61 Senior Housing Opportunities With Sean Casterline
Bill Fairman (00:03):
Hi everyone. Wendy here is laughing.
Wendy Sweet (00:06):
It’s lunch time isn’t it?
Bill Fairman (00:06):
She’s laughing because my stomach is over here growliing. Bill Fairman and Wendy Sweet. Carolina Capital Management. Thank you so much for joining us live again today. By the way, our website is, what is it? CarolinaHardMoney.com. Don’t forget to share, like, subscribe. All that good stuff as well.
Wendy Sweet (00:27):
Tell all your friends.
Bill Fairman (00:29):
If you have any questions for our guest who I’m getting ready to introduce, you can put it in the chat box and we will certainly ask those questions time permitting, because we always have a big list of questions ourselves.
Wendy Sweet (00:43):
That’s right here.
Bill Fairman (00:43):
And I’ve got one.
Bill Fairman (00:48):
Just kidding. We are pleased to have Sean Casterline of Tuscan Garden Partners with us today. Their business is all about something that is very important because that community is getting larger and larger.
Wendy Sweet (01:06):
That’s right! We’re getting ready to join it too. The senior living community. You’re going to get there sooner than me, but…
Bill Fairman (01:11):
Thanks! I was going to say, it’s pretty close already.
Wendy Sweet (01:16):
We can see the light in the distance.
Bill Fairman (01:19):
That’s right. And these communities that Sean works with are in Florida. And by the way, they’ve gotten super high recognition for the great job they’ve done through this pandemic. With focusing on the most vulnerable being that the senior citizens. So we’ve got really good ratings in the state of Florida. So without further ado, Sean, I’m going to pop you onto the screen magically.
Wendy Sweet (01:58):
Wow! There he is!
Bill Fairman (01:58):
Thanks again for joining us. To get started with it. Let’s talk about the rules and what’s been going on with the pandemic.
Wendy Sweet (02:11):
Yeah. How’d you win the award? What’d you do that was special?
Sean Casterline (02:14):
You know, we did. We did absolutely nothing. We shut down all the communities and that’s how we get the award. With confidence, it’s obviously seniors are the highest risk. So we decided, well before the state of Florida to shut down our communities, keep our residents safe, focus on you know, not necessarily company growth, but the health and safety of our loved ones. And yeah, that’s really kind of reputation we’re building. I mean, you know, it comes to residents first and if you don’t have great reputation and get great care you know, certainly the filling of the communities is secondary. So you know, it’s been a trying time having grown, like we thought we would have, like we wanted to grow. But again, we’re building a backlog. Cause as you guys jokingly said, you know, COVID-19 is dangerous, but people are not stopping the aging process. So you don’t have to worry, you know, we’re, we’re certainly, again, focused on our residents and the growth will come when we’re, we’re safely able to reopen.
Bill Fairman (03:17):
So when you say you’ve shut them down, that doesn’t mean you…
Wendy Sweet (03:23):
Send them all home.
Bill Fairman (03:23):
You turn it all out. That just means that you don’t have any unauthorized visitors, tourists and that kind of thing. Correct?
Sean Casterline (03:31):
Yeah. We’re also restricting our employees from going to hospitals as much as we can unless there’s a need. But yeah, certainly no loved ones coming in. I will tell you recently in the last week or so we’ve opened the communities for you know, family or loved ones to visit a mom or dad behind the closed screen in minimal contact. So we’re, you know, we’re trying to keep our seniors, our families engaged as much as we can obviously do that safely.
Wendy Sweet (04:00):
Right, right. That’s awesome.
Sean Casterline (04:03):
Bill Fairman (04:03):
So what part of the States are you, what part of the state. I know, I know they’re all located in Florida. Sorry. What part of the state do you have these communities?
Sean Casterline (04:13):
Well, as you guys could imagine location, location, location, and all the retirees go to the coast. So we’re primarily on the East coast. We have one in Venice, Florida, which is South of Sarasota. And we also have two there just North of Orlando. We’re getting ready Bill, as you know to start construction in Columbia, South Carolina. Our first one to Southeast, we’re certainly looking at other properties in Charleston and Greenville and some of the other fast growing, you know, demographics throughout the Southeast, but we’re full to centric. You know, we’ll always be Florida base. It’s obviously, you know, one of the destinations for retirees, much like Arizona, Texas, California. So that’s where we’re focused.
