Incorporated: 2005
NAIC: 624190 Other Individual and Family Services; 623311 Continuing Care Retirement Communities
SIC: 8322 Individual & Family Services
Brookdale Senior Living is the largest provider of senior housing facilities in the United States, with more than 550 facilities holding an aggregate 51,271 units/beds. The company owns, operates, and manages independent living, assisted living, retirement, and continuing care retirement centers in 35 states. Brookdale's upscale independent living centers provide middle-income and upper-income seniors with services that ease daily life without detracting from self-determination. These services include housekeeping, daily meals, transportation, cultural and recreational activities, and 24-hour emergency response. Onsite conveniences include banks, general stores, and medical clinics. Brookdale offers several ancillary health services, such as fitness and wellness education, occupational and physical therapy, and other rehabilitation services. Brookdale provides assisted living in conjunction with many of its independent living centers as well as at more than 300 freestanding facilities. Assisted living facilities include 24-hour personal care, such as bathing, dressing, and medication monitoring. Brookdale's freestanding facilities provide memory care for patients with Alzheimer's or other cognitive impairments. Continuing care facilities address the needs of seniors at all levels of physical health and ability, including advanced illness or frailty which require skilled nursing. Financial arrangements at Brookdale facilities vary. Some require up-front entrance fees to cover medical costs, particularly at assisted-living centers, while many independent living communities include long-term care insurance within a monthly rental fee.
Real Estate Developer Enters Senior Housing Services Market
Brookdale Senior Living originated as Brookdale Living Communities, a company which itself emerged from the senior housing division of The Prime Group, a Chicago-based real estate investment and development firm. The Prime Group began to develop senior living facilities in 1985 and started construction on its first project in 1988. Located in Lisle, Illinois, The Devonshire, a $36.5 million, 330-unit facility, comprised the largest independent living and assisted living care facility in the Chicago area. The Devonshire provided rental housing with features and amenities designed to ease life for the elderly and their children. For instance, tub seat and safety bars in the bathroom and level handle knobs on doors and electrical outlets high from the ground throughout the apartment eased resident maneuvering. Pull cords connected to an emergency call system provided a sense of safety. Amenities included gardens, a swimming pool, a woodwork shop, a five-story atrium, and a private dining room for families. A bank, a general store, a beauty salon and barber shop, a library, a café, and an ice cream shop provided onsite conveniences. A medical clinic affiliated with nearby Good Samaritan Hospital provided fitness and health education classes as well as medical care. The Devonshire offered a 24-hour concierge, weekly housekeeping, daily meals, recreational activities, transportation, and assisted living arrangements, such as medication monitoring and meal assistance. Rental rates, ranging from $900 to $2,100 per month, included a long-term care insurance policy, a provision that allowed The Prime Group to offer housing without the requirement of large, up-front fees to cover potential medical costs. The Devonshire opened in 1989, and a continuing care facility for residents of declining health and self-reliance followed in 1991.
The Prime Group continued to develop its senior housing division through new construction, acquisitions, and lease-management arrangements. On January 1, 1993, The Prime Group acquired the Classic Residents by Hyatt, located on Chicago's Lake Shore Drive. The Hyatt offered luxury accommodations but failed to obtain full occupancy, even in a market shortage, due to the hindrance of up-front financial requirements. New ownership removed the barriers to changing that policy. The Prime Group renamed the 37-story, 340-unit housing facility The Hallmark. In the fall of 1993, The Prime Group completed construction on The Heritage, a $28 million, 258-unit facility in downtown Des Plaines, Iowa. Modeled on The Devonshire, The Heritage offered the same amenities and conveniences, including a medical clinic affiliated with a local hospital. Over the next three years The Prime Group leased properties and took over their management, and by early 1997, the company owned or operated eight senior housing facilities and oversaw 1,800 apartment units. Also, The Prime Group began making overtures to ILM Senior Living to acquire that company's group of 13 properties, with 1,900 apartment units and locations in nine states. The inclusion of such assets in its portfolio would significantly contribute to The Prime Group's ability to gain financing for expansion.
Meeting Growth in Senior Housing
With demand for senior housing entering a boom phase during the mid-1990s, The Prime Group decided to spin off its senior housing division. An independent organization could better concentrate on housing development and obtain capital through public markets. Hence, The Prime Group formed a new entity, Brookdale Living Communities, which became a public company, through an initial public offering (IPO) of stock in May 1997. Offering 4.5 million shares of stock at $11.50 per share, Brookdale raised $48.1 million, net of underwriting costs. A secondary offering accommodated oversubscription and raised an additional $7.2 million. The Prime Group and senior management retained a controlling interest in Brookdale.
