Senior Housing Investors
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Senior Housing Investors
Evolving Senior Housing: Insights and Innovations with Matt Derrick
Ever wondered how senior housing is evolving to meet the needs of an aging population? Join us for an enlightening conversation with Matt Derrick, Managing Director of Confluent Senior Living, who shares his wealth of knowledge gained from over 15 years in the real estate sector. Matt takes us through his journey from Opus Northwest to spearheading Confluent's senior housing division, revealing innovative strategies that have set them apart in this competitive market. Learn how the division of roles in real estate development can leverage individual strengths and drive success, contributing to an impressive track record of 26 ground-up projects.
Discover the dynamics of the senior housing market as Matt and our host, John Hauber, tackle the challenges and opportunities presented by shifting demographics in areas like Houston and North Dallas. With a diverse cultural backdrop influencing housing demand, understanding these nuances is crucial for developers and investors alike. We also explore the untapped potential of the active adult space, highlighting how it offers a unique avenue to expand on traditional assisted living by catering to a broader spectrum of needs. As development capital becomes more accessible, the senior housing market is ripe with possibilities for those ready to seize the moment.
In our final segments, technology takes center stage as we discuss its pivotal role in enhancing residents' lives within senior communities. Matt outlines Confluent's future strategies, focusing on prime site selection and strategic capital partnerships that promise growth. We celebrate Matt's contributions to the industry and his successful collaborations with top operators. Don't miss this insightful discussion that not only covers the present landscape but also casts a vision for the future of senior living.
A lot of real estate development firms will basically hire a real estate guy like myself to go out and source the deal, negotiate the deal, work with consultants to design the deal, get the deal entitled, manage the construction and basically just be, you know, kind of a soup to nuts guy. You know that does everything. And while that works for many groups and it's a tried and true method for us, we thought it was better to separate some of those roles and have people focus on the things that they're really good at. So oftentimes real estate quote unquote deal guys are not the best guys to run entitlements and vice versa. Entitlement guys aren't always the best to be out there sourcing deals and shaking hands and kissing babies. So we kind of we separated those two.
Speaker 2:Welcome to the Senior Housing Investors Podcast. If you are an owner operator, investor, developer or buyer of senior housing, you've come to the right place. The best way to stay connected with us is to sign up for our weekly newsletter at havenseniorinvestmentscom. This podcast doesn't exist without you, our community. Thank you for listening and reach out to us anytime.
Speaker 3:Welcome back everyone. Today, our host, john Haber, is speaking with Matt Derrick. Matt is the Managing Director at Confluence Senior Living on their Senior Housing Development Team. Matt has a diverse real estate background and started his real estate development career over 15 years ago at Opus Northwest. Matt is a Denver native and holds a bachelor's degree from the University of Colorado at Boulder and a master's degree in real estate and construction management from the University of Denver. Listen in as John and Matt talk all about senior housing development.
Speaker 2:John so today we have Matt and Matt's been introduced to you, and we're really excited to have you on the show. Matt, I've been following you guys for many, many years and, you know, for the last seven years I've known a lot about you. Tell us a little bit about yourself and your work at Confluent Senior Living.
Speaker 1:Yeah, I appreciate it. I'm really excited to be on the podcast today. I've listened to some of your episodes and I'm really excited to chat with you. So yeah, as you mentioned, my name is Matt Derrick. I'm the Managing Director of Confluent Senior Living.
Speaker 1:I've been here with Confluent coming up on gosh nine years now and I've had a really great run here at Confluent Senior Living pre-COVID and post-COVID. So since that time I started out as the I think, a Senior Development Manager and really have kind of worked my way up to now to the point where I lead the senior housing division of Confluent. So kind of just a little bit of background. So Confluent Senior Living is a subsidiary of a larger real estate and investment firm called Confluent Development.
Speaker 1:Confluent Development's been around since 2015, but was a merger of two organizations. So there was MBG Development, which was a smaller single-tenant retail developer, had been around since the mid-90s, and then Confluent was a company that was created by Marshall Burton, our CEO, and Celeste Tanner, our Chief Development Officer, who both came from Opus, which is also where I worked previously, so kind of came back together. Since that time we've done 26 ground-up senior living developments across the United States and so I have worked on virtually all of those communities there were a handful that were before my tenure but we've had great success. And then Confluent Development also does office, industrial, retail, multifamily mixed use. But I really run the senior housing and active adult portion of the business.
Speaker 2:Well, that's impressive. So I had read on your background that you actually got your master's out of University of Denver Correct. Tell us a little bit about that. Why was that important? Because I have another friend who also got his master's in real estate and development from University of Denver. Tell us about that school and why a lot of guys like you come out of that school and do extremely well in the development space.
Speaker 1:Sure, yeah, so yeah, that will have to rewind the clock a little bit. But yeah, I was, you know, 2006 or 2007,. I was working at Opus. It was my first real estate development job Really had learned that that was what I wanted to do with my career. Was real estate development job really had learned that that was what I wanted to do with my career was real estate development.
Speaker 1:I have a passion for it. I love the creative nature of it. But I also love the tangible nature of it in the sense that I, you know, to this day I can drive down streets in Denver and then point out to my children a building that I built 20 years ago. That's fun to me. So I was at Opus, knew this is what I wanted to do and if I was going to do it, I was going to do it right and I wanted to be the best.
