- There's certainly something to be said for coming into the community and just giving it a refresh. I mean, I think that's just kind of a natural cycle, right? That the design trends, they will come and they're gonna go. And so they need to be updated. - Welcome to season seven of Bridge the Gap, a podcast dedicated to informing, educating, and influencing the future of housing and services for seniors. Powered by sponsors, AccuShilt, Align, Nickmap Vision, ProCare HR, Sage, Hamilton Captell, Service Master, the Bridge Group Construction and Salinity, and produced by Salinity Marketing. - Welcome to Bridge the Gap Podcast, the Senior Living Podcast with Josh and Lucas. We are in Atlanta, having great conversations with great people, and we've got a good friend on the program today. We're gonna be talking about architecture and construction. We wanna welcome Michael Fitts of Building Architecture. Welcome to the show. - Thanks for having me. Glad to be here. We are so glad to have you. So there's a lot going on in the marketplace when it comes to construction, repositions, the economy, interest rates, and everyone knows that ground up development is at nearly a standstill. There are deals that are being done. I have talked to people that are under development, but compared to years past, it's way, way down. And we've even had detailed conversations with our great partners at Nick Map Vision about those demographics and about some of those stats and how far behind we are in comparison to the data around the demographics of people that need care and housing. And so, because of that, a large focus has been put on repositions, like taking an existing building and converting it, or repositioning it, or making it more modern in a renovation. And that's what our topic's gonna be talking about today with Michael. We're gonna be talking about the three biggest challenges from an architect's perspective, facing a renovation conversion or a reposition project. So Michael, with that kind of setting the stage here, let's dive in to your perspectives and what you're seeing in the marketplace pertaining to this topic. - One of the things I was gonna say as we start, right, is if you had a developer sitting here or Josh, you do some development work, they would have a different perspective, right? We probably talked about budget concerns, right? Unforseen conditions that we're gonna find buried off in the building, or we're gonna have overruns, schedule overruns. From an architect's perspective, right? We're coming in to the process very early on, before we know what we're gonna build, before we know what we're going to do. So I tell people all the time, the more we can understand about the master plan and the grand vision, the better we can serve the client, right? The more we understand, even the business, the metrics, the economics of it, the more we can ensure that what we're doing in response and the design is gonna be effective. And that goes beyond, like I said, phase one, we're going to put some improvements in the courtyard, and phase two, we're going to address the corridors and we're gonna put new flooring down. It's, you know, is this a long-term hold, right? You're purchasing this property, you're gonna turn it over to operations, but you are gonna keep it for long-term, or, you know, are you gonna get in here, you're gonna bring the occupancy rates up, and then, you know, we're moving on. And those are gonna have impacts on the design. So I see quite a bit of value in determining that master plan. And I think you touched on a point, or several points that we've talked about on this show before, which is the team composition as well. So, you know, what are we designing to vision? What are we designing to function? And really understanding that. And we know whether you're talking about a renovation, whether you're talking about a reposition, whether you're talking about a new development, new construction ground up. In this business, it's complex. And, you know, it's not always a developer, owner, operator that does all of that. Sometimes it's a developer partnered with an operator, then we have our architect, sometimes we have an interior design team in that conversation. It's really important to have them all on board, understanding the vision and the use of what you were talking about very early on so that we're all paving the same way in the same direction. So I think that's a really insightful topic. Right now, as Lucas said, we've got so much going on in where operators, owners are investing in capital improvements in communities. You and Lucas are both out of Texas. I'm sure work all over the country. What are you seeing that may be unique and different right now? And how are you approaching that? So we do work all across the country. You know, so much of the, well, it's segmented, I guess, a little bit, right? We talked about the difference between just kind of repositioning versus the conversion type project. And so the needs can be vastly different. As you mentioned, you know, some of these projects, if we're talking about finishes and we're talking about surface level changes, those are fairly easily accomplished. When we talk about a conversion project, I mean, an example that comes to my mind is a call I got from a group that had purchased a former hotel and are interested in, you know, let's turn this to senior living, right? Makes perfect sense. It's a great deal on the building. And, you know, again, speaking to, we gotta understand the master