The company applied capital proceeds to new acquisitions. Immediately following the IPO, Brookdale completed two pending acquisition agreements, to purchase Hawthorn Lakes in Vernon Hills, Illinois, and Edina Park Plaza in Edina, Minnesota. Soon afterward, Brookdale acquired properties in Farmington, Connecticut; West Palm Beach, Florida; and Voorhees, New Jersey. The November acquisition of Harbor Village, in Chicago's Lincoln Park neighborhood, established Brookdale as the leader in senior housing in the Chicago area.
Brookdale's growth strategy involved the development of two to three new facilities per year. The company planned to build an independent living facility first, to fill occupancy, then add assisted living as its resident population aged and needed the supplemental care. To fund its strategy for new construction and to maintain a flexible financial standing, the company obtained a $100,000 million credit facility from Nomura Asset Capital Corporation. Brookdale applied the funds to three new facilities under development. Two of the projects, located in Austin, Texas, and Southfield, Michigan, began construction in the fall of 1997, with facilities expected to open in late 1998 or early 1999. Development of the third facility, to be located in Glen Ellyn, Illinois, continued in the design stage.
Brookdale acquired several properties in markets along the East Coast and northern California. In July 1998 the company acquired The Chatfield, in West Hartford, Connecticut, and signed a purchase agreement for the Ponce de Leon in Santa Fe, New Mexico. Acquisition of The Woodside Terrace, a 274-unit property in Redwood City, complemented Brookdale's leased property in northern California, the Atrium of San Jose, which the company began managing in 1997. Brookdale obtained a total of nine leased properties since November 1997. Overall, Brookdale owned or operated 17 senior housing faculties in 11 states by the end of 1998, housing a total of more than 3,700 units under its management. Revenues for 1998 reached $77.7 million, yielding net income of $6.7 million.
Brookdale continued its growth strategy in 1999. In January the company signed the final contract to lease and manage the 285-unit River Bay Club in Quincy, Massachusetts. In October Brookdale began the acquisition process for The Benchmark, a 289-unit property in Hoffman Estates, near Chicago. The purchase increased the company's senior housing units to almost 1,800 in the Chicago area. By the end of 1999, Brookdale operated 23 facilities with 5,100 units in 14 states. Revenues of $105.9 million represented a 36 percent increase over 1998 and a net income of $11.1 million, a 67 percent increase over the previous year.
Related expansion activities involved solidifying the company's brand and financial standing. Brookdale reworked its brand identity with a new logo and otherwise sought to increase brand awareness. To pay debt and free funds for continued expansion, Brookdale initiated a private offering of $100 million in subordinated notes to Capital Z Financial Services Fund in April 1999. Issued at 5.5 percent interest and due in 2009, the notes were convertible to Brookdale stock at $18.25 per share. A private equity fund, Capital Z gained two seats on the board of directors.
Brookdale Returns to Private Ownership
Due to an oversaturated senior housing market and a volatile stock market for senior housing companies, Brookdale's large, private investors decided to take the company private in mid-2000. Though Brookdale had avoided the stock market volatility through a conservative approach to expansion, as a private company, Brookdale would be able to maintain financial flexibility without public scrutiny. As such, Fortress Investment Fund and Capital Z joined together to acquire Brookdale. In May 2000, Fortress purchased 39 percent of the company's common stock at $15 per share, and Capital Z converted its $100 million in subordinated notes into 5.5 million shares, approximately 52 percent ownership. The two companies formed Fortress Brookdale Acquisition to purchase the assets of Brookdale Living and signed a $330 million merger agreement with Brookdale in July. Publicly owned stock would be purchased at a price of $15.25 per share, for a total consideration of $91 million in cash. Fortress Brookdale completed the tender offer for nearly five million public shares of stock in September, acquiring 96 percent ownership of outstanding stock.
Meanwhile, Brookdale continued its expansion activities. Senior Housing Properties Trust sold four senior, independent living properties to Brookdale, who already managed them. Brookdale acquired the properties for $123 million. Located in Chicago; Rochester, New York; East Mesa, Arizona; and Spokane, Washington, they added a total of 837 units under Brookdale management. Construction of the Meadows of Glen Ellyn community was completed and opened in March 2000, adding 235 units to the company's inventory. The company began a $26 million construction project in Columbus, Ohio, in June 2000. Trillium Place would house 218 units upon completion in late 2001. Construction was completed on a property in Manhattan in October 2000. Located in Battery Park City, the 219-unit high rise on the Hudson River was the first to offer tailored catering services to residents. The Heritage of Raleigh, North Carolina, opened in November, and The Devonshire opened in Pittsburgh, Pennsylvania, in May 2001. Other new properties included the $24 million acquisition of a 209-unit property in San Marcos, California, and a $10 million general partnership in Grand Court Lifestyles, which housed 3,000 units in Boca Raton, Florida. Construction at The Heritage in Creve Coeur, Missouri, near St. Louis, was completed in early 2003. In January 2004, Brookdale agreed to lease and manage 14 independent and assisted living senior housing properties newly acquired by Ventas, Inc. The 15-year agreement covered 2,000 units with an average occupancy of 93 percent; the properties garnered annual rent of $10.6 million. In April 2005, Brookdale completed the acquisitions of Robin Run Village and several other retirement communities from the National Benevolent Association, a nonprofit organization in bankruptcy.
