#59 - The Silver Tsunami: Dwayne Clark on the Future of Senior Living Investments

[00:00:00] Welcome back to another week of Passive Income Pilots everyone.

[00:00:03] Tait Duryea here with my good friend Ryan Gibson.

[00:00:07] How are you doing, man?

[00:00:08] I'm excited to talk about assisted living and how we can invest in it and how we

[00:00:13] can benefit from this thing called the gray tsunami that's taking over our

[00:00:16] country because baby boomers are retiring en masse and they need a place to

[00:00:20] stay and we've got the perfect guest for that today.

[00:00:23] Do you want to start?

[00:00:24] I certainly do.

[00:00:24] Senior living is an asset class that I learned about a lot of years ago.

[00:00:30] Someone was presenting at a conference, a real estate conference and they put

[00:00:34] this graph up on the board and I talk about this in the episode briefly, but

[00:00:37] it had bar chart basically for every single age.

[00:00:41] So how many people are one?

[00:00:42] How many people are two?

[00:00:43] How many people are three?

[00:00:44] How many people are all the way up through 110 years old?

[00:00:47] Right.

[00:00:47] And of course that varies up and down and the number of people in their

[00:00:51] late sixties to late seventies.

[00:00:53] There's just a big bump and that bump is moving forward in time.

[00:00:58] And this is creating this incredible tailwind for assisted living, senior

[00:01:05] living, old people care, which is something that we all are dealing with.

[00:01:10] With aging parents, I have an unfortunate thing that's going on in my life right

[00:01:13] now where my mom was playing tennis just yesterday and she took a really

[00:01:19] bad fall and fractured her hip.

[00:01:21] So I had to fly over and see her before she went into surgery.

[00:01:24] She got three screws into her hip.

[00:01:26] It's really unfortunate seeing this stuff, but while we're all dealing

[00:01:31] with it on a personal level, it's also something that we should be attuned

[00:01:36] to as investors because we always want to follow tailwinds.

[00:01:40] We want to follow demographic trends, population and job trends.

[00:01:44] And this is a massive trend.

[00:01:46] So it's something we wanted to learn about and figure out how to put

[00:01:49] capital behind.

[00:01:51] Yeah, no better.

[00:01:52] And this is not just not to belittle self storage investing or whatever

[00:01:56] some triple net thing, but assisted living is not just a building.

[00:02:00] It is a community.

[00:02:02] It's where people live.

[00:02:03] You have to have lots of staff.

[00:02:05] You have to have excellently seeing ability.

[00:02:08] You have to have a sophisticated operation that has food and all kinds

[00:02:11] of amenities and things like that.

[00:02:12] So when we looked for who to bring on the show, we brought on what I

[00:02:17] consider one of the top national brands or at least one of the top brands

[00:02:23] on the West Coast, Aegis Living.

[00:02:26] We brought on the guy who started that Dwayne Clark and he has just

[00:02:30] built a moat around the market in that he builds the most beautiful buildings

[00:02:35] as some of the highest rated communities in the area.

[00:02:39] He's got over 36 communities on the West Coast alone, serving over 2500 residents.

[00:02:45] He has 2500 staff and he has tons of properties and development.

[00:02:50] And actually personally, the one of the Aegis facilities is being built

[00:02:53] about a mile from my house in Seattle.

[00:02:57] And the buildings this guy builds are beautiful.

[00:03:00] And they the one that's in my neighborhood is by University of Washington

[00:03:03] and it looks just like a building you would see on the U Dub campus.

[00:03:09] And he tries to really articulate and design these buildings

[00:03:14] so that they look and feel like the neighborhoods that they serve,

[00:03:17] differentiating himself from the competition.

[00:03:19] But then the employees love working there.

[00:03:21] The guests love staying there and it's one of the highest rated places to go.

[00:03:25] So like lining all that up is really difficult.

[00:03:28] And one thing that he's done is really just man have some of his personal

[00:03:32] experience and his world class companies are modeled after places like Costco,

[00:03:37] Nordstroms, Starbucks to create a new model for assisted living.

[00:03:41] So I could tell you the billions of real estate that he has and in all these things.

[00:03:45] But at the end of the day, when you're looking to invest in assisted living,

[00:03:49] you want to find a guy like Duane.

[00:03:51] You want to find a guy who's been doing it for a long time,

[00:03:53] who has a really good track record and just is running a really great brand.

[00:03:58] So without further ado, let's get to the show.

[00:04:01] Welcome to passive income pilots where pilots upgrade their money.

[00:04:06] This is the definitive source for personal finance and investment tactics for aviators.

[00:04:12] We interview world renowned experts and share these lessons with the flying community.

[00:04:17] So if you're ready for practical knowledge and insights, let's roll.

[00:04:21] Welcome to the show, Duane.

[00:04:22] Really excited to have you.

[00:04:23] Why don't you go ahead and just talk to us about your experience in building

[00:04:29] really an empire of assisted living facilities and talking through some

[00:04:32] of the challenges that you've had and some of the things that you've done

[00:04:36] to really build a world class operation that takes care of our elders.

[00:04:41] Well, thank you. Thanks for having me.

[00:04:44] I've been involved in senior housing for about 38 years.

[00:04:48] Getting involved on more of a dare than anything else by my sister.

[00:04:51] I was working in the criminal justice system in my mid 20s.

[00:04:54] And she said, I'm on a ward of a senior housing company.

[00:04:58] Why don't you get involved in that?

[00:04:59] I laughed and said, I've been working with murderers and bankruptors.

[00:05:02] I don't know anything about old people.

[00:05:05] And so went down again, this is a 1985 didn't have laptops or iPads or computers.

[00:05:10] So it went down to the library and looked at the microfission,

[00:05:13] started studying this thing called the silver tsunami in the graying of America.