Speaker 1:And so I started looking at graduate schools that I could do while working at Opus and looked at a couple of schools in the area, looked at some. You know this is kind of a pre-online education type stuff. So, and you know, the Daniel school over at University of Denver was was a front runner for sure. So joining that group had made amazing relationships. The professors are wonderful, it's just been. You know the DU community has been great. But but for me it was really just an opportunity to make sure that I was preparing myself for the long haul for this career, which is going to have lots of ups and downs and challenges and obstacles, and I wanted to make sure that I was preparing myself to be the best and BU helped me to do that and it's a great, great school and I would recommend it for anyone who wants to go this career path school and I would recommend it for anyone who wants to go this career path.
Speaker 2:Yeah, my son had a choice between DU and University of North Carolina, Chapel Hill. He is a Daniels scholar, and just some background. Bill Daniels went to my high school, which is New Mexico Military Institute, and so I've met him personally back when he was alive and back when I was a little bit younger. But yeah, absolutely Great, great school, great business school at Daniel's School of Business. So that's awesome. And so tell me Confluent Seniors Living's role in the senior housing market and how it differentiates itself from other developers yeah, yeah, it's a good question.
Speaker 1:So you know we, you know we've got a pretty at this point. You know some pretty great experience, having having worked more than 20 senior housing projects. So I think what differentiates us I'm going to start with Confluent in general so we as a development company have kind of identified the skill sets of our team and make sure that we're having people focused on the right things, the things that they're best at. A lot of real estate development firms will basically hire a real estate guy like myself to go out and source the deal, negotiate the deal, work with consultants to design the deal, get the deal entitled, manage the construction and basically just be kind of the soup to nuts guy that does everything. And while that works for many groups and it's a tried and true method for us, we thought it was better to separate some of those roles and have people focused on the thing that they're really good at. So oftentimes real estate quote, unquote, deal guys are not the best guys to run entitlements and vice versa, Entitlements guys aren't always the best to be out there sourcing deals and shaking hands and kissing babies. So we kind of we separated those two. So we separated those two and so we have an in-house entitlements team. These are former planning commissioners and planning staff members. They eat, breathe, sweep entitlements and so that gives us a true edge in the market. So when we go out and we're looking at deals, we know that we have I would put my entitlements team up against anyone in the country.
Speaker 1:We have an almost 100% success rate once we take a project, past due diligence, that we close on that land and we execute on the project. And that's just because they know exactly what they're doing. They speak the language, they're very strategic, they're very political. Now what that does is it frees up the deal guys to go out and get more deals. So we go and source the deal. We're involved in the deal from day one till the day we close, till we sell it. But we can kind of hand it off to our entitlements guy. While they go and get the entitlements we can be spending time out getting the next deal teed up for the future. So that makes us unique. We have in-house construction management, in-house finance, in-house accounting, legal across the board. So I think that makes Confluent very, very strong From a senior living perspective.
Speaker 1:You know, I think we are a very hands-on group, Maybe to a fault for some people. We've had some architects just tell us I've just never had an owner so involved in every decision. We are, you know, we are in every design meeting. We are in every decision, down to the, to the doorknobs and the faucets and the light bulbs. You know we're going to be involved in that and we're very. We have strong opinions and we're not afraid to voice those.
Speaker 1:But also, what I think is very important is we truly value our operator relationships and we're not the group that is going to go buy up a piece of dirt or tie up a piece of dirt, get a building entitled, design it and then call all of the operators to see who wants to operate it. For us that's not the model. Some people do that. I think it can work. I just don't think it's the best way.
Speaker 1:For us it's really identifying our operating partners first, and then we go and identify the markets that they want to be in, the sub markets they want to be on. We go in and find the sites and then really it's a collaborative effort with our operating partners so we don't make decisions that don't support our operators. So my philosophy is that the best thing I can do and the best way from Confluent to be successful is to design and deliver a building that my operator can operate successfully. So I really think that just makes us unique and kind of gives us an edge on the competition. So the operating partners are truly important to us and we have a variety of those.
Speaker 2:So, as a dealmaker, matt, you're going out and you're identifying where your team members are, identifying the area, the sub-market, whatever that may be. Tell us kind of the technology that you use or the means of being able to identify for your operator the piece of land to make sense for the project.
Speaker 1:Sure, yeah, I mean, it's a process that has evolved over time, obviously, and you know we were just talking about Kyle Gardner over at NickMapVision, who's a friend, and their technology has changed the game in my opinion. So you know, a decade ago it was you. Would you know you would hire a third party consultant to come and do a what we call a desktop study of the market. Call it a quick look and let us know if there's demand. Idea of a market. Call it a quick look and let us know A if there's demand. Now you can really look at any of these markets from your computer and really identify where's the supply? Is there demand? Look at the affluence, the demographics, et cetera, et cetera.