The company's most significant move toward expansion involved a merger with Alterra Healthcare Corporation, which owned, operated, or managed more than 300 assisted living facilities in 22 states. The merger originated from Fortress Investment Group, which owned 100 percent of Brookdale and a 62.5 percent controlling interest in Alterra at the time the merger was announced, in April 2005. Fortress obtained full ownership of Alterra before completion of the merger in July 2005. The purpose of the merger was to strengthen the financial positions of both operations through economies of scale in the purchase of goods and services required for daily operation. Thus, lower costs conveyed to residents made senior housing a more affordable option. Brookdale CEO Mark Schulte continued as CEO of Brookdale and Mark Ohlendorf, CEO of Alterra, became president of the Alterra division.
Pursuing Market Consolidation
By late 2005, Brookdale was set to become the largest senior housing company in the United States. In May Brookdale signed an agreement to acquire American Retirement Corporation of Brentwood, Tennessee, and in November an IPO provided funds for numerous large and small acquisitions. A resurgent senior housing market prompted the November IPO, through which Brookdale raised $240 million in capital. Afterward, Brookdale obtained a $330 million credit facility, with $250 million earmarked for property acquisitions. Over the next three months Brookdale initiated or completed $740 million in acquisitions.
The largest acquisitions involved senior living facilities in the southern United States. The company acquired 17 facilities located in Alabama, Florida, Georgia, Mississippi, and Tennessee from Wellington Group LLC for $79.5 million. Assets from Southern Assisted Living included 41 leased facilities located in North Carolina, South Carolina, and Virginia. Brookdale canceled the management contracts after completing the $82.9 million transaction in the spring of 2006. Other acquisitions involved properties in California, Washington, New Jersey, Michigan, Delaware, and Louisiana. In November 2006 Brookdale acquired from Nationwide Health Properties 30 senior living communities in Colorado, Florida, Idaho, Ohio, Oklahoma, Oregon, South Carolina, and Texas. Brookdale paid $148.6 million for the properties, which the company already operated.
Brookdale became the largest senior housing operation through completion of the American Retirement Corporation> (ARC) acquisition in July 2006. Fortress Investment Group provided equity for $1.2 billion in cash for the transaction, the equivalent of $33 per share, at 32 percent above ARC's trading price of approximately $25 per share. ARC owned and operated 82 senior living centers with 15,250 units and the acquisition would provide Brookdale with complementary capabilities. For instance, the addition of ARC facilities marked Brookdale's entry into rehabilitative health services, such as physical and occupational therapy. Hence, ARC provided expertise that supported expansion of such services to other Brookdale facilities.
Structural organization following the ARC acquisition involved sharing the CEO position, with Brookdale's Schulte and ARC's W. E. Sheriff as co-CEOs of the newly renamed Brookdale Senior Living. Brookdale defined three operating divisions that followed from its base operations and its principal subsidiaries, Alterra and ARC. Thus, the Chicago Operating Group focused on management of independent living centers, the Milwaukee Group on freestanding assisted living facilities, and the Nashville Operating Group on retirement centers and continuing care retirement centers.
Overall, Brookdale doubled the size of the company in 2006, with $3.4 billion in acquisitions that increased the number of its facilities from 343 to 546, covering 51,271 units/beds and serving more than 51,000 residents. In 2006, Brookdale recorded $1.3 billion in revenues, nearly double 2005 revenues of $790.6 million. Same store revenue, at facilities previously owned by Brookdale, rose 6.6 percent due to fee increases. Nevertheless, the company operated at a net loss of $108 million, primarily related to noncash charges, such as depreciation. Hence, the company sustained a strong cash flow that supported Brookdale's emphasis on paying dividends over earning a profit. Co-CEO Schulte did not consider operating at a loss as a detriment to the successful administration at Brookdale, as long as cash flow covered dividends and the company continued to satisfy residents with quality services and facilities.
