A long-time employee of Marriott International, Paul Johnson was involved in strategy and financial planning when Marriott was starting its seniors business in the late 1980s. Today, Johnson is president and general manager of Marriott Senior Living Services, a wholly owned subsidiary of Marriott International. Johnson is also a member of the ALFA executive board

Continuum: What is the extent of Marriott's involvement in seniors?

Johnson: We acquired our first community in 1987 and opened our first developed communities in 1988. We started with a focus on independent living, first with lifecare then we acquired a number of rental projects. From the beginning we recognized that we are in the healthcare business, so we tried to get CCRCs and the full continuum. In 1990 we opened our first assisted living community, Brighton Gardens. Now we have 40 independent living and 80 assisted living communities.

Continuum: It sounds like the model you are endorsing is healthcare-oriented.

Johnson: We recognize that we're in the healthcare business. We also recognize Marriott's reputation - you are what you are - and so we are in the healthcare business with a hospitality bent. That's for two reasons: No. 1, we do it real well. We do foodservice well and take care of the customers. But also, secondly, our customers expect it when they're buying a Marriott product. It's a double-edged sword. They remember the Marriott resort they went to, and so their food expectations are a lot higher of us than if they went to a competitor's facility. They know Marriott, and they know their Marriott experiences, and they're looking for that level of service in care and food. Because of that, we made it our point of differentiation.

Continuum: How have lenders and investors viewed your involvement in this industry?

Johnson: Well, we're not a pure play, like the assisted living companies. The analysts that follow us are still lodging analysts. The investors and lenders like it because it's an overall boost to Marriott's growth. They're interested in it, but when I make my investor presentations with our Wall Street analysts, I ask them if they want to stay at our products as well as stay at our lodging products, I have no takers on that yet. It is different, and they're comfortable with the fit, and so it's well-received. As long as we are a boost to Marriott's growth they're very excited about it.

Continuum: How are you planning for your growth?

Johnson: We're focusing on assisted living, primarily. We have three assisted living products to meet different segments of the market: We have an upscale quality product, Brighton Gardens; we have a moderate-priced product, Village Oaks; and we have a mid-product, Maplewood Park Place, that is a different type facility service model - cottages on a campus. We are developing all three to meet different customer segments, and that is where our growth is primarily. Because we have a broader focus - 40% of our units are independent living - we still do independent living projects. We have a large CCRC that is opening this year in Stanford, Conn. We acquired a project last year. We have another project in pre-marketing and development. We'll continue to develop independent living. We'll shift focus, depending on market opportunities. If the assisted living penetration supply gets to be too much then we'll go back and focus on independent living product.

Continuum: How are you meeting the concern for labor supply?

Johnson: It is an issue, but it's not a barrier to new growth. One of the things we look at when we look at sites is the availability, not only of seniors and customers, but of labor. If we're on a bus route and it's easier for labor to get to us, it's a lot better than being isolated and having no way for labor to get to your site. It makes you less competitive for that labor. Part of our strategy is to be the preferred employer. Not only do you want to be the preferred provider, but we try to be the preferred employer. And in our marketplaces, taking care of the employee well so they take care of the guest is the founder's philosophy. So we spend a lot of time on hiring the right profile and training our associates - giving them the tools and support to do the job and keep their satisfaction high, and that reduces our turnover. That focus has to be a major part of our future success.

Continuum: You have ownership programs ...

Johnson: We do. We have a number of different types: We've done lifecare models, we have rental models and we have cooperative projects. We have a handful of cooperatives - we are pre-marketing of a new cooperative on Long Island right now. The cooperative model is very complex, but it's a great project and offers the real estate ownership, the investment opportunity for a senior. We've found it matches up with the high-end customer - who has a lot of equity in their home - very well. It's not a broad product. We're not going to develop it all across the country, but in niches and high-end markets. We have a facility in Cupertino, Calif., and we have one here in Washington, D.C., as well as some others. In that high-end market it's a good match.

The condo co-op has a full continuum of care, so it's a lifecare model. They're not only buying their unit, but they're buying the P&L of a nursing center. It's taken the lifecare model one step further. You know, in lifecare you have the big upfront endowment fee. In our model that's refundable to the estate upon death. And we have buydown programs and endowment. But you take that one step further and you have ownership and it's like there's a group of people that's ahead. This is an investment. Where we have condo co-operative we have real estate appreciation, and customers see it as a great place to park their money and protect their estate and take care of their health needs as they age.

Continuum: What do you think will be some of the issues in seniors housing investment and assisted living in the next couple of years?

Johnson: There's still a lot of supply coming into the market. I think the increase in supply, the absorption of that supply, is going to be the major issue for providers in the next 24 months. I know people feel the market is much larger than supply, but independent of that, the absorption of the supply that's coming in - it's coming in fast.

I think the labor shortage is going to be an issue for a lot of people, especially those that don't focus on that as a major part of their efforts. And the increase and change in regulations: Every state is looking at the regulations overseeing assisted living and there's a real struggle in long-term care between various factions, and I think regulation will be a major concern.

Continuum: Do you think there will be consolidation in assisted living?

Johnson: I think we'll continue to see consolidation. That doesn't mean that the smaller operators don't have a place for the long term. I always think there's going to be a place for good strong entrepreneurs, because basically we're still a local market business. Most of our people move in from a small area around our facilities. Local reputation will always allow a good strong entrepreneur to be successful and have a niche in their marketplace, especially if it's an owner/operator that has sweat equity invested in that facility and knows its marketplace very well. As you become a large chain you lose contact sometimes with those local markets. I think there will always be a place for the small operator or the small regionals. But among the larger scale companies, I think there's going to be consolidation.

Continuum: Do you expect Marriott to be involved in that consolidation?

Johnson: Yes. It's just a matter of making it economic for our shareholders. We're looking at facilities to acquire and we are looking at other companies. I think it's a matter of the right opportunity.

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