Twenty years ago everyone would ask me why I didn’t do development on a personal basis. Development is different from construction. I understand the risks of construction, but I don’t understand those of development very well. So I would Forest Gump my way through it, thinking “Stupid is as stupid does,” knowing I am not an expert in development. It was meant to add humility and levity, not to intimate that those who do development are stupid. A better quote would have been from Clint Eastwood, who said “A man’s got to know his limitations.” I did, and I do.
About fifteen years ago a good client and friend asked if I wanted to invest in a project he was developing and we were building, so I did on my own, not as The Douglas Company. I have since invested personally in several projects, always as a relatively small percentage, with people I know and trust. I always did well in those projects, but Covid changed all that. Census dropped dramatically and the cost of operations increased significantly. These two factors have made the last two years rather unpleasant from an ownership standpoint. None of the projects are at breakeven, all are bleeding red ink, and most require that I write checks, which is the opposite of what my intentions were. The quote from Apollo 13 might be “Houston, we have a problem.”
My point is not to complain, but to relate to our friends and clients, for whom we have the privilege to build. If my relatively small percentages are painful, I can’t imagine what others are going through.
One of our challenges as a construction company is to help control our client’s risk to the extent possible. There are a lot of ways we do that. But there are some things we just can’t do, like control lease-up risk or operating costs. So I ask myself what this means for our friends and clients. Occupancy is rising, but slowly. Rents are going up, but not fast enough. Thankfully for them (not our construction company) senior living development has slowed to a crawl, and in an increasing demand environment, occupancies should continue to increase. Will it stabilize in a year? It seems unlikely. Two years? Probably. A recent NIC survey of operators stated that most believe we will be back at pre-pandemic occupancy levels by midyear, which is hard to believe. We will see. As Gary Oldman said in Winston Churchill, “You cannot reason with a tiger when your head is in its mouth,” which is where I think we are now. More applicable, maybe, was Winston Churchill’s quote that “I’ve taken much more out of alcohol than alcohol has taken out of me.” It may be time for alcohol. But maybe the most appropriate quote comes from The Terminator, who said “I’ll be back,” which I believe our industry will.
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