Wendy Sweet (04:52):
Bill Fairman (04:53):
So these ones closer to the coasts. Do you have your own boat docks and…
Sean Casterline (05:00):
Good. But it’s funny down in Venice, we’re actually talking to a company. It’s one of those boat rental companies and we’re talking to them about taking our residents out on, on two boats. Yeah. I mean, if you’re going to be here in the coast, you’re going to be in the water. I mean, why not enjoy it and, you know, get our residents out of the communities. We obviously already have buses that take our residents to go shopping or go to the museum or movie theater. So certainly just be an extension of that, but that’s a good call.
Wendy Sweet (05:28):
That’s really neat.
Bill Fairman (05:29):
So tell me about the different communities. And I know we have different stages. Some of them are assisted living. Some of them are independent living. I know you have some memory care operations, give us a little insight onto the different communities and the ones that you’re getting ready to open, what are they going to be?
Sean Casterline (05:52):
Well, and you know, were talking earlier, most people, when they think about senior living, they think nursing homes, right? I mean, mom or dad, if you go to a nursing home, but there’s really four distinct subsections of senior living. And so you have independent living is really kind of the front side of it. As a senior ages, they will either go into assisted living or memory care, or then again, skilled nursing. So there’s really kind of four distinct areas. We think that independent living assisted living and memory care are kind of the sweet spot for the industry. You know, just from doing research early on, we realized that there’s probably not a market in the entire state of Florida that has enough memory care, right? Continuation of care really is independent living assisted living and memory care the way we’re, we’re building or developing our communities. We’re building assisted living and memory care first because the one thing we do realize from doing research in the industry is people won’t move into independent living with the promise that assisted living and memory care are coming. So again, we’re building that first you know, again, so when our independent living residents come in, they’ll have that assurance that continuation of care will be there for them. And we are building them into two phases, you know, just because of the size of these communities. But you know, we’re getting ready to go into construction for independent living and Palm coast probably mid summer and then Delray beach probably in the fall. So yeah, things are certainly a move for us.
Bill Fairman (07:19):
How do the municipalities where you’re looking at these properties, do they favor that type of construction? Is that something that they see as a need?
Sean Casterline (07:31):
It depends as you know, on the municipality, but we had we were told before we bought our Palm coast property that two other developers had come in and the County was not, you know, excited about their projects. In reality, what we found out was they were trying to encroach upon preserve. We had a great experience with our Palm coast community. You know, as you know, in South Florida, things can get very tough. With our Delray beach project, we were very well accepted, very well embraced down there. And I think, you know, for senior living, it’s a different animal. I’m going to go build an apartment complex in the middle of Delray beach or Boca Raton. It’s going to be very hard to get that project through, but there’s just so much need in senior living right now. Again, this baby boomer generation is a massive generation train and they realize there’s unmet demand. So we’ve had pretty good success in all things considered.
Bill Fairman (08:25):
Excellent. Well. I’m sorry. I keep talking. Do you have any questions?
Wendy Sweet (08:31):
So I understand, you know, well, a lot of people don’t understand really how the senior living the development of senior living communities work. So, I’m really interested in understanding, you know, how do you choose to get into this kind of a business? And how do you finance? I mean, how does that work?
Sean Casterline (08:50):
Well, I think there’s about, there’s about 15 questions there. I’m gonna have to
Wendy Sweet (08:55):
Good. We should be good then.
Sean Casterline (08:59):
Yeah, I mean, yeah. You know, the entitlement and permitting process. I mean, once you identify a property you’re looking at probably 18 months, two years to really get this thing. Shovel-Ready you know, the first thing we do is we do internal demographics studies. We want to make sure that the project is going to work, that there’s unmet demand that needs to be filled with that marketplace. And then from there, we pay outside third parties to do demographic studies and we start the construction process. But, you know, the biggest thing is, with all different forms of real estate is finding areas where there’s unmet demand, unfortunately for our business, because of this, you know, this is silver tsunami, this coming, there’s very few markets that don’t have demand, you know, so but as far as financing we take in private investors, we have a used, what’s called a regD506C fund up to this point.