plan from the beginning, right? Is what's the licensure challenges that we're gonna have? If that's a building in Texas, for instance, where Lucas and I are at, we know that the state is going to say, well, this is a new license. And so therefore, it has to meet the standards of new construction. All that changes the game, you know, immensely in terms of a conversion project. And you could say the same across different states. You know, I know you have experience with Tennessee. And so at the state level in Tennessee, how is that gonna be viewed in South Carolina, in Florida with Aca, right? And so understanding those type of pieces, additionally, to layer onto that, right? We've done a lot of recently here where we're essentially downgrading the license, right? So maybe we have too many memory care beds. They're not filling up. And so we need to reduce memory care beds. Lucas, you and I have worked on projects, you know, similar to that. That can also turn into, you know, more headaches than you would think from a regulatory perspective, to ensure that the license is correct. So we have a heavy involvement in that, making sure that's a seamless process. - Well, I think you make a couple of points where it's not always as easy and straightforward. You know, you see an asset, whether you're repurposing it or improving it. Sometimes it's not always as straightforward as you think, especially if you're dealing with licensed communities. As we know, licensure is different from state to state. Rules and regulations vary. And so it's very important that that team composition is knowledgeable not only of the product type, the vision for product type and repositioning, but that they understand whatever market that they're going to be in in the regulatory and the municipalities and life safety codes. What is the impact on that? Because sometimes our vision is a great vision, but the obstacles that you will encounter. And, you know, we've all seen it that best of intentions, you get in and you start designing something. And then you realize, oh, my gosh, you know, I'm going to have to jump through so many hurdles just to make this happen, is the project still viable? So I always go back to, you know, really having a knowledgeable team from your general contractor, your stakeholder, your operator, your architect partner, if you're working with an interior design team, that they really not only understand the product type that they're designing to and have done that before, but also in the area under the regulatory authorities because, you know, Texas and Tennessee, even though we're both in the South, radically different on how that's interpreted with the rules and regulations so you can run into things that can make the project viable or not viable oftentimes. - That conversion project I talked about, right? That project had proceeded and architect had reviewed it and had gotten an approval for a permit from the city. Is actually they then got a letter, a planned review from the state, right? They're telling them, oh, well, we're not going to be able to license this community. And so, of course, for a developer, right? You get a letter and you, on the one hand, you say, well, we're permitted from the city. What are you talking about? We can't do this. And then you have the state saying no. And so if you don't have someone that can speak that code language right and talk to those code officials, you can really be in hot water quickly. - I think that's why it's so important is that at the beginning, avoid these surprises and even harkening back to the master plan, excuse me, it's really developing your team early and having these conversations early in advance of closing. Maybe you're under LOI and you're in your diligence phase. I'm oftentimes getting a call at that point. And the question I ask them is, do you have an architect involved in this? Do you have a designer involved in this? And oftentimes they don't. And I'll tell them, well, these questions need to be vetted now before you close so that you make sure that you know what you're getting into. The fact is, is that there may be multiple avenues to take just because that full conversion, maybe there's some licensing issues. Maybe there's a different approach that you can take either from a care perspective or from a renovation perspective. And so that's really crucial. Let's talk about budgeting. Budgeting is something that I see a problem a lot. And even from some veteran players in the industry, a lot of people get budgeting right, but a lot of people really miss it on the budgeting. And it creates a big problem later when the project is ready to go. Talk us through how when a client comes to you and they say, yeah, here's our vision. And they kind of cast this big vision that could be a million or millions of dollars. How do you engage in the conversation of, you know, do you have the money allocated to do this? - Obviously, I mean, every architect won when we hear a client paint the picture, right? I mean, we're excited. We deal in visuals, we deal in the aesthetics. And so, you know, we're equally excited, right? Of, oh, you know, we're gonna open this lobby and we're gonna add this grand space and we're gonna have these beautiful finishes. But we also on the backend know, you know, if we don't ask the budget question right out of the gate, we could be setting ourselves up, not only for, you know, just miss expectations, but lost time because when we have to put the project out, we don't get a contractor involved, you know, at the table early, then we have to come back and we bid it. And we go through rounds, if not more than one round of value engineering and no one enjoys that. I mean, that was the topic of conversation. One of the sessions we had here just yesterday. And so we wanna start with that. We wanna define what is the budget. And then beyond that, you know, on occasion, we do run into clients that they don't have a budget number, right? So what do we do in that situation? And so much of that comes to our best efforts at educating them, right? 