Speaker 1:So when we take a step back, we sit down and we have a handful of operating partners we work with, and sometimes it's a little more organic and it's okay, where are you today, where do you want to be? And let's focus on those places, right. And so sometimes like, hey, we want to be, let's just pick a random. Let's say Denver. We want to be in Denver. Okay, denver is a big city. What part of Denver do we want to be in? And it's like, okay, well, what do we need? We need to make sure, a that there's the supply and demand market is there. We need B, we need to make sure that there's enough affluence that the people can afford our product. We need visibility, we need adjacency to high-end retail, we need adjacency to high-end homes, et cetera, et cetera, and so we kind of will then funnel it down to a sub-market that we think works and it's usually within a three or five mile radius.
Speaker 1:And then it's kind of old school land sourcing. It's working with local contacts, it's working with local brokers, local architects, local civil engineers, local land use attorneys and going out there. And sometimes it's just it's very old school and it's just getting in your car and you drive the market and you see a site that maybe just doesn't seem to fit and doesn't seem to make sense, or you see the vision of a property or of the future committee community on that site and you try to tie up that land. So we're we've been very successful at that. As I mentioned, we've built senior housing communities across the United States in high barrier to entry markets. We've got communities from Portland Oregon to Portland Maine and from Florida and California and everything kind of in between, and we've had success going to each and every one of those markets never having set foot in them previously, and have been able to find really A-plus sites in A-plus markets using that model. But, as I mentioned earlier, operators involved in every one of those decisions.
Speaker 2:That's correct, and so they're also using, you know, NICMAP Vision, most of them to identify areas that they want to go into. So big plug for Nick Matt Vision, Kyle Gardner what they've accomplished over there. It's funny. I think we started with Vision LTC back when they were just two guys right and working with them to give us the data that we really needed, and one of the areas that we really needed was understanding of all licensed beds in a marketplace, Because what happened is that the consultants out there were using demographics data, but what they didn't understand is that there's a lot of licensed beds in the marketplace that are under 25 beds, and so just in the Denver area, we can state basically around 40% of all licensed beds are in communities that are under 25 beds, and so the ability to understand all licensed beds is extremely important in the marketplace.
Speaker 2:How have you addressed that? I mean this is kind of getting a little bit off, but how do you address that marketplace where there's bed counts of eight licenses in a home or 12 licenses or 15 licenses that aren't being counted in typical consultants? Overview of marketplace.
Speaker 1:Yeah, so when we pull all the data for a sub-market, there's kind of two buckets there's the competitive units and the non-competitive units, and so what we are delivering is really a high-end kind of luxury senior housing product that's independent living, assisted living and memory care, and so we have to go and then we could just look at the total supply and, and you know, factor that into the demand, and but that's not really the best way to look at it, because what you're also dealing with is not only the smaller mom and pops that have, you know, eight beds, 20 beds, 30 beds those are not true, true competitors, right, and so we don't, we will factor those down because I think it's a different resident profile.
Speaker 1:What we'll also do is look at the age of the building. If the building is 30, 40, 50 years old, also we'll probably factor that down some percentage. So we get to a true unmet bed demand. Just one extra level of conservatism that we put in there is we want to make sure that our projects will not be capturing any more than 30% of the total unmet bed demand in the sub-market. So that basically tells me that if we were to move forward and invest the pre-development dollars, take down the land, put all the effort that goes into these buildings. Two more projects could come in behind us and we still believe we would be successful. So it's just another buffer that we give ourselves there when we go into a sub market.
Speaker 2:So, matt, I'm curious how do you identify different subsets of nationality? As you know, this country is becoming very diverse, especially in Houston and North Dallas. I was just at a Rotary, one of our Rotary meetings, and the superintendent for Frisco ISD stated that 43% of all children in the school system are Asian descent. So how do you factor in that group of high net worth, potential high net worth individuals with parents that tend not to go into senior living? But when we do our studies we see the unmet demand in the area. How do we factor in that side of the equation or how do you factor in that side?
Speaker 1:Yeah, that one can be a little tricky because you can get lulled to sleep with high unmet bed demand numbers because of the population, and so, yeah, that's another thing we look at and I think this should be the takeaway for anyone listening you can't just look at the data and just make a brush decision. Oh look, there's 100,000 people in a three-mile radius. We're going to go do this deal whatever. You got to dig deeper. You got to go into the actual the inputs and so like, if we see a market that has high in that demand, we're going to look at that. And we're going to look at the demographics and, frankly, there are some populations that just have not adopted senior living yet and so we have to factor that in adopted senior living yet and so we have to factor that in.
Speaker 1:There have been markets that we've gone to that have a population of people that just we know that they just have not accepted or have not adopted the senior housing model yet and so we will walk away from that market just knowing that that unmet bed demand probably needs to be factored down by 50%, 75% based on our knowledge of the space. But I think that it's changing. You also kind of got to look at. You know, it's just first generation, second, third, fourth generation, and as you get into further generation, those I think as you adopt kind of the culture of the United States and start to adopt maybe the senior living model, I think that we can get more comfortable with that. So definitely more nuanced.
Speaker 2:Awesome, thanks. I appreciate that answer to that. And so what are you seeing right now? That are the key opportunities and obstacles for developers and investors right now.