Sean Casterline (09:49):
You know, you have to be accredited to invest with us $50,000 minimums. And then once we’ve raised the equity we will use typically 142D bonds to finance the debt side. So, you know, the good news is the biggest investors we’ve had on our bonds have been Nuveen, Oppenheimer, JP Morgan. All the names that, you know, people see in their 401ks and on wall street. So that’s primarily how we’ve done it for, for Palm coast. We’re really looking at more traditional bank financing, cause there’s so much you know, kind of upheaval in the capital markets right now. So I think we’re gonna do a lower LTB, probably use somebody like key bank to finance that project. But you know, you guys know, I mean the development business, every project’s different, you know, it depends on economic cycles and conditions, but you know, so far we’ve weathered some, some crazy times like you guys have,
Wendy Sweet (10:41):
Right. So how are you choosing your locations? You know, you’re in Florida now you talked about going to Greenville, Charleston and Columbia, which are South Carolina locations. And we always say that that North and South Carolina, we call them the halfback States. Cause people come from the Northeast, they moved down to Florida, they’re tired of all the heat and then they move halfway back and they kind of stay right in the Carolinas. So is, what is it that makes you choose an area to build? What’s attractive about that?
Sean Casterline (11:16):
It’s really the demographics. I mean, to answer the specific question about kind of branching up into South Carolina. We have a regional operations manager in our winter park office and she oversees all of our for to properties. So she spends time with the executive directors in those properties every week, every month to really we think manage these types of properties correctly. We want to have an operations manager or a regional operations manager near that Columbia South Carolina project. So, you know, I mean, Hey, you look at Greenville. It’s one of the fastest growing cities in the entire country. Charleston has a lot of folks move in there as well. There’s certainly suburbs of Atlanta and a regional operations manager could cover. So that’s the reason we’re kind of grouping these things geographically. You know, but as far as the projects themselves, it’s all about unmet demand.
Sean Casterline (12:10):
And I’ll tell you this, every project we’ve developed has been off market and every property we found, the first one we found in Venice was introduced to us by our construction company, core construction Columbia, South Carolina, the property was actually an orphanage for a hundred years. I’m not kidding you. We moved the orphanage. And our chief development officer was a South Carolina grad university of South Carolina. So he’s still got connections in Columbia that came to us before we went to market. So the Delray beach project we bought from another senior living development group who had two properties, they developed one, but they get all their funding from the hunt brothers out, Texas oil prices collapsed or like, Hey, we’re not going to fund two. So it just kind of a sidetrack story. But a lot of times real estate it’s about find the right properties, but also how you find them. There are properties that have a for sale sign in the front yard, you know,
Bill Fairman (13:05):
And you’re not just looking for land. You’re looking for land that had a use previously.
Sean Casterline (13:11):
No, I mean, not necessarily. I mean, we’ll go through the entire permitting process. I mean, in Venice, it was pretty much ready to go. We had to go through some processes, but Delray beach was, you know, shovel ready when we bought it. So it kind of depends case by case, you know, what we’re going to do or need to do.
Bill Fairman (13:29):
Well, I find it interesting that you were using corporate bonds to fund one of your projects. And obviously with the upheaval in the capital markets, it’s a little harder to do the corporate bonds right now. But yeah, I think going forward, banks are still going to be open minded to a development of senior living. Versus a development of a mixed use project where you still have no idea how big your restaurants can be. If there’s going to be any retail at all. You know, those are, pretty speculative, but you know, we know good and well, we’re all getting older. So…
Wendy Sweet (14:13):
Sean Casterline (14:17):
Just to add on to that Bill that, you know, the government is obviously subsidizing banks right now, right? I mean, you have a 10 year treasury note, that’s healing 0.65% banks can make yield on that. On those no margin there. Also decided to do is apply for HUD debt for our construction in Columbia. So we were originally planning on going under construction in June. And you’re exactly right with the young people in the capital markets, you know, Nuveen, one of our bigger bond buyers, signed and just got back. And so we decided, Hey, look, you know, let’s go to the funding source for what’s happening in the economy today. And others still financing deals that are good deals or longterm nonrecourse debt. The problem is it’s a longer process to get that debt. So again, what we’ve ended up doing is just kind of joggling our projects. So we’ve moved Columbia from being now. So probably late summer. Now we’re putting the Palm coast independent living up on top of the stacks. So, you know, you just have to kind of adjust during these crazy times, you know,
Wendy Sweet (15:21):
Have you had to make any adjustments to the people who are in your fund currently? And what I mean and dividends that you may be paying out any, anything like that, have you, have you had to make any adjustments during this time for them?
