's funny I almost had to stop doing that with development. You commit and it's like years and years of this process. What I'd like to do is as long as this is fun and it has to keep being fun I'd like to be building one of these 80, 90 bed, hundred-bed facilities, these campuses. I like to start one a year so that we're always in the process of developing one.

Loe Outside Senior Assisted Living

Loe: Stuff is coming online, very much focused on keeping a tight geographical timeline so that we can just focus on being a great medium-sized regional player in the business. That's what I like to do as long as it stays fun.

I've certainly found for sure that when I make more money, it doesn't make me happier. I know everyone reads that stuff. We all think that it does, but the truth is having made more money doesn't make me happier. I do have a sense of anxiety reduction when I have a little bit of money in the bank. I'm not worried about that, but that making a million dollars or $500,000 or $2 million, it doesn't matter to me. I truly enjoy the process of what we're doing. And I enjoy helping people. I love the idea of taking a piece of dirt and turning it into something that maybe wouldn't exist if I didn't do it.

That's what speaks to me at this point. I'm not creative. And I'm not an artist. I can't sing, I can't dance. All I can do is talk and figure out a way.

Darin: I'm sure you could do more than that.

Loe: I can talk and lead a team to help build stuff.

Darin: And you have a vision and you're able to execute on that vision. So what do you like to do outside of work?

Loe: I have a couple of hobbies. So I play poker, which probably people would consider to be relatively high stakes poker. I shoot a lot. So mostly long range. I shoot at like a thousand to 1500 yards. I'm working my way to a mile probably within a couple of months we'll be up to a mile. It's an expensive hobby.

Free Book for Everyone

Loe: Ammo's high right now. So I've spent a lot of money on guns and ammo. I play poker to fund my gun and ammo habit. I'm like this half city boy, Texan country boy. It's a very weird permutation. I like drinking fine wine, playing poker, and then going out in the elements and shooting guns.

Darin: Fantastic. Well if people want to get ahold of you, what's the best way for them to reach out?

Loe: Absolutely. I've got a book they can have a copy of for free on our website. Our website is goodhorncapital.com. There'll be a free book for them. They just put in their name and email address. We'll send them a copy. It's called the Sage Oak Story. Sage Oak is our operations company and sort of our brand that forward faces consumers. And it'll tell my dad's story and it'll tell how we got in the business, how we have a different philosophy.

I think it's a great thing for investors or potential vendors to read, just because it's me giving them my insight on the business. And so I think our investors like to check that out and if they resonate with how I think then perhaps we can look to get into a relationship down the road. We're not raising right now, but that can change anytime. But we just give them a free book and if the book makes sense to them, they're happy to email or call us.

Darin: That’s awesome. So anybody that goes to that website get the free book? Or do they have to put in a code?

Loe: All they got to do is put in their name and email address and we'll give them a free electronic version of the book.

Darin: Fantastic. Loe, I really appreciate you coming on the show. Until next week, signing off.

How to Reach Loe Hornbuckle

• Sage Oak Website
• Goodhorn Capital Website
• LinkedIn
• Facebook
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