By Tim Mullaney | November 19, 2019
Cedar Communities, a recently formed senior living private equity firm and operating company, has been busy. Since July, Cedar has acquired five communities, providing momentum for further growth in 2020.
Cedar was founded a little over two years ago and is building a portfolio of “boutique-sized” facilities in the U.S. Southeast, co-founder and Managing Director Richard Foster told Senior Housing News.
Last week, the firm announced its most recent acquisitions, of Brookside of Stone Mountain and Brookside of Commerce. Both communities are located in Georgia and together have 82 assisted living units and 12 independent living units.
The Brookside deal came on the heels of Cedar acquiring two other buildings — Birch Gardens and Birch Ridge — located in Staunton, Virginia, with 55 total assisted living units. Prior to that, Cedar in July acquired a 34-unit assisted living building in Commerce, Georgia.
Cedar did not disclose the acquisition price for any of these transactions.
In total, the company now has a portfolio of six properties and is aiming to deploy about $15 million in equity to double in size next year, Foster told SHN.
He and Cedar’s other co-founders — Scott Lockwood and Anthony Manetta — formed the company after identifying a demographic wave of older adults moving to the Southeast, and a potential niche in acquiring modestly sized communities in smaller markets. Foster brings experience in M&A and raising capital, while Lockwood is a 40-year veteran of the senior housing and care industry. Manetta has both operational and finance experience.
The typical acquisition target for Cedar is a building constructed in the 1990s and renovated in the early- to mid-2000s, Foster said. The company is not looking to make substantial CapEx investments but will spruce up a building, and maintains the existing branding to take advantage of local familiarity with the communities.
Cedar’s real value-add is in tuning up the operations to drive net operating income (NOI), according to Foster. With Lockwood and Manetta on board, the idea was always to both invest in buildings and operate them.
Although he did not want to disclose too many details about Cedar’s operational approach, Foster emphasized that the focus is on the top line.
“Our goal is not to go in there like the big bad wolf and fire people,” he said. “We rarely get rid of anybody. It’s about boosting up the revenues.”
The company is also trying to build efficiencies of scale by creating concentrated footprints — for example, it now has two properties in the town of Commerce, about 20 miles north of Athens, Georgia.
The firm’s first acquisition was a 31-unit, 49-bed assisted living and memory care community in Santee, South Carolina. That was a test case that proved out the owner/operator model, Foster said, generating a 4x cash-on-cash return to investors in about 13 months.
“Because we control the whole process we can deliver higher returns … [investors] get the security of a real estate investment but returns of a PE deal,” Foster said. “That’s one of the main reasons investors would elect to put their money with Cedar rather than a larger, more well known player. They don’t have to worry about a breakup with our operator.”
The hands-on, local focus also helps with challenges such as staffing, Foster said.
“Thee employees aren’t just a number,” he explained. “ … You’re a huge company, don’t know who your staff are, they’re not going to stay.”
Given that Cedar is targeting smaller markets, Foster is not overly concerned about threats from new supply or with acquisition prices becoming too steep — although he does see prices rising.
“We don’t really see that as a negative, we think it’s great for the industry,” he said. “And for us and our investors, that gives us a great opportunity, knowing that we get in at x-price but the market is trending up.”
In terms of sourcing deals, often they are situations in which mom-and-pop owners are retiring and looking for an exit strategy.
So far, Cedar has not encountered any major stumbling blocks on executing its plans. There have been some hiccups, such as with finding the right local vendors to work with, Foster said.
To support the company’s ongoing growth, Cedar will build out its back office next year, including bringing on a portfolio manager. Doing third-party management is not off the table, although it is not a core part of the go-forward strategy.
“It’s something we would consider if the right opportunity came along, but we’re much more interested in owning real estate,” Foster said.