200 The Business of Value Investingvery favorably with typical home care cost, which ranged from
$ 60 to $ 400 per day, or nursing homes, which typically cost
$ 100 to $ 400 a day.- The Sunrise facilities have three types of residents: Assisted
Living, Higher Acuity Assisted Living, and Alzheimer ’ s/
Dementia Care. As residents move through these stages, the
daily rate rises. Their typical homes can accommodate all
three. - The average age of the SRZ resident is between 80 and 84
years. This demographic is growing three times as fast as the
rest of the population. - There existed two very high barriers to entry: capital and time
(it took about 4 years beginning with site selection before
properties became cash flow even), management expertise,
regulatory approval, and economies of scale.
Sunrise was arguably the best in the industry with regard to
site selection. The company carefully studied income and age
demographics and developed properties accordingly. As an exam-
ple, the facility I visited is located in an area known as Buckhead,
a very upper - scale part of Atlanta with a concentration of high -
income residents. It ’ s next door to a lot of high - rise residences, a
mall, restaurants, and a pharmacy. If you missed the Sunrise sign
on the building, you might mistake the building for a high - end
apartment complex.
At the time, Sunrise was the only company in the industry that
developed assisted living properties. The company developed its
properties by forming joint ventures with Sunrise retaining a minor-
ity portion. After development, Sunrise would manage the property
and earn a 6 to 8 percent management fee.
As you can see, the initial attraction to Sunrise was triggered by
the market ’ s dislike for the entire industry because of the poor cap-
ital structure facing many assisted living companies. As a result, the
market had reduced the valuation of the entire industry, albeit for aCH010.indd 200CH010.indd 200 9/2/09 11:50:54 AM9/2/09 11:50:54 AM