[00:05:17] And I thought, wow, this is really something that's going to be huge in our future.

[00:05:21] So went to work for a company out of Seattle,

[00:05:24] a company called Leisurecare, a phenomenal company who worked for that

[00:05:27] for seven years, got recruited away after that to be senior vice president

[00:05:32] than executive vice president of a company called Sunrise,

[00:05:35] who became the largest senior housing company in the world at one point

[00:05:39] had 500, I think 57 communities and took them public.

[00:05:43] And going public with institutional investors kind of changed

[00:05:47] the culture of that company substantially from what I fell in love with

[00:05:51] to what it became.

[00:05:53] And I think there's an inherent conflict between taking care of sweet,

[00:05:58] old people who are gentle and loving and nice

[00:06:03] and dealing with an aggressive warrior mentality.

[00:06:06] Wall Street investor.

[00:06:08] And so there's to me, there's an inherent conflict.

[00:06:10] So I'm not sure senior housing should be public in my view.

[00:06:15] So after almost five years with that company,

[00:06:18] decide I was going to build my own company that had a great culture

[00:06:21] and a great reputation and great operations and went out and sought out investors.

[00:06:27] Our first raise, we raised $10 million, burnt through that very quickly.

[00:06:31] Second raise six months later, seven and a half million, burnt through that very quickly.

[00:06:35] Third raise another five million, burned through that very quickly.

[00:06:38] And we found ourselves essentially out of money with about six weeks to go

[00:06:42] before we refinanced our first building and full cash out.

[00:06:46] And so I remember my partner calling me one day and saying, hey, we're out of money.

[00:06:50] We don't have any money for payroll.

[00:06:52] Where can you get money?

[00:06:53] And I said, I've given you my savings.

[00:06:56] We've mortgaged our house.

[00:06:57] We've backed out our credit cards.

[00:06:58] We've done all that.

[00:06:59] Only thing I have left is my son's college account.

[00:07:02] And he goes, well, we have to use it.

[00:07:04] And I go, no, he's going to UCLA next month.

[00:07:06] We can't use that.

[00:07:07] And he says, well, we got to make payroll.

[00:07:09] We'll pay you back.

[00:07:10] And so we used it to his college account to go to out for out of state tuition.

[00:07:15] And he ended up not going to UCLA because we couldn't afford it.

[00:07:18] We didn't get paid back.

[00:07:19] And he's a proud alum of University of Washington.

[00:07:22] But that's the kind of things that sacrifices that we've been in business

[00:07:27] 27, 28 years.

[00:07:29] You really reflect back on, you go, hey, this is the price I had to pay to get

[00:07:33] to today.

[00:07:34] And I think that's a message that I would share with all the real estate

[00:07:37] investors and entrepreneurs out there.

[00:07:38] You're it's not going to be easy to do.

[00:07:41] And so we've been in business 28 years now.

[00:07:44] We have about 3000 in residence, 3000 employees, almost 400 million

[00:07:48] in revenue.

[00:07:49] We opened up our 37th location in Ballard last month, our 38th this next

[00:07:54] month and Laura Hearst.

[00:07:55] And depending on what the prevailing cap rate is, which changes with the

[00:07:59] win these days between one and a half and $3 billion in real estate.

[00:08:04] So very happy.

[00:08:05] We've been voted best company work for 12 times.

[00:08:08] We've been at Glassdoor top 50.

[00:08:10] We're very happy with our culture, very proud of the reputation.

[00:08:13] And if you call the trade associations or the banks around our industry,

[00:08:17] they'll say that we are one of the top, if not the number one operator in

[00:08:22] the United States and senior housing.

[00:08:23] So.

[00:08:24] No, I think that's great.

[00:08:25] And I think sharing that sort of failure and the hard times of raising

[00:08:30] money and spending money and then becoming successful is extremely

[00:08:33] important, especially when you're thinking about finding an operator to

[00:08:37] invest with who's been battle tested and who has a tremendous

[00:08:40] amount of experience.

[00:08:41] I love the fact that you had started a career in sunrise and

[00:08:45] graduated out of that and then took the best elements.

[00:08:48] And I know you had looked in like Nordstroms and Starbucks is like

[00:08:51] building an iconic brand and then really supporting an awesome

[00:08:55] operation with the right heart to take care of seniors.

[00:08:59] And I think all of those things combining together has just

[00:09:02] built it a tremendous brand.

[00:09:04] And I, the Laurel Hearst facility that you're speaking about or care center

[00:09:08] is in my neighborhood.

[00:09:09] So I got the benefit of seeing it actually come out of the ground

[00:09:12] and being built every day.

[00:09:13] And the brand spoke to everything about that site, the funliness of the

[00:09:18] construction, how it went up and what it looks like.

[00:09:20] It's a beautiful facility, a place that I would want to put my parents

[00:09:24] or grandparents.

[00:09:25] And so I feel like you've just really established yourself as a top

[00:09:30] operator, as you've said, in the space and which is phenomenal.

[00:09:34] Making this kind of relative to sort of an investor who's

[00:09:37] listening to this, who's looking for investing in this

[00:09:41] the space assisted living.

[00:09:43] Can you speak to the demographics?

[00:09:45] What's going on in this country right now with how many baby boomers are

[00:09:49] now becoming your customers or part of these assisted living facilities

[00:09:53] as they age out and how that maybe compares to the number of people

[00:09:57] that were doing that in the past.

[00:09:59] Yeah, I think this is a very unique time in terms of senior housing,

[00:10:03] assisted living, whatever we want to call it.

[00:10:05] I would differentiate skilled nursing from assisted living.

[00:10:09] That's an entirely different industry and regulated, different

[00:10:12] license, different everything else.