Sean Casterline (15:35):
We have not. And I’ll tell you why, because we committed to our investors many years ago, they’re going to pay an 8% income. We paid out on a monthly basis. I know a lot of operators will joggle that number dependent on profitability. And we just don’t think, you know, from our perspective, this economy, people are looking for income. So to be able to provide them consistent income is a big benefit. We set aside reserves before we ever go under construction to be able to pay these a lot of our developer fees or operational management fees for our communities. But now we’ve been paying our distribution for three and a half years now. And you know, we, it’s not going to go up when the economy is going to go, you know, good. But it’s also not going to go down in this type of situation. So we haven’t had to do anything. You know, we’ve also thought outside the box a little bit. I know I’ve talked to Bill about it, but we’ve set up a mezzanine debt fund for Columbia, South Carolina. It doesn’t have the equity kicker on the backside. It’s just income, but it’s a higher rate of income. And again, we realize that’s what people want today. So, you know, we began try to think outside the box a little bit. And later we’ll pay those distributions.
Wendy Sweet (16:42):
Bill Fairman (16:42):
Well, I have to say that the tortoise is always gonna win the race and you have a lot more people interested in the tortoise when the markets are crazy.
Wendy Sweet (16:56):
As we say.
Bill Fairman (16:58):
Yeah, well, listen, most people feel like the stock market, you have no control anyway. Right. And it’s the, you know, the, I guess the corporate stock people are the ones that are the only ones that make any money.
Wendy Sweet (17:14):
Unless you’re a Senator and you sell all your stuff. When you know stuff’s coming down the pike. Right?
Bill Fairman (17:19):
We’ll move to a different subject.
Wendy Sweet (17:27):
There’s a question that.
Bill Fairman (17:29):
Go ahead. Can you read it? I have my glasses on, I can’t see that.
Wendy Sweet (17:32):
Can investors reinvest their monthly income back into your fund. You said you pay it out monthly. Do you let them reinvest it like compound or how you work in that?
Sean Casterline (17:41):
We actually do not. Once the capital stack is set up, unfortunately we can’t continue to add capital projects. It’s, we’ve kicked around. And you know, one of our earlier funds, we did have a shear class that just reinvested and you didn’t get income at the time, but we just had so few people that had interest in a share class, we decided to just pay the income. So you know, one of the things our fund is ire eligible. So a lot of times what we’ll do is once that distribution amount starts to build up, you know, transfer the cash back over to the original custodian, or maybe reinvest in a more shares of ours. But if, let it builds up a little bit first.
Bill Fairman (18:18):
Well, if you are interested in, in longterm versus the income piece of it through an IRA, that’s a good way to attract investors as to allow them to compound over time. So you have other communities. So it’s something to think about some of the other funds too.
Sean Casterline (18:38):
Yeah. We’re always thinking. I mean, we’ve got, you know, our, we’ve got our reggae fund reggae plus that was approved by the SEC. So we’re getting ready to launch that fund as well. Those are lower minimums, and I believe you will be able to reinvest in that fund because the reggae plus is actually a public instrument. I mean, it really works like a plug of mutual funds, so,
Bill Fairman (18:58):
Right. So, yeah, let’s, let’s talk about that a little bit more. So you have lower minimums. You don’t have to be accredited or you do?
