Who Are You, And What Do You Do?
Hi, I am Michael Eisenga – a real estate and business investor and a former mayor of Columbus, WI. Early in my career, I became educated in the financial industry, mostly commercial lending and real estate. I ran for mayor in 1999 and was the mayor of Columbus for two terms, spanning from 1999 until 2003. During that time, I really expanded my knowledge about government, especially at the local and municipal levels. At that time the mayor really effectively operated as the CEO of the city. There was a Common Council made up of six council members, but then the mayor really was the Chief Executive Officer.
During that time, my responsibility was overseeing the department heads of the city. I put an executive budget together every year for how funds were going to be spent and how they were going to be allocated, and then that budget could be reviewed and potentially changed if there was a majority rule by the City Council. I was elected at age 28 and I was, for lack of better terms, operating a multi-million dollar municipality at that time.
Also, I’ve dealt with the various areas of decision-making such as HR and so on and so forth. When you’re the mayor of the city, at least in Wisconsin, you are by statute the head of the police department. So I was always a big supporter of the police and allocated funds to the police department, including additional training funds for the officers and various areas of law enforcement, and also for drug investigations. During the time I was the mayor, we actually put several of the folks that were in the drug trade in jail. So that was definitely something that I was proud of.
When I became the mayor of Columbus, I had also started two different companies. One was First American Properties, which is my Property Holding Company I still have today. It is the company that owns and operates various different real estate investments across the spectrum. I also started a company called First American Funding Company that later on changed its name to American Lending Solutions, which I had in operation until April of 2018. During that time, I did numerous real estate investments, and I have continued to do so.
Then, mostly the last several years, I’ve been involved in senior assisted living facilities, purchasing those, and in the end, managing them as well. The first two that I purchased were actually purchased as more of a passive investment. They had something called a triple net lease, which means there’s a tenant in place that operates the property, and they pay my company rent. So I really just collect the rent check and they pay all of the expenses, manage the properties themselves. And then they also pay the property taxes, the property insurance, and all those things. A triple net lease is a lease where you receive money and all you need to pay is your mortgage payment if you have one. And after that, all that remaining money is your cash flow, essentially.
Anyway, I got into the direct management of these facilities when the company that leased the first two went under and they were not able to continue with the lease. So I worked out a financial settlement with them, and then I took over, formed my own management company that took up putting day to day management in place to operate those facilities. So that’s really what got me into the senior housing area, something I’m the most involved in now at this point.
What Has Been One Insight Or Lesson That Has Been Most Helpful In Your Career?
I would say one of the most important lessons I’ve learned is setting attainable goals. When you’re putting together a business plan, one of the things you really want to do is put together something that’s attainable. You want to put it together in such a way that you have several short-term goals that are attainable as you reach toward the bigger goals.
What Has Been Your Favorite Mistake? A Mistake That In Retrospect Led To A Great Lesson And Progress.
Well, there’s a couple. But the one that probably turned around for the best was buying the two original assisted living facilities with a triple net lease. When I bought that property, I was looking forward to having that as a nice passive investment where I wasn’t involved at all and just sat back and collected my rent check. And of course, I had a decent amount of cash flow. In the end, I ended up having to take over the management by forming a management company.
In the end, I actually made a lot more money by managing the properties directly. That was a direct result of the company that had originally been my arm’s length tenant, not being able to perform under the terms of the lease.
Project Forward Ten Years. How Will Your Industry Or Field Be Fundamentally Different Then? What Opportunities Do You See?
Nobody knows exactly what the next 10 years hold. But if I was looking in my crystal ball, I think the senior living industry is going to go in a couple of different directions. When I say senior living, I’m thinking of assisted living only. So I think there is going to be a trend to try to keep people in their homes longer, but that still leaves plenty of opportunity for assisted living facilities.
And it’s going to go one of two ways for assisted living facilities. There is going to be a split market between public pay facilities and private pay facilities. What I mean is there’s going to be a division of which assisted living facilities are geared toward which form of payment plan. And the reason for that is—what I’m finding within the industry is the amount of money that you receive for the public pay residents is significantly less so it’s just not possible to offer the amenities and the services that private pay people expect with the reduced rates from the public pay sector to be competitive.
That’s what happened with the most recent facility that I built. We are not taking public pay there. In fact, one of the companies that offer public pay in that facilities market, we didn’t even sign a contract with. Because by signing a contract with them, we’re stuck taking residents and they refuse to pay anywhere near what the market rate is, which makes it impossible for us to offer the amenities and the services that our private pay residents expect.
Now, I don’t see that changing with the public pay side of things. If it would, that would probably be very helpful for everybody. Because what happens in the public pay sector is the people who don’t have the money and need the government to pay their rent for these assisted living facilities, have these third party managed care providers who decide where they locate and refuse to pay market rents. Those managed care providers seem to spend all this time trying to get the rock-bottom prices for these residents, and then they can’t get them placed anywhere.