[00:10:14] But in terms of senior housing during World War Two, when everyone

[00:10:18] came home, we had all these births right in 1946 that we saw a huge

[00:10:23] increase in the birthing of babies and those people now in 2026

[00:10:28] are going to be 80 years old.

[00:10:30] So there's a tremendous opportunity for these aging people to

[00:10:34] move into senior housing, average age to move in.

[00:10:37] It's about 81, 82.

[00:10:39] And what's happened is that because of COVID, because of the interest

[00:10:46] rates that have been rising, we've not had any new supply in four years.

[00:10:50] We were one of the few builders and operators in the country to have

[00:10:54] new properties come on.

[00:10:55] We've had five come in the last four years and about to have our six.

[00:10:59] So that's been very unusual, but hardly any I can think of two

[00:11:03] other than us in the Seattle area.

[00:11:06] And so we have this kind of inverse situation where we have a huge

[00:11:13] growing demand from that goes from 2026 to or about 18 years of these

[00:11:19] baby boomers, these 80 plus people that are coming in with no new supply.

[00:11:24] In addition to that, Alzheimer's, which is a horrible disease,

[00:11:27] actually killed my own mother who was a resident of ages, that

[00:11:30] demographic within the aging demographic who's growing at a

[00:11:34] rapid rate, we have about five and a half or six million people in

[00:11:36] the United States growing, no cure in sight.

[00:11:40] There's things that slow down this disease, but nothing even close to curing it.

[00:11:44] That number could hit 10 million in the next 15 to 20 years.

[00:11:48] So in Alzheimer's residents are about 35 to 40% of the component

[00:11:53] within senior housing.

[00:11:54] So that's a big demographic within it.

[00:11:57] So this is a unique time for senior housing in that you have

[00:12:00] this growing demand factor and not enough supply because of interest rates

[00:12:04] and the lack of building during COVID.

[00:12:06] And the other thing that's really going to stop building, I have a call

[00:12:11] with Well Tower, which is one of the largest REITs in the country is a

[00:12:15] major supplier of senior housing capital tomorrow.

[00:12:19] And they stopped developing.

[00:12:21] And in large part, these big REITs have stopped developing and buying

[00:12:26] stuff because there's not enough operational talent.

[00:12:29] Right.

[00:12:30] And so the A operators, I mean, we have a capacity to see we can do two or three

[00:12:34] year. Some people like, I'm going to do 20 a year.

[00:12:37] Right. Well, this is not like making lot case, you know, you can make 20

[00:12:42] lot days a day and screw up four of them be okay.

[00:12:44] Right.

[00:12:45] You can't build 20 senior housing and screw up four of them because

[00:12:49] people die.

[00:12:50] And so we've always been in a quality, always over quantity and

[00:12:57] making sure that we do things really right.

[00:13:00] And we pick the sites right, that the construction's right, that we

[00:13:03] build buildings to the neighborhood.

[00:13:06] I mean, we look and say, okay, what kind of building do we want to

[00:13:09] build almost on the UW campus and Laurelhurst?

[00:13:11] Oh, well, it should look like a sorority or a frat house.

[00:13:14] Right.

[00:13:14] And so let's build with that old gothic architecture because

[00:13:17] that fits the neighborhood.

[00:13:18] In Ballard, we built a building that looks like an old

[00:13:21] fish cannery.

[00:13:22] Very cool inside, but we even have a Viking ship that's hanging

[00:13:26] from the ceiling.

[00:13:27] So you look at these things and you say, well, these people

[00:13:30] obviously chose this neighborhood because they like it.

[00:13:33] Right.

[00:13:33] There's things, there's history or elements in this neighborhood.

[00:13:36] This people like, why not build that into the architecture?

[00:13:39] That's very different.

[00:13:40] We're the only people in the country who do that.

[00:13:42] Right.

[00:13:43] We built a building in Lake Union, very popular building.

[00:13:46] By the way, the greenest senior housing building in the world

[00:13:49] we built and was right off Lake Union where the boys in

[00:13:53] the boats practice.

[00:13:53] So we did a whole theme on boys of the boat, have a skiff

[00:13:56] running down the lobbies you enter, have murals of boys in

[00:14:00] the boat, had the grandchildren of the boys in the boat, had

[00:14:02] the UW growing team open the building.

[00:14:05] So again, we do things a little differently.

[00:14:09] Our Alzheimer's unit in Laurelhurst has a miniature

[00:14:13] Husky football field in it in the building.

[00:14:16] We've had, we have a helmet car in the building.

[00:14:18] Right.

[00:14:19] So and for those not in Seattle, that's because

[00:14:22] UW campus is literally right down University of Washington.

[00:14:24] It's right down the street.

[00:14:25] Across the street.

[00:14:26] Yeah.

[00:14:26] Right.

[00:14:26] Yeah.

[00:14:27] So he's matching the university to court.

[00:14:29] So very cool.

[00:14:30] Yeah.

[00:14:31] And so I would just speak to the entrepreneurs out there.

[00:14:35] It's just not getting into an industry.

[00:14:37] It's how are you going to turn an industry upside down

[00:14:40] and put your mark on it?

[00:14:42] Put your brand on it, right?

[00:14:44] Hey, I do this different than anyone else.

[00:14:46] I do it better than anyone else.

[00:14:48] And that becomes your brand.

[00:14:49] That becomes your signature of how you differentiate yourself

[00:14:53] and hopefully that equates to value.

[00:14:55] And Dwayne, that's so incredible to hear.

[00:14:56] I mean, that's the special sauce, right?

[00:14:58] That sometimes is hard to quantify on a spreadsheet,

[00:15:02] but makes successful operators incredibly successful.

[00:15:06] We were turned on by or turned on to the Silver Tsunami,

[00:15:10] as they call it, right?