Sean Casterline (19:07):
You do not have to be accredited, but the limitations, you can only invest up to 10% of your entire network. So a little bit of a juggle there, but yeah, the $10,000 minimum for our fund pays 8% the same way, 50% of the upside on the backs, you know, as far as the equity gains on the real estate itself, but we actually just got our fund listed at Charles Schwab. So we just wanna be real big, obviously feather in the cap to be able to for investment advisors and, you know, people who might want to be in some defensive real estate. So yeah, we’re excited about it. We haven’t fully launched it yet, but we’re trying to get the networks built up before we do so.
Bill Fairman (19:46):
Well, getting back to the 10% of your net worth is the max you can invest in anyone, a reggae plus fund, and that’s actually kind of gets to the core of what we all in our mastermind group, all of our different fund managers. We do not want people to put a big chunk of their net worth into one fund anyway. We’re always preaching, you know, to diversify throughout the different real estate spaces. I mean, the whole reason you’re in a fund in the first place is because there’s you know, protection and numbers, safety in numbers. If you will, if you’re, you may be diversified in a fund, but if you put too much of your net worth into one fund, you’re still doing the same thing. So go ahead.
Sean Casterline (20:39):
Well, I was just going to add on to that. I mean, you guys have investors like I have, I mean, investors are young, maybe they have a headset, $150,000 net worth. They want to give us $400,000. That’s like, it’s just not, it’s not, it’s not good practice. And we really are a fiduciary with our investors monies. Right. We have to do the right thing appropriately. So yeah, we certainly have to give some financial guidance on that side.
Bill Fairman (21:05):
So was it a arduous process doing the reggae plus?
Wendy Sweet (21:11):
That’s a big word. I’m impressed bill.
Bill Fairman (21:12):
I had to look it up first.
Wendy Sweet (21:12):
Sean Casterline (21:20):
It was a long process. And actually I’ll tell ya. I think it’s getting easier though, Bill. I mean, we first did our, our first pass at the SEC lasted about six months and we were like, this is just, it wasn’t really us. It was that the reggae was so new to understand the landscape. And then we went and even after that, it took us about a year you know, to get that fund set up. And there’s just, there’s so many question marks about it’s still, I think, but it does seem to be a pretty good distribution fund that we can use to really expand our network and open up to, you know, smaller investors and you know, really build this thing. So,
Wendy Sweet (22:04):
And I really believe, especially now with the way things are that, you know, the smaller investor, there’s more people out there that are going to want to invest in funds like yours, that offer that kind of opportunity. And, you know, they’re not accredited. They can dabble in the stock market, but who wants to do that? It’s just, it’s scary.
Sean Casterline (22:27):
Yeah, it really is. I mean, and the fact is you know, you know, commercial real estate has always been kind of the domain for big billionaires and big hedge funds would be available to mom and pop investors. You know, the same reason that these endowments and foundations invest in it.
Wendy Sweet (22:47):
Sean, how much time do you spend talking to your investors about what the business is like? You know, how deep do you get into that to explain to them how all of that works?
Sean Casterline (23:05):
You know, as a broad blankets, right? So we do quarterly webinars with our investors. Larry and I just did. Larry, our founding partner. We just did our annual state of the union address to all of our investors. We do a lot of email blasts, Hey, here’s what’s going on. We’re juggling on a couple properties, keep him informed. And on our website, TuscanInvestor.com, our investors can actually log in and see their investment. I mean, we actually called street is the backside of that, that website. But, you know, we try to be very hands on, but like every pool investors, you have some guys that are very significant development guys that really understand that want to dig deep. So we can do that. I mean, I’ve had times where I brought Bill Johnston or a CIO in to really digest and dissect you know, numbers and with some sophisticated investors. But I think most do won this case by case. We try to touch our investors, keep them in the loop. Cause we don’t want to be that group that says, Hey, you know, give me your money. And we’ll see in five years, you know, we want to know what’s our investments doing. We’re going to encourage them to refer other investors and maybe add more money. So we,
Bill Fairman (24:13):
I didn’t want to ask you about the equity kicker and some of these funds. And how did, how does your investor realize that equity piece? Is it when you sell a property or refinance it, or how does that work?