Speaker 1:Yeah, I mean this probably won't be a bright insight that no one's talked about before, but the supply and demand or environment that we're heading into is, I think, a once in a lifetime opportunity for the senior housing space. You know supply has been dropping since 2017. You know 2017, it was just, you know, we just kind of got overbuilt 2020, we got the pandemic 2021-22, we have the interest rate run up and basically the banks pretty much stopped lending. So the amount of supply has been dropping for the last seven years and, in the meantime, that baby boomer wave that this industry has been talking about for decades is actually here. Uh, we are kind of at the no uh. You know, you look at a wave. We're at the node, right at the base of the baby boomer wave. I think 10 000 people are turning 80 every day. So it's here. You know, we've been talking about it, we've been waiting. So, as challenging as the last few years have been and they have have been challenging for not only the senior housing space but also for commercial real estate, which has been affected heavily by the interest rate run up we find ourselves in this perfect storm of supply and demand. I think there's going to be such an opportunity that once the development capital frees up again, which we're starting to see it's starting to thaw.
Speaker 1:The 50 basis point cut by the Fed a couple of weeks ago was welcome news. It wasn't an on-off switch People aren't throwing me bags of money just yet but it's definitely it was a good indicator that things are changing. So I think when that happens and development capital starts freeing up again, I think you're just going to have an amazing opportunity to capitalize on what I think is just going to be, as I said, a once-in-a-lifetime opportunity where demand is surging and supply is just meaningfully low. There is going to be a very limited amount of new quality product and so really excited about our portfolio that we currently have. So you know, this supply demand environment does a couple of things. It helps with the occupancy of all the communities that have been struggling since COVID I'm going to try not to say COVID more than once in this podcast, but they've been trying so occupancies are coming back up to to pre pandemic levels. Margins are increasing as well. So I think it helps with that.
Speaker 1:And then I think there's just to be a great opportunity so that if we can get in the ground with new communities here in late 24, 2025, I think there's just going to be a great opportunity. I think we're going to start seeing cap rate compression come back down to be a more normalized investment cycle and I think you're going to see values increase and I think newer communities coming out of this will be. I think there will be a lot of potential future buyers that are going to be willing to really pay up for high quality communities in hybrid entry markets with top-tier operators, and really that's what we're focused on right now. So I think that's one of the great opportunities.
Speaker 1:I firmly believe in the opportunity of the active adult space. We've been evaluating active adult for Gosh. We looked at it probably 5 or 6 years ago, decided it wasn't the right time. Gosh we looked at it probably five or six years ago, decided it wasn't the right time, launched an active adult business plan about two years ago and are really beginning to execute on that. So we have about five sites under control that are currently in early stages of design and development for active adults.
Speaker 1:I think, that does a couple of things. I think it allows us to basically slide down the acuity scale. So we have typically done, you know, assisted living, memory care. We have kind of found that our independent living assisted living memory care communities are doing better. So we're really focused on the on the continuum of care for our senior communities. But you know, the average age in a senior community is 82 years old. The average age in a active adult community is 72 years old.
Speaker 1:So we see an opportunity to go capture some of those younger baby boomers sooner, get them into the quote-unquote senior housing space earlier, and we think that's a great opportunity. I mean, if you look at it, I think there's 110,000 active adult units in the country compared to 1.8 million units of senior housing. It's just that is completely lopsided. That seems like there's a really great opportunity there and so we're going to capitalize on that. So I think for the future, consul and Senior Living will be probably 50% senior, 50% active adult for the foreseeable future. So we're pretty excited about that. I think active adult also could help solve one of the major problems that senior housing has been facing since I've been here and long before, which is that middle market that currently isn't being served. So active adult provides a more attainable product. That is kind of an entry point to senior living. It doesn't solve all the problems but it certainly helps get people in. You can start bringing in home health care. You can start to service some of those older adults as they start needing some assistance. So that's the opportunities. I think the opportunities are vast. There's lots of opportunities I'm excited about. I think it's a really fun time to be in the senior housing space. We paid our dues over the last several years and I think it's about time to start having some fun again, which we're looking forward to.
Speaker 1:But, that being said, there are still obstacles that we need to overcome, Obviously, just capital availability in general. Both debt and equity are challenging and I think that's driven. Cost of capital is up. That will hopefully start coming down as we enter a Fed rate-cutting cycle. But also there's still a lot of distressed assets out there and I think that's due to whether that's due to fund life, whether that's due to debt maturities.
Speaker 1:I think there's still a lot of acquisition opportunities out there, and so we have seen that most capital, sophisticated capital that understands the senior housing space understands that they can still go out and acquire existing assets for below replacement costs. So it's hard for them to shift their mind over to development capital right now because the returns on the acquisitions are, frankly, they're getting similar to development returns right now. But I don't think the acquisition pool is going to last too long. There will still always be opportunities. There'll always be distress, but I think that window is closing. It may take another 12, 18 months for it to close to a more normal cadence, but I think after that, forward-thinking investors are going to look at past that acquisition window and look at the development window, and I think that's coming. We're already seeing a lot more interest in development deals that we have in the pipeline, and so we're looking forward to to basically getting those getting in, those those in the ground, sooner rather than later, to to really capitalize on that supply and demand environment that I was talking about earlier.
Speaker 2:Yeah, it's, it's, it's. You know, as, as I've stated in previous podcasts, 806,000 units need to be built in the next six years to cover the demand in the marketplace. That's over $300 billion worth of money that needs to be invested in this space. So tell me the structure that you go to the marketplace with when it comes to attracting debt and capital. What's your capital stack look like for a typical development that you're involved in?