[00:15:11] I don't know, four or five years ago at a real estate conference,

[00:15:13] someone was presenting and showed this bar graph of the population

[00:15:18] by age of the entire US.

[00:15:20] And there's just this massive wave.

[00:15:23] And so that's the demand side.

[00:15:25] I wasn't actually aware of the constraints on the supply side due to COVID.

[00:15:31] You were saying that occupancy, I think we chatted earlier,

[00:15:34] said occupancy prior to COVID was about 93 percent

[00:15:37] to drop to 77 percent during COVID.

[00:15:39] Yeah, 16 percent drop.

[00:15:41] Yeah.

[00:15:41] It's about 84 now.

[00:15:42] It's coming back up, but not at pre-COVID levels.

[00:15:47] So I was very aware of the demand side.

[00:15:50] I wasn't as aware of the lack of supply at the same time.

[00:15:54] And it's always been on our radar as an incredibly

[00:15:58] investable asset class, but on that note,

[00:16:01] it's a very complex asset class, right?

[00:16:03] Because this isn't and this is what I've told some of our investors

[00:16:06] that ask about it, hey, are you guys going to do some senior living?

[00:16:10] And well, this isn't stealth storage.

[00:16:12] This isn't multifamily.

[00:16:13] This is very complex.

[00:16:14] This takes very sophisticated operators that know what they're doing.

[00:16:18] And so we want to take our time to get to know the asset class.

[00:16:20] So on that note, what are the different tiers?

[00:16:24] You mentioned that assisted living, I'm sorry, assisted living

[00:16:27] and senior housing were totally different asset classes.

[00:16:29] What are all of the different subcategories within it?

[00:16:33] Well, if you came to town and said, hey, Dwayne,

[00:16:35] I'd like a place to a room to rent tonight.

[00:16:37] Can you give me a recommendation?

[00:16:39] Say, sure. You can go to Motel 6.

[00:16:43] You can go to Ramon in, go to Marriott, go to Comfort Inn.

[00:16:47] You can go to Ritz Carlton.

[00:16:48] You go to Four Seasons.

[00:16:49] But you can rent a room in somebody's house through Airbnb.

[00:16:53] So there's gradations of quality, right?

[00:16:57] So that's the first aspect.

[00:16:58] And then on the other axis, there's gradation and care, right?

[00:17:02] So you have independent, we have senior apartments where it's just,

[00:17:05] hey, it's age regulated and there's no services.

[00:17:08] And you have independent living where there's,

[00:17:10] you get some meals and some housekeeping, some activities.

[00:17:13] And then you get into assisted living

[00:17:15] where you get care, help with bathing and dressing

[00:17:18] and those kinds of things, medication.

[00:17:21] And then you get into Alzheimer's care, which is 24 hour intense care

[00:17:25] where people wander or have different kind of behavior issues and so on.

[00:17:29] And then one of the things that we discovered 25, 30 years ago

[00:17:33] is that most of the people that were living in nursing homes

[00:17:36] could live adequate productive lives

[00:17:39] in a better environment than a skilled nursing home.

[00:17:41] Two or three people per room and playing in bed all day.

[00:17:45] And you come into one of our buildings, you go into Laurelhurst.

[00:17:47] It looks like a Four Seasons hotel.

[00:17:49] And you have your own private room and you have chefs

[00:17:51] that worked at the best restaurants in town

[00:17:54] and you've got managers that worked in five-star hotels.

[00:17:58] And it's a different level of service, right?

[00:18:01] And that's what my vision was is to be the Four Seasons of senior housing.

[00:18:05] And so we hire people from Four Seasons because we want that training.

[00:18:09] We want that expertise, right?

[00:18:11] And the difficulty for investors to understand

[00:18:15] the first question everybody should ask is, who's the management company?

[00:18:19] Because there's lots and lots of people that want to take your money

[00:18:22] and say, hey, we're the experts in this, we're naturally known and blah, blah, blah.

[00:18:26] And don't fall for the fact just because they have a lot of buildings,

[00:18:29] they're good. You can have a lot of buildings be crap.

[00:18:31] Motel 6 has a lot of buildings, right?

[00:18:34] So that doesn't mean they're the customer service expert in the hotel with this space, right?

[00:18:39] So I think in my view, having done this 38 years,

[00:18:44] the people that rule these industry are what I call the super regional operators, right?

[00:18:50] They have between 20, 25 communities and 60 communities, right?

[00:18:56] They know their space really well.

[00:18:58] They don't grow it too quickly.

[00:19:01] They have really good managers seasoned up.

[00:19:05] I mean, when you go and you talk to the managers,

[00:19:07] if you go and compare buildings,

[00:19:09] you'll know who an Agist manager is versus a inferior competitor.

[00:19:14] Just by how they talk, how they present themselves.

[00:19:16] In fact, almost every year, the licensing people in Washington, California,

[00:19:20] because you have to send your administrators through a licensing course

[00:19:23] for three or four days, they almost always call me.

[00:19:25] And they said, I know who the Agist managers were before anyone said anything.

[00:19:29] The way they dress, the way they talk, the way they look, everything else.

[00:19:31] So it's a complex industry.

[00:19:35] It's also capital intensive.

[00:19:36] I mean, this is not an industry for someone who wants to invest $10,000, right?

[00:19:41] We have 300 and I think 23 investors, all private individuals.

[00:19:46] I think there are 70 some of those that are staff.

[00:19:50] So about 250 people that almost all of them are my friends

[00:19:54] would take any investment under $250,000, $300,000.

[00:19:58] These things are capital intensive.

[00:20:00] I mean, a new building, a Laurel Hurst is $125,000, $130 million, right?

[00:20:05] With 30 to 35 percent capital contribution.