'Cause there's always going to be multiple options. You know, how do we address this rated wall? Well, there may be two or three different assemblies that are going to meet it. So we have to start piecing together. Lots of dominoes that fall sequentially in order to get there. Budget season is coming up and AccuShield wants to help you thrive in 2025. In an ideal world, your reputation is skyrocketing. Families have peace of mind. Staff is focused on what matters. Third-party care is trustworthy and validated. And your residents are socially connected. AccuShield wants to help you reach all of these goals and more. Start planning with an expert today so your entire community can thrive tomorrow. Learn more at AccuShield.com and the links below. Along those lines, I think the budgeting conversation can, it sounds pretty straightforward, like get your budget together, but it's not always that easy because there's so many different aspects of it. You know, one of the worst nightmares for an owner, developer is change orders, right? They're expensive, they're time consuming, they're costly every time that happens. But, you know, one of the things that I've seen to help compress that or avoid it, it's hard to avoid any change orders. But again, is going back to not being as hasty just to move ahead as fast as possible to get to a closing, but taking time. I mean, I've even seen things like low-voltage shop drawings that aren't done early and having your low-voltage partners involved early on in the process and having those experts look at it through the life safety lens of what is gonna be allowed locally with the fire marshal and also sometimes at the state of fire marshal, the federal level as well, and how that impacts, if you don't really do some careful planning and budgeting early on, you may get your plans approved as are, but then later in the process, when you submit some other drawings, perhaps, you realize, oh my gosh, I've gotta change this and I've gotta change that, which means interiors has to change this and change that. And next thing you know, it's this trickle-down effect. Everyone's budgets are being impacted and who really ultimately pays for that, the owner of the, and the developer. So for the developers out there, particularly what I've seen is developers that are relatively inexperienced in our industry. And I think there's so many people, even with the challenges of construction finance, interest rates and all the things going on, there is this big pressure building because the demographic, the aging population still needs our services and we're seeing occupancy start to rise. So at some point, the dam's gonna break, new construction and more renovations are gonna be coming on to meet the demand and we're gonna need to address this and we're gonna have a lot of new developers coming in and it's gonna be critical that the educational piece of assembling the team and the budgeting as you mentioned is in place to avoid those costly changes down the road. The two words that come into my mind, oftentimes when lots of changes take place or maybe something was missed or they add something back in, I say nothing that time and money can't fix. But those are the two most expensive things and it oftentimes happens. And some of these budgets are very compressed. Cost are still very, very high. I get the question, when are cost gonna come down? Material and labor are still very expensive. I've not really seen personally on a renovation side. I have not seen really any kind of easing on material labor. I mean, obviously some of the commodity materials have more equalized, but in general, costs are very expensive. And so the budgets on the repositions in renovations, I think particularly if you are taking a new focus on that, and maybe you've been in the industry a long time, but maybe you haven't done a full renovation on a property in a while, 'cause you were a developer or a ground up guy. I think you need to come in with a very open mind and not think of the budgets that you had in 2019. 'Cause things have changed drastically on cost. And so people need to really factor that in because we've been a part of the exercise so many times in helping create early on that ROM or rough order magnitude is what we call it. It's this fancy construction phrase for budget, right? And if you make big changes to design later on that affect that original budget, you can potentially find yourself in a big problem with your lenders or your private equity or whoever that is. And so I think careful attention needs to be brought to the forefront on those upfront conversations. - All right, are you guys, I'm curious, you're doing so much work in the architecture space, repositioning, renovation, the construction side. What are you all seeing? Is it mainly that we're just updating the aesthetic, the interiors, exterior to make us look better to polish up some of the older assets? Are you seeing more of a true