Speaker 1:Yeah, well, we're going to kind of have to look at that and what it was and what I believe it's going to be, so typically it has been.
Speaker 1:We have dealt almost solely with ultra high net worth investors. So you know we are owned by an ultra high net worth family, we partner with them and other you know high net worth families and that is typically how we've gotten I think almost all of our deals done to date. We have done one institutional development deal and it went well, but typically we have just kind of focused on our ultra high net worth and that's worked out great. Where I think we're going and kind of what I'm calling Confluent 2.0, which I think is just the next phase of this company, I think we're going to be focused more on some of those larger institutional investment partners, reason being the deal sizes are just getting larger and, as I mentioned earlier, we're focused heavily on independent living, assisted living, memory care.
Speaker 1:If you look back at our earlier portfolio, we were doing 60, 70, 80-unit ALMC deals and those things are great. But those are smaller equity checks. Those are smaller deals, much easier to capitalize. If you move into the larger buildings, if we're going to do a true IL, al and C building and you want to do it right, we believe you have to have a minimum of 60 to 80 IL units, probably 40 IL units and 20 to 30 memory carry units. Well, your deal size just tripled, if not quadrupled, from what previous deals we have done.
Speaker 1:So those equity checks get larger. So I think we're going to see us working with our high net worth, will still be involved in the deal, probably more in a GP structure, but we'll be looking for more of those conversations right now and excited to launch some of those new programmatic relationships to really capitalize on this pipeline. I haven't mentioned it yet but our pipeline currently is a little more than $700 million in development deals. That is the largest pipeline we have ever had. We've been strategically building that for the last several years in anticipation of the recovery.
Speaker 2:So of that $700 million, what is the breakdown as it relates to active adult, AL, memory care, continuing care communities? What's that breakdown in your development pipeline Sure?
Speaker 1:So I've probably got two projects that are just ALMC. You know, call that $100 million ballpark. I've got two senior projects that are IL ALMC with cottages. That's probably in the $300 plus million range between those 350 million, between those two projects. And then I've got four or five active adult projects that are 75 to 100 million. So it's pretty. It's about half and half, probably still a little heavier to the senior right now. Just because that space we've been playing in for so long and as we continue to add active adult deals, deals to our uh, to our pipeline, that'll continue to grow. But, like I said, I anticipate we'll be in that 50 50 range moving forward. Um, so yeah, still believe in the senior housing, traditional senior housing space, but I believe just we're really just extending it into that active adult space as well so matt.
Speaker 2:Define adult we get this question quite a bit from our community. Define active adult and then, if you can go into, what do the seniors in the active adult side want in a community? What's being designed today? What space requirements are they requiring? As I've heard in the past, individuals considering active adults are having to downsize from their homes where they have a bit of stuff, and so what are they looking for today?
Speaker 1:Okay, yeah, absolutely so. Active adult. Yeah, that's been the challenge with the space right. What is it? Because I think there's actually a range of what it is. You've got all the way on the let's call it to the left. You've got your aisle light right, which is very similar to independent living, maybe not as much care. You've got dining. You've got some of the things that feel independent. That's kind of on the far left. On the far right you've got basically just a senior apartment with nothing. It's just market rate, but with an older population. So some people define active development differently. I think it's. You know. My definition is basically it's very similar to a market rate apartment. It's very community focused.
Speaker 1:I look at this as I want to build a vertical neighborhood. Right, you want it's going to be larger units, so that those people are downsizing from a home they've probably lived in for 10, 20 years. They've got all their stuff. They're going to have a challenge moving down to a 500 square foot apartment. They don't want that. So we're focused on one bedrooms, two bedrooms, even three bedrooms. These are larger units than you would see in a typical market rate community. We're going to have a lot of activity space, you know. So it's. It's a display kitchen, it's where you can take cooking classes. It's art rooms, it's gyms, it's yoga, it's pool, it's, you know, room for card games. It's a lot of multi-purpose rooms where people can have larger gatherings. You can have an ability to break the rooms up with dividers so that you can have different activities.
Speaker 1:I think the key to me for someone to be willing to pay the premium for an active adult unit over a typical market rate, you have to have a sense of community. They have to want to be there, they have to want to leave their home to go and live with people that are, you know, like-minded, at a similar phase of life Many retired, some still working, whether that's part-time or volunteer, but they really want to have an active lifestyle. I mean, frankly, you know, a reason to get up in the morning and to go and live out the best years of your life, the golden years of your life, with, with people in a similar, similar, you know, point in the cycle. So I think that's a big, heavy focus. It's quality Uh, it's, you know it's we're going to focus on on the higher end side of things, not not luxury, you know, ritz Carltonton, four Seasons, but still attainable, but make sure that it's good quality that will attract those folks out of their homes. And similarly for the senior space.