[00:20:08] You're talking about $40 million raised with friends and family.

[00:20:13] So we like people who can write a million dollar check

[00:20:15] and because I don't want to have 150 investors.

[00:20:18] So typically on a property, we'll have anywhere from 30 to 55 investors on a property.

[00:20:24] But again, it's capital intensive.

[00:20:26] But if you look at the five top investments here in the last year,

[00:20:31] storage was one of them, right?

[00:20:33] And senior housing was another.

[00:20:35] And so those are always if they're not one, they're two and three.

[00:20:39] And that's why I think this industry is so compelling

[00:20:43] and it's just going to get even more compelling here in the next 24 months.

[00:20:48] That's interesting.

[00:20:48] What when you think about the cost, right?

[00:20:51] You say it's more complex, it's more capital intensive.

[00:20:54] You're building a building.

[00:20:55] You're basically building a four seasons hotel from the sound of it

[00:20:58] with a lot of unique features.

[00:21:00] But let's get if you don't mind, let's talk about OPEX,

[00:21:03] just the staff, the cost, the meals, running the facility

[00:21:08] and kind of scale that a little bit.

[00:21:09] I feel like I always wonder if you earn a dollar of revenue,

[00:21:12] typically what is your expense going to be before debt service

[00:21:15] on something like that?

[00:21:16] If you don't mind sharing.

[00:21:17] Yeah, you're probably looking at anywhere depending on the size

[00:21:20] of the building and what market it's in.

[00:21:22] And we're from 28 to 40 percent.

[00:21:25] OK, probably averages low 30s.

[00:21:28] OK, that's actually a lower expense ratio

[00:21:30] than I would have thought to give the audience some context.

[00:21:31] A multifamily building is usually about 50 percent.

[00:21:34] So that just speaks to the amount of revenue that you're generating, right?

[00:21:36] Yeah, I mean, third unit apartment building.

[00:21:38] I mean, I don't know what generates five million, six million dollars

[00:21:41] in revenue, 100 units in your housing building can generate

[00:21:45] 15 million. Right.

[00:21:47] So you obviously have a lot more overhead,

[00:21:49] but there's also a lot more revenue.

[00:21:50] It gets down to, OK, why invest?

[00:21:52] Because you were talking about how as a public company,

[00:21:56] they have a fiduciary to their investors, right, to put profits first.

[00:22:00] And that's the antithesis of what you're trying to accomplish

[00:22:03] with senior living, which is putting care first.

[00:22:06] But there's obviously money in it, right?

[00:22:07] So so why invest for a dollar of profit in this versus a dollar of profit here?

[00:22:12] And can you walk us through the I don't know, the economics behind it

[00:22:16] versus some other asset classes?

[00:22:18] Yeah, I think first of all, people like diversity, right?

[00:22:22] So so investing in all multifamily the rest of your life

[00:22:26] may not be the best thing to do. Right.

[00:22:27] The second thing is that as we talked about, the demographics are growing.

[00:22:31] So if we put out a packet today,

[00:22:35] your IRR is probably going to be around 14 percent, 13, 14 percent.

[00:22:39] You get a profit out of the gate of seven all in after refies, probably 13, 14 percent.

[00:22:45] A lot of that will depend on what interest rates are doing, obviously.

[00:22:48] That's not that much different than an apartment complex, right?

[00:22:53] What I think is going to change dramatically is the cap rate.

[00:22:57] Right. And the cap rate will change dramatically

[00:23:00] as you have less supply and more demand, right?

[00:23:03] And so what you're essentially betting on is that demographic surge

[00:23:08] and going, hmm, this cap rate in five years could be super compelling.

[00:23:13] So that's the bet. That's super interesting.

[00:23:15] Can you talk to there's a lot of listeners who probably have parents

[00:23:19] who are about to age into an assisted living facility?

[00:23:23] Could you speak to what they should be looking for?

[00:23:26] And the traps people get stuck in.

[00:23:30] The other thing too that I'm really interested in is the stuff isn't cheap.

[00:23:33] And as a caring son, I mean, I want to make sure my parents are well cared for.

[00:23:38] But sometimes financially there might not be enough resources there

[00:23:43] to care or put someone in a nice facility.

[00:23:46] You know, kind of speak to that dynamic a little bit if you don't mind.

[00:23:49] Yeah. So let me take the last question first.

[00:23:52] If you look at America, depending on what city you're in,

[00:23:55] anywhere from 67 to 75 percent of people own home, right?

[00:23:59] And so we go into areas where the average house

[00:24:04] values at least $800,000 up to where an area is where its average

[00:24:08] house values two and a half million.

[00:24:09] And so we will not build in an area where it's less than that.

[00:24:14] OK. And the reason for that is because those people then take that equity

[00:24:19] and pay for care. You don't have to be rich to live in ages.

[00:24:21] So you just have to have a loan to own, right?

[00:24:24] And if you think of the average 82 year old, they probably have some social security.

[00:24:29] Maybe they have an IRA, maybe they have a pension.

[00:24:32] Some of those and some other asset stocks, whatever.

[00:24:35] So maybe that's three thousand a month combined.

[00:24:39] It's not a lot. It's two or three thousand dollars a month.

[00:24:41] OK. Depending on where you live, you're going to have house equity.

[00:24:46] That's it going to be anywhere from again, their houses are paid off.

[00:24:50] So they're not going to mortgage on it.

[00:24:51] They didn't take a mortgage out at 70, probably, hopefully.

[00:24:55] But, you know, they're going to have eight hundred thousand dollars in equity.

[00:24:57] I mean, today in a treasury, if you put that out,

[00:25:00] you're going to have thirty five hundred dollars a month on top of that.

[00:25:03] Right? So you're looking at, OK, I probably have sixty five hundred dollars

[00:25:08] coming in a month, right?

