Until recently, Vintage Senior Living was a relatively small owner and operator with less than a dozen properties in its portfolio. Now, the company has vaulted into the major leagues of seniors housing investment following its $225 million joint venture with the California State Teachers' Retirement System (CalSTRS), the nation's second-largest public pension fund.

A private company, Vintage experienced incremental growth from its founding in the late 1990s to 2007, amassing 10 assets in Southern California. By this summer, the company had more than doubled in size. Vintage now owns and operates 21 properties totaling about 2,500 units, including properties in Washington state and Arizona.

The deal with CalSTRS is to finance the acquisition, development and management of seniors housing properties. The joint venture, VinCal LLC — 90% equity from CalSTRS, 10% from Vintage — marked the first time the giant retirement fund had created a partnership focusing solely on seniors housing.

Fortunate timing

“I have to admit that luck was a factor in partnering with CalSTRS,” says Eric Davidson, CEO of Newport, Calif.-based Vintage. “They decided to invest in seniors housing, and we were introduced to them early in that process.”

Though its holdings were relatively small at the time of the deal, Vintage's management had vast experience in the seniors housing industry. Co-founders Davidson and Brian Flornes, who share the title of CEO, worked together through most of the 1990s at ARV Assisted Living, the company created by industry pioneer Gary Davidson, Eric's father.

During their tenure at ARV, Flornes developed some 1,500 units of seniors housing, while Davidson oversaw the acquisition of 27 assisted living facilities for the company. Vintage president Vicki Clark, a 30-year veteran of the industry, brought her operational experience at ARV to the table.

Since joining forces with CalSTRS, Vintage has acquired properties in California, as well as one in Tacoma, Wash., and has inked a third-party management contact on a 73-unit property in Scottsdale, Ariz. All together, about $190 million of the VinCal partnership has been committed, but Flornes expects the joint venture to expand further in the coming years. CalSTRS “recognizes the compelling demographics and upside potential in the senior housing industry,” he says.

Vintage recognizes those demographics as well, particularly the expansion in assisted living. “California is home to the largest population over the age of 65 in the country, and the number of elderly requiring assistance with daily living will increase by 50% over the next 20 years,” says Clark. “We're well positioned to take advantage of these demographics.” An estimated 3.9 million Californians are over the age of 65.

Staying close to home

The company is on the lookout for acquisitions, says Davidson, especially those “accretive” to the company's existing portfolio. Specifically, Vintage plans to focus on California, though not to the complete exclusion of Washington state and Arizona. “We think that care for seniors is best done on a localized basis,” says Davidson. “It's difficult to do that if you have too many properties spread out over too many states. It would compromise service.”

In terms of sheer size, Davidson doesn't envision building an enormous empire of properties. “We don't have the ambition to be a Brookdale or Sunrise, because we can do well on a smaller scale,” he says. “Thirty or 40 buildings is probably as big as we can be and still provide the level of service that we do.” Industry giants Brookdale Senior Living and Sunrise Senior Housing operate about 550 and 440 seniors housing properties, respectively.

Vintage is looking to acquire properties that offer a mix of assisted living, independent living and skilled care, an “accretive” strategy similar to the one it employs now. Vintage prefers properties averaging 140 to 150 units, with more than half for assisted living, a smaller percentage for independent living, and perhaps 20 to 30 beds for Alzheimer's or dementia care.

“We consider smaller buildings for acquisition, but only to a certain point,” Vintage CEO Davidson says. “Efficiency of operations is better, and margins are considerably higher, in the larger buildings.”

It hasn't been particularly easy to find properties in the current investment climate, says Davidson, though hardly impossible. “There's still a gap between the expectations of buyers and sellers, but I think that's narrowing,” he explains. “But there will be buying opportunities in the near term because some owners will have a hard time refinancing, and they'll find it easier to sell.”