Speaker 1:I think it's like I mentioned. We're heavily focused on IRA. Omc Cottages is a big part of what we're doing in the future, if the land is available, just because we see that as another diversification of product type but also just an entry point for residents who might not be quite ready to move into a vertical senior housing community. But really it's just both senior and active adult. We're focused on social well-being, just overall wellness. We're focused on recreation. We're focused on just a sense of community that I think we all as humans strive for. I think that's just going to be driving every decision that we make For active adults. I think the simple answer for a lot of people is there's no dining. You know we may build out a gray box of kitchens that give us some versatility in the future if we need it. But in general it's going to be more focused on kind of the community and the lifestyle for these future residents.
Speaker 2:Well, thanks for that answer. That's an extremely important answer because there is that misunderstanding in the marketplace between IL and active adult, and I can give an example my mother lost her husband to dementia and age and went into a 55-plus community and just loves it. I mean, she told me the other day she was down watching the football game with eight other people. And so I feel both, on one hand, the importance of community, but also mental health. We as human beings are meant to be in community with each other, and so your part in developing active adult, I believe, is extremely important for seniors, and the need to get out of the home where you're isolated, potentially maybe living alone, to come into an active adult and be thriving and being involved in activities and other people's lives is extremely important. So thank you for what you're doing on that side, matt, you're confluent.
Speaker 1:Yeah, yeah, I would actually add to that. You know, as I mentioned earlier in our conversation, you know I've worked in. You know various facets of commercial real estate I've worked in. You know mixed use, multifamily land, home building, asset management, entitlements across the board, senior housing and active adult is such a great space because you get to do all those things, you get the joy of creativity, you get the joy of building a tangible asset. But the one thing that I didn't mention is walking into a senior housing community or now an active adult community that you've developed and you can walk in and see and hear and frankly feel the livelihood that this community brings is maybe one of the biggest rewards that we get from building these communities.
Speaker 1:You know I talked about our entitlements team. Our entitlements team is on the front end, right, so they get the project entitled and then they kind of move on to the next deal after they've done their job. And so I've made a point to make sure that our entitlements team and our construction team are going back and visiting the community six to 12 months after it's open to see what it feels like, and I think that's kind of fuel for them to keep going in challenging times. You have to walk into a community. I'll never forget we took one of our entitlements guys to a community. We did it down in Memphis and he walked in and you couldn't wipe the smile off of his face Cause he's just amazing.
Speaker 1:Like I worked so hard. I worked so hard on this project, but it was five years ago and now I get to see. You know, it's just it, it's alive, it has a pulse. These people are happy and laughing. It was like 10.30 in the morning and the place was buzzing. It's something that gets glossed over. Oftentimes we're all moving quickly, we're all on to the next deal, but sometimes you just got to pause and remember why we are doing this, and I think that's an important factor. Yes, we all want to make a profit for our investors. We want to make profit for ourselves and for our families, but to be able to do that while simultaneously improving the lives of people that we frankly owe everything to. They have invested in our community, they've invested in this country, and to be able to give back in sense and invest in them is a really it's a great reward that I don't think we talk about enough.
Speaker 2:I agree. So thank you for what you all are doing and continue to do. So let's talk about the evolving needs of the seniors and what you're doing in terms of development guidelines. When it comes to technology, when it comes to integrating community-wide internet, whatever that is, can you kind of address those design standards that you're now employing? Because I mean, as you know, it's just things are changing so quickly, as I've stated in a previous podcast, you know going to, in three years, have humanoid robots in our communities. So tell us a little bit about what you're thinking, matt, when it comes to that future living. That is coming on to us pretty quickly.
Speaker 1:Yeah, you said it. You know, every time the phrase technology comes in in senior housing, I kind of I can't pretend to know what the future looks like. Right, but what I can do is make sure that my building is prepared to adapt to the future. Like I don't know what that next technology is. Technology is changing so fast. You know, you look, you know you heard your previous conversations, but you know chat GPT-1 and we're moving on to chat GPT-5 or whatever it is. One is just obsolete at this point, and that's how technology is going.
Speaker 1:I am a firm believer that the senior resident of tomorrow is not going to be happy with the senior living community of today, and I think the biggest change that is going to be required is going to be access to technology technology that not only improves their connectivity to their family and friends and to, frankly, the outside world, but also technology that improves their livelihood. I think we're finding ourselves in this what I'm going to call kind of a health revolution in our country and probably across the world. But people are much more in tune with their health. People are much healthier now, they're living longer, they are focused on longevity and sustainability for themselves, and so I think technology that helps with that is going to be very important for the communities that I develop in the future.
Speaker 1:I find myself in a unique position because, while I am the developer and we are the owner of these communities, I am not the operator right. We partner with operating partners, so I can, I can, I can certainly influence some of those decisions, but oftentimes it comes down to the operator, and so all of our operators are on board when it comes to to implementing technology that helps with the livelihood and happiness and sustainability of our residents, and so I think we're constantly looking at things that do that. Also the technology that protects our residents from falls or for, frankly, elder abuse, or elder abuse or any of these, you know, or elopement, any of these things that can afflict some of our communities. We're focused on ways to improve upon that. So, you know, I wish I could tell you today hey, I'm announcing this brand new technology that's going to make Consulate Buildings the best buildings in the industry. I can't say that. All I can say is that we are constantly evaluating new technologies that will help improve the lives of our residents.