[00:25:10] Before I dip into my equity, people don't move into our billions

[00:25:15] into the last two to three years of their life.

[00:25:18] Right. And the cost, there's a variety of variables in the cost.

[00:25:23] First of all, you have to understand where what's the driving focus of cost.

[00:25:28] I've a building in Linwood that's forty percent cheaper than the building in Bellevue.

[00:25:34] Why? Land cost, right? Land cost, operating cost.

[00:25:39] My staff in Linwood, they take less their hourly wages, less than that in Bellevue.

[00:25:44] Right. You have to look at that.

[00:25:46] I have a building in Kent, much less than the one of Mercer Island.

[00:25:49] Right. So it's not that we want to charge as much as we can in these

[00:25:54] buildings, market sets the tone for that.

[00:25:57] Right. And then the two biggest expenses are your mortgage costs and your salaries.

[00:26:01] Right. And so those are driven by location.

[00:26:04] So if you want to live in Bellevue or Mercer Island or Laurelhurst,

[00:26:08] you're going to pay for that convenience of what that location is,

[00:26:11] not unlike a hotel or an apartment house or anything else.

[00:26:15] The cost, what is the cost?

[00:26:17] Well, depends on what apartment, what building you choose first,

[00:26:20] then what apartment you choose.

[00:26:21] So I mean, it could be anywhere from $6,000.

[00:26:24] Now keep in mind that's not just an apartment.

[00:26:26] That's all your meals.

[00:26:28] That's oversight.

[00:26:29] That's activities.

[00:26:29] That's laundry.

[00:26:30] That's transportation.

[00:26:31] That's housekeeping.

[00:26:32] That's your utilities.

[00:26:33] I mean, all these things that you would normally pay for,

[00:26:36] but it could go up to 10, 11, 12,000 if you want the penthouse.

[00:26:40] Right. And then care is done on frequency.

[00:26:44] How many baths you get?

[00:26:45] How long that takes?

[00:26:46] Whatever. And that runs the gamut.

[00:26:48] I mean, you have people that need $1,000 worth of care

[00:26:52] and you need people that need $20,000 worth of care

[00:26:54] just depend on how frail they are.

[00:26:56] So but the misconception for most people is that I have to be rich to do this.

[00:27:01] Most of our people are nurses or Boeing employees or mailmen.

[00:27:05] They're not rich, but they bought a house in Magnolia 40 years ago

[00:27:10] and it's worth $1.5 million.

[00:27:12] So now they don't spend all of that,

[00:27:14] but they may spend depending on what their other residual income is,

[00:27:19] they may spend a hundred of it or 200 of it,

[00:27:22] but they're not going to spend 500 of it.

[00:27:24] That makes sense.

[00:27:25] That's so great.

[00:27:26] I know you've been dying to jump in. Go ahead.

[00:27:28] Yeah, just continuing on the actionable information

[00:27:31] for a lot of our listeners who are in the prime working years of their

[00:27:34] careers and they're trying to be smarter with their money.

[00:27:37] They're right in that age demographic where, unfortunately,

[00:27:40] it's something we all have to deal with is aging parents.

[00:27:42] How do you broach that conversation with your parents?

[00:27:45] How do you avoid getting taken advantage of by something that you don't know?

[00:27:50] What's what are some advice?

[00:27:51] What's some advice that you could give to the working aged

[00:27:56] kids of parents who are aging?

[00:27:57] It's a great question and ironically, and you guys didn't know this,

[00:28:00] but I'm writing a book because it's been asked of me so many times

[00:28:04] called Where's Your Purse is the name of the book guide for children

[00:28:08] with aging parents.

[00:28:10] So I have been writing that book for a year and a half.

[00:28:12] It'll probably come out sometime mid next year.

[00:28:15] And it's filled with so many tips, probably 30 chapters of like,

[00:28:20] when do you tell your mom to stop driving?

[00:28:22] When do you take the keys?

[00:28:24] How do you avoid senior fraud, the people that call and try to get money

[00:28:28] from people? How do you know when it's time to move your mom into a

[00:28:31] community? How do you prevent falls?

[00:28:34] How do you grant their independence and dignity while making sure to say,

[00:28:39] I mean, all these things that people freak out about, right?

[00:28:42] So we could do a two hour show on those things and maybe we'll do a show

[00:28:46] when the book comes out.

[00:28:47] But it's there's so many things, right?

[00:28:49] My mother-in-law is 88 and phenomenal person lives independently,

[00:28:54] refuses to move into one of Duane's communities.

[00:28:57] And as her loving children, she has six of them look at her and say,

[00:29:01] geez, mom, when's it going to be time?

[00:29:03] At the end of the day, the generic answer is this, Tate,

[00:29:07] you want to make sure that the person's safe, right?

[00:29:10] And you want to make sure the person people around them are safe.

[00:29:13] So if somebody starts a fire in their living room and it burns their

[00:29:19] apartment down in the whole complex, it's time.

[00:29:21] And there's little indicators before that happens, right?

[00:29:25] And my own mother, I mean, I'm an expert in senior housing and aging

[00:29:29] and longevity and Alzheimer's.

[00:29:31] My own mother, it probably, I probably took a year or two long

[00:29:34] to make the decision.

[00:29:36] And the crime about this, the crime guys is the fact that people will

[00:29:41] actually age better in a community, right?

[00:29:44] Now, people say, well, of course you're going to say that you're the

[00:29:47] owner of a senior housing community, but let me give you the science

[00:29:50] and the statistic behind it.

[00:29:52] The number one reason that people live long is their community.

[00:29:56] You don't believe me.

[00:29:57] The longest study in the in aging is called the Grant Study

[00:30:00] that was done by Harvard 82 years ago.

