The CEO: Thomas Grape, Benchmark Assisted Living– Thomas Grape, founder, chairman and CEO of Benchmark Assisted Living, wasn’t surprised when AEW decided to sell its portion of the partnership. “The portfolio reached maturity in [the] second half of 2003 and early 2004,” Grape says. “The appetite for good, quality properties was to starting to increase. We had discussions with AEW, and we knew they were going to look for liquidity.”
Always seeking to grow his firm, Grape is constantly in touch with current and potential capital sources. Among his contacts: Kuwait Finance House and its investment advisor, Legg Mason.
The prospect of working with the Kuwaiti group appealed to Grape for a number of reasons: They were a sophisticated and well-known international investor, they had a history of finding partners in certain sectors and doing a lot of repeat business, and they would represent a new kind of investor in senior housing.
“Unlike AEW, [Kuwait Finance House] is a core investor,” Grape says. “Senior living has [traditionally] not had any core investors, because it is a relatively unknown, new product type, and the industry went through some difficulties because of overbuilding in the late 1990s and early 2000s.”
Still, the deal was hardly a slam-dunk. “Their pricing expectations weren’t consistent with where the market was,” Grape remembers. “So they went off and pursued some other investments.”
The Buyer: Dick Layman, Legg Mason– As the Kuwaitis and Legg Mason explored those other investments, they learned more about the senior housing market. Since the sector had struggled, the research was especially intense. “Legg Mason had a high degree of familiarity with the health care industry,” says Dick Layman, a senior managing director at Legg Mason in Philadelphia. “We had looked at other portfolios, but I don’t think we ever spent as much time and research and used more experts than we did evaluating the operations and the operator as we did here. That was a little bit unique.”
Eventually, Layman liked what he saw. “As you educate yourself on the underlying assets, quality of the operator, markets where assets are located and the input from outside experts, you can underwrite those investments more comfortably,” he explains. “At the end of the day, [Benchmark was] a high-quality operator.”
He and Kuwait Finance House returned to the negotiating table, investing $148 million and taking AEW’s place as a core Benchmark Assisted Living investor.