repositioning or adding more units to existing campuses because demand is still growing and it's hard to do new construction? Where do you see the biggest growth sectors and money being spent right now? - There's certainly something to be said for coming into the community and just giving it a refresh. I mean, I think that's just kind of a natural cycle, right? The design trends, they will come and they're gonna go. And so they need to be updated, especially in a lot of the larger markets, right? Where you have competitors. And so maybe there is that new shiny penny that everyone's looking at. And so it's how do we differentiate? And we may have the best service, but when you set foot in the front door, right? That curb appeal, it does matter for something. So we do see a lot of that, but at the same time, you know, I mean, one of the biggest things that we've been converting lately, right, is taking these studio apartments that no one wants anymore and turning studios into one bedrooms. And that's just, you know, things five, eight years ago, studios were higher in the mix. And now, you know, those are just gonna be harder to lease up so that we need to find a way to keep the square footage and better utilize it. - Yeah, and I think I've noticed that trend as well. And you know, you think of, well, why did we ever think that everybody just wanted a studio? And I think so much of that was driven, if you look at the development that has come in actually open and stabilizing from 2020 forward, a lot of that growth, I think, was people in our industry that actually came to our industry new from other verticals, developers, that really were looking at it strictly from a budget standpoint, the numbers of maximizing square feet and cost and focusing more on common areas and really putting all the money there and then having these tiny little apartments. And then that looked great on a pro forma, right? The more units I have, the more I can rent, great. But in reality, we also have to meet the changing consumer preferences and expectations. And there's not too many people that want to think about moving from, you know, a 2,000, 3,000, 4,000, 5,000 square foot home, the psychological barrier that you have to think, oh my gosh, my stuff's gotta go in this 300 foot studio apartment. And we as operators are like, hey, well, you know, the whole place is your home. Well, that sounds really great, but from psychologically, that's a big barrier for people to cross. So it's interesting to hear you say that. And I'm wondering how that will also impact new development when new development really comes back, new construction. If we're gonna see those studios start to be much smaller on the unit matrix, for sure. - I'd be interested to get your take on that, even though maybe that's not the, what everybody's looking at right at this very moment. But the unit makeup and the floor plans have gotta be a big thing. - I expect that we're gonna see several shifts. I mean, the three of us sitting here, we're all younger men in this profession, right? - Thank you for saying that. - You're welcome. - Yeah, appreciate that. - Maybe we've been doing it for 15 years, but I mean, there's, so as the demographic shifts, right, what the consumers want, we were kind of talking about this before, right, at this kind of like vacation model or this destination type, you know, product that could be out there. And I, you know, so as I sit here looking towards, hey, I can't wait till I can live in a 55 plus community, right? I'm seeing these awesome designs we're doing. But I already start to see myself going, no, I love the idea of having less belongings and less square footage to take care of and more, I need a bed to sleep in and a bedroom. And then I want the lifestyle. So I think that is going to shift and that's gonna, it's just gonna vary on the way that our generations have been shaped, right? - It's difficult 'cause a lot of it is speculative or it's based on a feeling and what you're kind of seeing, hearing, and believing we're moving towards, but, you know, we always come back to the biggest challenge is the capital markets don't respond real well to our speculation, right? And so anytime you start doing something that is a little bit cutting edge or feels new or is not necessarily a proven model, it's not a proven proforma that we know will perform and a construction model. It's always difficult to convince. And I think that's another reason why an experienced team, well-rounded team and bringing that business model to the table, whether you're repositioning an asset to more future proof it for the next generation, the coming generation that's starting to look at your product now or whether it's a new development that you're working on, the better your team experience level is and street credit that you have in the business, the better off you are gonna be to convince that capital team to invest, to finance and so forth. And so I think it's a very dynamic business that we're in and you guys have a huge challenge on that side of architecture, design and construction. - Okay, so kind of rounding out our conversation, let's talk about compressed schedules and just how this well-rounded team comes together and how do we avoid this kind of finger pointing that takes place kind of later on in the project when it's people, maybe it's a little frustrating, there's been some changes, there's been some delays. There's always something in these projects I oftentimes just tell people like, look, I'm