Speaker 2:Awesome Thanks. You know I ask that question because you are involved, as you said earlier in our discussion, on the minute details associated with your project, and that makes me feel that you're involved in what flooring goes in, what do the walls? What is the size of the rooms? How are they put together to enhance individual senior lives? So thank you for the answer to that question, and so let's pivot back to Confluent and what are the key aspects of your plan moving forward and how do you envision the company's growth in the coming years? Matt?
Speaker 1:Yeah, I mean, as I mentioned earlier, our key plan is kind of going back to the basics, which is hybrid entry markets, a-plus sites and A-plus markets, and we are being super diligent on our site location right now. So land availability is much better now than it was pre-2020. See, I didn't say the C word there, I just said pre-2020. Creative ways to do that. But so landowners, there's not as much competition for sites right now. So we're being very selective when it comes to the sites that we, that we are putting under control. Uh, you know the, the pipeline that I have uh is I would say these are some of the best sites we've ever done. Uh, I'm going to, you know, give an example of our most recent success. We just opened a project in, uh just out in Las Vegas. Uh, just opened a project in Las Vegas, just opened it just under two months ago. We're 87% pre-leased on that building, moving in 20 residents, moving them in as quickly as we can, as quickly as our staff can support them, without compromising the quality of care that we provide that site.
Speaker 1:We looked at probably four or five different sites in that market, put a couple under control, just never really got quite comfortable. We did the homework on the market. We knew where we wanted to be. We knew the sub market, we knew the cross streets, we wanted to be. So when a site presented itself, we jumped on it. I was going reviewing it earlier. We submitted an offer within five hours of getting a site get get the site coming across my desk, like we knew exactly. And so when you, when you know a market, you're diligent, you are patient and disciplined, you're going to be rewarded, and so we're. We're doing that across the country.
Speaker 1:So we're really focused on making sure that we get these sites under control. You know, not going to lie, pursuit dollars are at a premium right now. Like're being very diligent on where we spend our money, but what we're doing is we're this year I think next year we're going to start really hitting the gas on development. We've got a couple of projects that I'll be excited to announce soon, and then I think 2026 and beyond is going to just we're going to just kind of blow the doors off. I think there's going to be a lot of groundbacks and I think we're going to get to. You know the cadence that we used to be at, which is three to four groundbreaks per year, but these are going to be larger deals, so hence, as I mentioned earlier, larger equity partners.
Speaker 1:But that's really our strategy and we, frankly, have partnered with really good landowners as well. Frankly, the deals that I have, the senior deals that I have in my pipeline we've been working on for two years, plus some longer I think I've got one that's five years and these land sellers have been great and we've had to have some difficult conversations and we've had to have. They want to close but we can't because we're just the market's not ready yet. So we've been able to renegotiate those deals and extend the land closings out and we've had great partners across the board that have been willing to do that. We haven't had to walk away from a single deal because our landowners have been willing to work with us and I'm looking forward to, you know, to giving that good call that we're going to be closing on some of these parcels sooner rather than later.
Speaker 2:Great. So if you were to pick the top three states in the United States that you feel that from 2026, as you said, onward are the top states that you salivate over, what would be those states? I know you're across the United States, but what are the top three that come to mind?
Speaker 1:Gosh, that's such a hard question to answer Because I think it's so nuanced, so I'm going to answer your question kind of with a non-answer. It's just so sub-market, specific. What I can do is I can tell you where I am and where we're heavily focused. So we've got a very large project in Southern California that I'm really excited about. Now California can be scary for some folks. There's a lot of kind of political things going on there. The taxes are super high. You keep hearing about this mass exodus from California. I think there are a lot of people leaving California but there's still people moving to California and there's still. I mean, it's just the demand in California and the affluence there is something that's hard to ignore. So California, especially Southern California, is very exciting to me. Parts of Texas still very exciting, and we talk about kind of in-migration. Lots of people are moving to Texas.
Speaker 1:We have a very large project under control that I think we'll be going to be breaking ground on next year in Texas. That's a 250-unit project with IA, almc and Cottages. That we're excited about. And then so those are, you know, kind of the bigger markets. But then we're also focused on, you know, what you call kind of your secondary market. So we have a project in Kansas City that we're really excited about. Kansas City, we have focused on its Midwest. So you not your Southern smile or anything, but we've spent a lot of time and energy and really dug into the demographics and the details to identify what we think is the best sub-market in the Southern Kansas City market. We have a site that's fully entitled, ready to go shovel-ready when the market tells us to. We're going to pull building permits and start building. So I'm excited about that. But yeah, I mean, I think the Northeast is very exciting just due to density.
Speaker 1:Florida gets me we have a couple assets in Florida but it gets me a little nervous. There's just I've seen a lot of deals. A lot of deals got done down there in 2016 to 2019. A lot of them are trading right now. I'm finding I just think it's a very competitive market. So I don't know if we'll be doing a lot of deals in florida, but really, if I had to pick, without picking a state, I'd say kind of still focusing on the southern smile. I think that's where you know we're seeing a lot of migration. But but, that being said, there are still pockets. You know that if you go into montana you can find a pocket where they need a senior housing community. You know you just got to do the work and find it. So we're pretty agnostic when it comes to that. Like, if there's an opportunity and there's demand and the seniors need a new project, we'll evaluate it.