With its place as the largest senior housing operator assured, Brookdale began to look at expansion within the company's existing facilities and capabilities. This change involved adding services available at American Retirement properties, such as skilled nursing and physical and occupational therapy, to Brookdale's independent living and assisted living properties. Thus, the company would develop those facilities into continuing care retirement centers which served seniors as they "age-in-place," at one facility. Also, using the land available at existing properties, Brookdale planned to expand through $500 million in new construction by adding 2,500 units at 60 facilities over the next three years.
Principal Subsidiaries
Alterra Healthcare Corporation; American Retirement Corporation.
Principal Operating Units
Chicago Operating Group; Milwaukee Operating Group; Nashville Operating Group.
Principal Competitors
Assisted Living Concepts, Inc.; Atria Senior Living Group, Inc.; HCP, Inc.; Holiday Retirement Corporations; Professional Community Management Life Care Services, LLC; Sunrise Senior Living, Inc.
Further Reading
Adler, Jane, "Brookdale Senior Living Launches $500 Million Building Expansion Program," National Real Estate Investor, August 27, 2007.
Allen, J. Linn, "New Management, Name for Retirement Community," Chicago Tribune, January 22, 1993, p. 1.
Banks, Claudia, "Brookdale Buys Florida Property," Chicago Tribune, August 7, 1997, p. 1.
"Brookdale Living Communities Inc.," IPO Reporter, September 8 1997.
"Brookdale Living Communities Introduces a New Line of Spices at Its OKC Senior Living Center," Journal Record, September 26, 2005.
"Brookdale Takes Control at Robin Run Village," Indianapolis Business Journal, April 18, 2005, p. 15.
"Brookdale to Sell $100M in Notes to Capital Z," Contemporary Long Term Care, June 1999, p. 58.
Brooks, Erik, "Alterra to Merge with Chicago Firm: Future in West Allis Uncertain for Assisted Living Center Operator," Business Journal-Milwaukee, April 15, 2005, p. A1.
"Building and Buying: Brookdale Living Expands Properties, Catering Focus," Food Service Director, March 15, 2001, p. 5.
Colias, Mike, "How Can Brookdale Stay Strong? Senior Housing Firm Bulks Up Through Takeovers," Crain's Chicago Business, February 26, 2007, p. 4.
Corley, Colleen, "Brookdale Senior Living IPO Spurs Interest in Going Public," Commercial Property, March 16, 2006, p. 20.
Davis, Jerry C., "Retirement Is Hitting Close to Home," Chicago Sun-Times, April 28, 1991, p. 1.
Elman, David, "Fortress' Brookdale Adds Competitor," Daily Deal, May 17, 2006.
Hayes, Charles, "Next Generation Lifestyles Defining New Options in Senior Housing," Chicago Tribune, September 26, 1993, p. 1.
------, "Senior Care Facility Is Begun," Chicago Tribune, July 10, 1988, p. 2A.
Holman, Kelly, "Brookdale Living Is Bought," Daily Deal, July 27, 2000.
"Interest High in Heritage, Which Won't Open for Year," Chicago Sun-Times, September 15, 1991, p. 5.
Japsen, Bruce, "Brookdale's Strategy Proves Healthy over Years," Chicago Tribune, July 18, 2000, p. 5.
------, "Senior Housing Firm Brims with New Cash: Brookdale Sets $34 Million in Purchases," Chicago Tribune, February 9, 2001, p. 3.
------, "Senior-Housing Firm Seeks to Buy Rival Brookdale Bulking Up for Industry Battles," Chicago Tribune, December 8, 1998, p. 3.
Moore, Brenda, "Going Private? It's Not for Everyone," Crain's Chicago Business, April 19, 2004, p. 17.
Murphy, H. Lee, "Growth Focus Shifts at Brookdale," Crain's Chicago Business, June 18, 2007, p. 20.
"Non-Cash Items Hurt Brookdale," National Mortgage News, March 20, 2006, p. 15.
"Option for Elderly Combines Renting, Insurance," Chicago-Sun Times, December 8, 1989, p. 21.
Pincus, Ted, "Growth Engine of Senior Living--Brookdale Bleeding Red Ink, but Keeps on Growing," Chicago Sun-Times, April 17, 2007, p. 49.
Stribling, Dees, "Brookdale Acquires Florida, California Seniors Properties for $62M," Commercial Property News, April 5, 2007.
Sullivan, Barbara, "Silver Service," Restaurants & Institutions, April 1, 1999, p. 85.
Thompson, Julie, "Brookdale Senior Residence Targeted for NW Columbus," Business First-Columbus, May 26, 2000, p. 5.
Trissler, Rebecca Johns, "Brookdale Living Communities, Inc.; Rank: 164," Crain's Chicago Business, June 7, 2000, p. 44.
— Mary Tradii