[00:30:02] They studied genetics, food, exercise, everything.

[00:30:06] And they found that if you had a active community and you were in

[00:30:10] a happy relationship that you would live as long as seven years longer.

[00:30:14] What's killing our elderly is the isolation at home, right?

[00:30:17] Well, they have no one.

[00:30:18] They don't have any purpose.

[00:30:19] There's nothing, no reason to get out of bed.

[00:30:21] They don't eat properly.

[00:30:23] Those are the things that kill people at home.

[00:30:25] So you want to look at it.

[00:30:27] And I've personally gone to literally dozens of people's homes to assess them

[00:30:33] and open their refrigerator and they've got a pint of ice cream

[00:30:36] and maybe eggs that were bought four months ago, right?

[00:30:40] That's what they have.

[00:30:41] And they're not poor people.

[00:30:42] These are wealthy people that are just not, their care is not being overseen correctly.

[00:30:47] I could tell you dozens of stories of how when people move in

[00:30:50] and they don't look well and you're like, geez, I don't know how long

[00:30:53] they're going to live.

[00:30:54] And I see them a month later and the color in their face is remarkable.

[00:30:57] They have six friends sitting with them at dinner.

[00:31:00] They're laughing, they're drinking wine at night

[00:31:02] and they're going out on a pilgrimage to the Seattle Art Museum, right?

[00:31:08] So that's amazing.

[00:31:09] You have to have community to survive and you have to have oversight.

[00:31:13] So those are two things that being in senior housing provide.

[00:31:16] That's fantastic.

[00:31:17] It was great advice.

[00:31:18] You've seemed to have mastered operations, marketing, branding.

[00:31:24] Good people love working for you clearly, all while balancing elderly care,

[00:31:30] which is very delicate and you've done it at scale.

[00:31:34] I know that you talked about slow growth and that, but you've really scaled this.

[00:31:39] I mean, you've scaled it correctly and scaled it right.

[00:31:42] Is there somebody in your life or an inflection point

[00:31:45] that really made you who you are as an individual?

[00:31:49] Because that is a very powerful thing that you've done to have all this balance together.

[00:31:55] As a real estate operator, I am extremely proud of you have done an exceptional thing.

[00:32:01] That's a Rubicon of everything that I'm trying to do as a real estate operator

[00:32:05] is getting people to love working there, taking care of your customer,

[00:32:09] building a memorable brand that people will not forget

[00:32:13] and really just distinguishing yourself.

[00:32:14] I'm not sure our listeners have ever been to an ages facility,

[00:32:17] but it really speaks volumes when you see it.

[00:32:21] But yeah, Dwayne, I'd love to hear your thoughts on how that became to be,

[00:32:24] how you acquired all that sort of fortitude to get to where you are today.

[00:32:28] Well, there's obviously dozens and dozens of people

[00:32:32] that I've stood on the shoulders of to get to today.

[00:32:35] So I mean, my mother was a huge influence over me about having good relationships

[00:32:40] with people and she was a I came from an impoverished family.

[00:32:43] My mother was a single mom that raised four kids, put them in college,

[00:32:47] was a line cook in a restaurant. Very poor family.

[00:32:50] I think I have this organization, a foundation that I started called D1.

[00:32:55] We mentor kids of color who are the best football players in the state.

[00:32:58] And we had a meeting last night and at one of the meetings,

[00:33:03] we have CEO nights with three CEO, three prominent CEOs in Seattle,

[00:33:06] come in and speak to these kids.

[00:33:08] And the similar question was asked them.

[00:33:10] And my answer when they asked me this question was

[00:33:14] the greatest teacher in life is adversity, right?

[00:33:17] That if you look at all the bad things that happened to you

[00:33:21] and you have a choice, you can waltz and be a victim or you can go, oh, my God,

[00:33:25] that's such a valuable teaching moment.

[00:33:27] Right. My grandmother lived in our house for 12 years

[00:33:30] until she broke her hip and went to a nursing home.

[00:33:32] My mom used to go see her every day.

[00:33:34] She broke her hip when I was 12.

[00:33:36] She lived two years in nursing home and then died.

[00:33:38] I think that influenced me a lot because I saw this very proud woman.

[00:33:41] She spoke four languages on her own business in the 1930s, had 13 children.

[00:33:47] I mean, she was my grandmother was a rock star, right?

[00:33:50] And I saw how she was treated.

[00:33:52] I went, oh, my God, don't they know who my grandmother is?

[00:33:54] She's like a rock star.

[00:33:56] She wasn't treated very well.

[00:33:57] My mom being a line cook and having abusive bosses

[00:34:01] and coming home with bird marks on her arms and grease stains on her face

[00:34:04] and everything working 12 hour shifts for barely minimum wage,

[00:34:07] that influenced me.

[00:34:09] So, you know, oftentimes we look at these things that happen to us

[00:34:14] and we say, oh, God, I have nine grandchildren, two kids, but nine grandkids.

[00:34:19] They have no other hobbies other than having children.

[00:34:22] And so, you know, I look at them and I try to inspire them and say,

[00:34:25] hey, the bad things that happened to you, you're going to thank your life

[00:34:30] for giving you those bad things because those are the latter.

[00:34:35] The rungs on the ladder that help propel you to success.

[00:34:38] If you stop at one rung, you're done, right?

[00:34:40] The first obstacle that comes in your way, you're done.

[00:34:43] Obviously many people have influenced me and taught me how to be, I think,

[00:34:47] characters incredibly important and incredibly short supply

[00:34:51] in today's business environment.

[00:34:52] I also think if you're an entrepreneur out there,

[00:34:55] doesn't matter where you went to school,

[00:34:56] who your parents were, how much money you had, who you know,

[00:35:00] you better have resilience and persistence because that's the ticket to the game.