relying on people just like you are relying on people. And we're guaranteed at some point to be disappointed by some person somewhere. And so we need to get through this together. And I think that's how we build a cohesive team. So talk about schedules. - Any architect that listens to the podcast, they're gonna be like, man, this guy got the softball questions, right? Because compressed schedules and talking about scheduling, we talk about it on every project, new development or these repositioning remodel type projects. The reason I think that it's a big challenge to overcome in a remodel type environment is because it is compressed. A new build, we have time to build up, right? I mean, while we're getting the site pad ready, we can be getting out ahead of ordering our doors and our windows and we can put furniture on order. And when we get in a remodel scenario, if that's a six month schedule and we have a one new steel beam, not only are we the tiniest order for the steel guy, right? And the fabricator and the erector to come out, but we don't have time to wait for it because if it's not there, when you guys mobilize on day one, we could face two week delay out of the gate, not to mention two week of a delay, right? On a six month project is much more impactful than two weeks of delay on a 24 month project. And so that's the first thing that kind of jumps at us and we have to come up with ways. How do we alleviate that, right? How do we account for that? And so sometimes that means we need to be able to finalize that structural package before perhaps the contractor is fully released with a contract so that we can get that steel on order, get it delivered to the site and it's ready to go. I've heard and have a huge respect for the work that both of you guys do, in particular in communities that are currently operating. Lucas and I have talked many times about the challenges and I've seen and witnessed and been part of not such great stories where you have an inexperienced team, whether it's the architecture or the general contractor or both doing work in an existing operating community and the challenges that that brings from a design standpoint, staging of a product and project, the timing as you mentioned, the specific budgeting and then even having the teams that don't scare the residents to death when they're in there, right? So I'm interested from your perspective is it really change a dynamic when you're working on new construction versus working on a repositioning or a remodel in an asset that's already opened and what are those challenges like for you? Obviously we're not, you know, boots on the ground in their day to day with the staff and with the residents. So we are a little bit removed from that but the things that we can do to help the client, right? Is to put visualizations together to show the residents, right? Like this is why you're enduring all of this jackhammering, right? We're, you know, we're gonna turn this over to you and this is your space. So we can help with that obviously in a big way. And then I do think, you know, our communication, our efforts to work with the contractor to help alleviate those concerns is big. And that means sometimes that means thinking on the fly or coming up with solutions that we may feel is less than optimal or we may feel it's a compromise to the design and our vision but maybe it is, it's critical to the project to ensure that the staff can continue to operate. So also helping with phasing too, you know, I would say that's a big way that we can assist, right? Is working with the contractor and figuring out how can we sequence this work so that, you know, dining service is uninterrupted or, you know, can we help with furniture layouts, right? For our client to say, you're gonna be able to move temporary provisions over here and this will fit. So there are things that we can do to try to plan. I think there's huge things and we can't underestimate the experience of the team because if you're dealing with a general contractor, construction team or an architect, designer, that doesn't understand the impact on operations and how the operations in a senior community and a healthcare facility work in general, you have no perspective on the decisions you're making that can have a huge impact on the operator and on the management team. And so that would be my takeaway for our listeners is Gaili, if you're thinking about any of this, which everybody should be right now, it's a great time to be renovating and updating your product. You've got to hire an experienced team. - And that is the takeaway for today. You know, Michael, thanks for spending time with us. I know that, you know, our listeners are probably gonna wanna reach out to you. We're gonna put Michael's information and his company and our show notes. We'll have a link to that as you are out there exercising or traveling, click that link. And when I think getting your team put together is kind of the biggest takeaway. Start strong in the beginning so that you don't have big mistakes later that you've got to really pay for because that time and money, we'll catch up with you. (laughs) Awesome conversation. And thanks all of our listeners. You can go to btvoyst.com for this content and so much more. Thanks for listening to another great episode. The Bridge the Gap. - Thanks for listening to Bridge the Gap podcast with Josh and Lucas. Connect with the BTG network team and use your voice to influence the industry by connecting with us at btvoyst.com.