Sean Casterline (24:31):
You just hit them both. Right? So it’s either, I mean the next question,
Bill Fairman (24:36):
Just a pretty face.
Sean Casterline (24:41):
I mean, you know, we, we build a community, you know, we fill it up, we season it for a year and then we sell it off. There’s a profit component there, or if we just refinanced the community, we still have to value that asset. Right? So at that point we split profits on the backside with our investors. You know, our real goal is to, Hey, let’s build up a number of these communities and then sell them off in a bigger package. So I think maybe refinancing them would make more sense in a three to five year timeframe, sell them off as a bigger package, probably makes more sense than a 10 to 20 year timeframe, you know?
Bill Fairman (25:17):
So that said, and I’ve gotten distracted now I’ve forgotten what that stupid question was. Again, there’s no stupid question.
Wendy Sweet (25:27):
You got a room for him?
Bill Fairman (25:35):
Well, I think of the original question. Let me ask you this one. As an investor, is there a way that if you’re an investor in the community, you can get some sort of a discount if you end up having to move into one?
Sean Casterline (25:50):
Well, my answer is, if you invest enough with us, we’ll pay your room. Right?
Wendy Sweet (25:56):
Exactly. That’s a great way to look at it. Right?
Sean Casterline (26:03):
All of our investors do go the top of our waiting list. So I mean, obviously you want to build it and have a great reputation and, you know, build a six to 18 month waiting list. And that does happen. All of our investors go to the top of the waiting list for them or their loved ones as they should ever need care. So here’s a benefit.
Bill Fairman (26:22):
So w when you do, and this is a question that’s in the chat. You’re paying, you know, monthly dividends basically or interest payments. So when you do sell the property, are they now getting all their money back plus the plus the kicker. So are they all getting a redemption from that fund and then they’ll have an opportunity to get into another? Is that kind of how it works when you sell the property?
Sean Casterline (26:49):
That’s exactly right. Yeah. So obviously if we build a community for say, just call it $50 million, part of that’s equity, part of that’s debt. When we sell a refinance to the community, we pay that $50 million back, and then whatever’s left over, gets split between the Tuscan gardens development group and our investors. That’s how that profit would come into play, but they do get the original principle back first.
Bill Fairman (27:10):
Yeah. Yeah. Excellent. All right. So we’re, we’re getting kind of close here to the, to the end. How can people get in touch with you about your different fund options? How do you want them to contact you?
Sean Casterline (27:26):
Yeah, the easiest way to get in touch with me would just be go through the tuscan investor website. So if you’re in the Tuscan investor website, you put in your email address you know, certainly we’ll send you blasts and you’ll have my contact information from there as well. You’re also welcome to email me direct Sean.Casterline@tuscangardens.com. And that’s again, my direct email. So how do you talk to anybody about you know, what we’re doing with our brand?
Bill Fairman (27:52):
Excellent. So how has it been in Florida? Not everybody’s locked down, right? You guys can still go out and do stuff now?
Sean Casterline (28:01):
Restaurants are open, man. It’s crazy. It really is. I think I told you I was actually up in the blue Ridge last week. I was up there for about two weeks. I tried to come up to your part of the world. It seems a lot nicer this time of year.
Bill Fairman (28:13):
Well, it has been a little bit chilly.
Sean Casterline (28:17):
Beautiful up there. We loved it.
Bill Fairman (28:19):
Yeah. It’s been really weird. It’s it was a really warm summer and I had to cover some of my…
Wendy Sweet (28:27):
Warm winter’s what he meant to say.
Bill Fairman (28:27):
Yeah. I need to get into that care, but the it was a really warm winter and two days ago I had to cover my new vegetable plants from frost. And usually here in may, it feels like summer. So, yeah.
Sean Casterline (28:45):
Yeah. Thank you. Shifting a little bit on us.
Bill Fairman (28:47):
Yeah, absolutely. Sean, thank you so much for joining us. I hope that we’ll talk soon. I’m sure we will see each other shortly on another, on another webinar. All right. So folks, thank you so much for joining us again. Any information that you’d like about us is CarolinaHardMoney.com and don’t forget to like share, subscribe, all that good stuff. Have a great day. See you at one o’clock.