[00:35:04] If you can just keep going through the fire and have resilience and persistence,

[00:35:08] you could have got all F's in school and left at eighth grade.

[00:35:11] But if you have that, that hey, I'm never going to quit.

[00:35:16] That's what makes good athletes.

[00:35:17] It makes good soldiers.

[00:35:18] That's what makes good business people.

[00:35:20] And so, that's my perspective on life is that, hey, you may hit me hard

[00:35:26] and I may go down, but I'm never going to stay down

[00:35:28] and I'm just going to keep fighting.

[00:35:30] I'll be 66 this year and I have no plans to retire.

[00:35:33] And I love what I do and they're going to have to drag me out.

[00:35:37] Love that.

[00:35:39] Love that.

[00:35:40] Dwayne, you've been very generous with your time

[00:35:42] and we really appreciate you coming on.

[00:35:43] My last question, maybe Tate has one more as well, but

[00:35:46] what's something on the last investing related?

[00:35:50] What's something for our listeners that maybe you've learned in the last six months

[00:35:54] that you didn't know about investing or that was an epiphany in investing that

[00:35:58] you've recently thought of, maybe you're like, man, after all these years of experience,

[00:36:04] over 35 years in the industry and as an investor in real estate and assisted living and working

[00:36:10] in a previous organization, what's something new that you've taken away in the last six months?

[00:36:15] Well, I think we're at a time in our history where we never seen interest rates do this.

[00:36:20] We used to, because we were getting 3.5% loans,

[00:36:24] we would stress our properties at 7%.

[00:36:27] And I'd go, well, it's not going to go up 350 basis points.

[00:36:30] That's never going to happen.

[00:36:34] And I had proof points that you go back 30, 40 years and go, this has never happened.

[00:36:37] It's not going to happen.

[00:36:38] And when people say, well, how much margin you have?

[00:36:40] Well, I'm 350 basis points margin.

[00:36:42] Oh, that's a lot.

[00:36:43] It's wildly conservative.

[00:36:45] Now look at them going, huh.

[00:36:46] Yeah.

[00:36:47] But it's just a shocker.

[00:36:52] I'm stunned by what interest rates have done.

[00:36:54] And I think anyone that's listening to this podcast,

[00:36:58] I mean, what goes up must come down.

[00:37:02] It's not going to be as optimistic as I thought.

[00:37:03] You're not going to have a Fed reduction here.

[00:37:06] This next meeting, probably not in summer,

[00:37:08] I predict probably 25 basis points drop before the election

[00:37:11] is because it's politically smart to do it.

[00:37:13] As much as we say elections don't influence it, the election will influence it.

[00:37:17] And then you'll probably see 50 to 75 points next year.

[00:37:20] But even for a savvy real estate investor like me, that's a wake-up call.

[00:37:25] This is great at a scar on my memory banks about you can never be too careful.

[00:37:29] Now we're fine.

[00:37:30] We have a big balance sheet and we're going to do great.

[00:37:33] But you can never have too big a balance sheet.

[00:37:36] And banks do crazy things when they start freaking out about this stuff.

[00:37:40] I mean, they've called us.

[00:37:41] They've never asked us to pay down a loan.

[00:37:43] But they called us and made the remark,

[00:37:45] we've asked almost every one of your competitors to pay down their loans.

[00:37:49] And I go, well, I hope you're not asking me because I'm not going to do it.

[00:37:51] They're like, no, we're not asking you.

[00:37:53] But that's painful.

[00:37:55] And somebody, they come in one day and you go, well, we got three loans with you

[00:37:58] and you got to pay down $5 million on this one and $20 million on this one,

[00:38:01] $18 million on this one.

[00:38:02] You don't have any place to go.

[00:38:04] So you just got to think that stuff out and make sure you have a good solution.

[00:38:08] That's great.

[00:38:08] Well, Dwayne, last question.

[00:38:09] Obviously at the end we want to hear about how people can find out more about AGS.

[00:38:14] But before we get there, for people who are interested on the investment side

[00:38:19] of senior living and on the I have an aged parent and I want to find out more,

[00:38:25] are there resources on either side of the table for those people?

[00:38:28] Sure.

[00:38:28] I mean, you can obviously go to our website, AGSLiving.com, A-E-T-I-S, Living.com.

[00:38:34] I have my own website, which is Dwayne, D-W-A-Y-N-E-J, just the letter, clarkclarkclare-r-k.com.

[00:38:42] So those are two ways to track us down.

[00:38:44] I'm happy to give you my emails as well.

[00:38:47] If you have questions about your aging parents or even about investments,

[00:38:50] it doesn't have to be in ages.

[00:38:51] We're not actively looking for investors, but we always willing to educate people

[00:38:56] about the industry.

[00:38:57] So my email is dwaynedwayne.farkclare-r-k at AGSLiving.com.

[00:39:03] So happy to answer those questions and be a resource.

[00:39:06] And I probably have three people a week that ask me about their parents and what to do.

[00:39:12] When ages is not right for everyone, we feel we're the best option out there,

[00:39:17] but it may not be the right location or maybe an economic issue or they may have a parent

[00:39:22] in St. Louis they want to put someone in.

[00:39:24] But I can tell you, I'm probably one phone call away from every operator

[00:39:27] in this industry because I grew up in it know it well.

[00:39:30] So I can tell you if they're good, bad or about to go bankrupt.

[00:39:35] Very kind of you to share your email on the air like that.

[00:39:38] A guy that says, busy as you.

[00:39:39] So we appreciate that.

[00:39:40] Thank you.

[00:39:41] My pleasure.

[00:39:42] Well thanks Dwayne for coming on and to our listeners,

[00:39:45] we'll catch you on the next episode.