Speaker 2:Yeah. So you know, I agree with you, Throughout the United States the need is great, and so we have developers calling our consulting side of our business at Avon Senior Investments to run a needs analysis report. What is the need in the marketplace? Just real quick, what is it? And that really helps those who are looking to develop to get a base of what they can expect in that, let's say, 10-mile radius or 5-mile radius or 7-mile radius. So I agree with Matt, the need is enormous out there, and so let's you know. One more question, and then we'll want to know how individuals can get in touch with you. What are your needs? What would you like to say to our audience out there? But, looking ahead, what are the key opportunities you see for the senior living industry and how is Confluent positioning itself to capitalize on those opportunities?
Speaker 1:Yeah, I think the key opportunity is, once again, the supply and demand. Uh is just something you can't ignore. Uh, you can't ignore it, it's there. It takes I've used this phrase I probably stole it from someone a couple times, but since I've said it a couple times, I'm not going to say that it's mine but it takes capital and courage, uh, to to move forward with development at this time, and that's what we're focused on. We absolutely have the courage, we have the capital.
Speaker 1:We're looking to expand our capital relationships moving forward and I think you know we have built the pipeline strategically to take advantage of this environment. I don't know many groups that have a pipeline as large as we do with A-plus assets that we do. So we've really we have invested time and pre-development dollars to pursue these assets, so we're ready to go. We think, you know, while the moment might not be today, it's closer than we all think and we're really excited about that. We're going to capitalize on it and really, the opportunity.
Speaker 1:We have partnered with, I believe, some of the best operators in the country. We have really diversified our operating relationships. We have covered the United States strategically with really four operating partners that we work with, and so when a site presents itself in a market that we look, we know exactly who we're going to talk to about this, and so we have the entire United States covered with our operating partners. We have the entire United States covered with our operating partners. You know, we have the expertise, we have the knowledge and we have the, frankly, the courage to go and execute on this plan and I'm looking forward to doing it. Like I said, the last few years have been extremely challenging. Not going to sugarcoat that at all, it is, it has been. It is this is a tough industry, even the best days. But it's even harder when you're not putting as many wins on the board. So we are really excited for the fun to get put back in this business and start putting wins back on the board, putting pelts on the wall, so we're really excited about it.
Speaker 2:So if you want to let our audience know, we have individuals that are also high net worth individuals listening to this podcast. We have institutional investors, we have the REITs and others listening. What do you need, what does Confluence need from the market when it comes to capital, and what kind of checks are you looking for to come into these developments that are in the pipeline?
Speaker 1:Yeah, I mean due to the size of these. Once again, I think what we've typically done in the past is Confluent has funded all of the pre-development dollars and that's kind of part of the value that we have added. As these deals get bigger, that's a little more challenging to do. So when you're talking about funding, you know each project is $3 million to $5 million of pre-dev. So I think we're looking for someone to come in and commit to the deal early. Commit to some of the pre-dev dollars, not all of them, but that would be our ideal equity partner and, frankly, we're comfortable with a more programmatic relationship, with pursuing multiple deals, not just one-off deals. I think we're open to that. Pursuing multiple deals, not just one-off deals, I think we're open to that.
Speaker 1:Typically in the past we haven't we really enjoy the benefit of being able to have as much control over our investments and our future. I think we're willing to give up some of that control to partner to make sure that we can execute on all of these projects. I think that's going to take a larger institutional partner. When it comes to deal size, I mean you mentioned earlier you know the project in Southern California is north of $200 million. You know the one in Texas is north of $100 million. Each of these projects, the prices are going up. So depending on you know the loan to cost. You know you could be talking anywhere from $30 to $80 million equity checks on some of these developing deals. So we're not talking small deals anymore. So we're also having conversations about our current portfolio. We've got a portfolio of 12-season assets, so what should we be doing with those as well? We've got some strategic one-off sales that we're working through currently, but there might be a larger and more strategic play in place as well.
Speaker 2:Well, harrison Street just announced that they raised over a billion dollars for their senior living fund. So there's money out there and it's a very exciting time to be in this space for at least the next. I only look maybe five, ten years, five years because it's changing so rapidly, and so five years a very exciting time, and so I really appreciate you being part of this podcast today, matt, how do individuals get in touch with you that want to write those big checks to you?
Speaker 1:Yes, you can just write the checks to Matt Derrick Just mail it to my house, I'm sure. I'll make sure it gets where it needs to go. No, in all seriousness, you can just email me at mderrick at confluentdevcom. I'm not sure if you want to put those in the show notes or anything, but happy to do that. Or you can just go to ConfluentDevelopmentcom. I want to make sure that I get that web browser right. Make sure I got that. Yeah, it's ConfluentDevelopmentcom.
Speaker 2:Yeah, and then just go click over onto the senior living side of the site and you'll see what their portfolio looks like. And I can attest you are working with the top operators in this space. And congratulations to your success, matt. At a very young age, you've done a tremendous amount in this space. So congrats to Confluent and what you've done. I look forward to reaching out to you as we build our intergenerational longevity and wellness communities across the United States here in the future, to have you part of that development, part of it. And so thank you again and appreciate you being part of the show and have a great day.
Speaker 1:Yeah, thank you. Thanks for having me Really appreciate it.