I was just recently talking to a representative, one of the public pay providers that we work with. She’s not in our direct market but she works for the same company. She’s just finding it impossible to find places to place her residents because the public pay providers offer such a huge discount of what the market rates are. Nobody decent wants to take them. So what’s happening is those people are being transitioned more from the area that they’re in to further up north in northern Wisconsin, where the rates are lower. Those assisted living centers are more desperate for residents. Its sad for the residents though because they can end up being far away from friends and family.
So I think what’s going to happen is you’re going to see developers who are going to start building assisted living facilities gear them toward one end of the spectrum of the other. If you gear toward the public pay sector, you can make the rooms a lot smaller and you can have more rooms in the same square footage. When I build a building right now, geared toward private pay, I like to do all one-bedroom suites with a nice living area, a kitchenette, a full bathroom, and then a nice sized bedroom. And those residences are about 650 square feet. However if you were gearing the facility toward the public pay sector you can actually do these units according to the licensing at more like 250 square feet and you would need to eliminate many of the amenities and extra services you can afford to offer under a private pay scenario.
So if you’re going to be focusing on the public pay side of things, instead of doing 40 units at 650 square feet, you can put that same 40 units in a building that’s about a third of the size of the one that would be for private pay. Then it starts making a little more sense financially.
In other words, if you’re in an area where the research shows that you’re going to have private pay people who are going to pay a lot more—that’s when you do the bigger units—you do more amenities. When I build a facility, I like to include things like private dining so that you can have your family come and visit and dine with them privately. We have space in the facility. We have a movie theater, an exercise room, an extra large and generous activities room, and a chapel. So we have lots of amenities. Obviously, you’re just not able to afford to do all that under that roof if you’re getting significantly less rent.
You may also see a number of the original facilities that were built years ago when the industry started where there are shared bathrooms and things like that becoming more poised toward being public pay centers and not private pay centers. I’m seeing that with my original two facilities that they’re starting to fit more the public pay scenario and not really the private pay scenario. Just because in those cases, it just seems to be that that’s the trend in the community overall, there just doesn’t seem to be the wealth effect that there used to be.
That’s something you really want to watch. As you’re going into these communities, in these areas, you want to find out what these trends are and get the best information you possibly can so that you’re not building a private pay facility where you’re gearing toward private pay people who are going to be able to pay $4000 to $6500 per month, and then you get in there and find out that you’ve got a public pay market, where you’re going to be getting much less than that because it’s going to be a terrible investment for you.
The opportunities it presents… I think it presents some opportunities for both sectors. I think you can strategize the public pay sector as I described earlier in such a way that you can make that actually work. Especially if you’re able to double up people in the same room. You just have a smaller square footage per unit with less overhead facility and fewer amenities. On the other hand, there are really good opportunities for private pay. That’s probably the direction that I want to continue to go into.
What Are Some Bad Recommendations You Hear In Your Profession Or Area Of Expertise?
I’m not necessarily sure that they’re bad recommendations but it just affects how viable your business is. I know of some assisted living facilities that are run very inefficiently. You have to work very hard at the staffing and you have to be very realistic about it.
So we have had staffing audits done in the past to really get a clear idea of what we need staffing-wise. Because one thing I’ve learned in assisted living is if you ask the staff if they’re understaffed, there’s a 99% chance that no matter how many staff you have, they’re going to say they’re understaffed. So really, what you have to add is a third party who really can look at that. And there are industry standards to go by and those are the things we go by. I know of some people in assisted living that are grossly overstaffed and they’re not profitable. And if you don’t have a facility that’s profitable, you’re really putting the long-term viability of that facility at risk because it may not be there in the future if it is not a viable business.
The other thing I’ve seen is people in assisted living where they feel the need to hire full-time RNs or full-time physician assistants at their facility. And I think that works well when you’re at a certain size and you have a certain number of facilities and units and residents. Maybe then there are some cost savings. But if you’re a smaller operator, it makes no sense to do that, and it’s going to cost you an awful lot of money. Instead the route to go is to hire these professionals on a part time as needed basis.
So the route we go is having a Registered Nurse (RN) that we pay to come in as needed. They have to delegate certain responsibilities to our staff, other services and cares they need to directly provide. Also we have them conduct weekly audits of the cares and other duties the staff is doing to make sure they’re doing things correctly. That saves a lot of money because you don’t have an RN on the payroll on a full time basis. RNs are expensive.
You can find good part time RNs, either one or possibly two. If you have several facilities, maybe you have an RN in each market or maybe somebody who lives within a range of two or three places where you have facilities and they can just be hired as a consultant to come in, or even as a W2 employee to come in and just work part-time and handle that and delegate the necessary duties to members of your staff. That will help keep costs under control so you can be as competitive as possible with your rates.
The other thing I see is overstaffing at the administrative level. They may have an HR person. I know of one group that has a number of facilities in the same range as the ones that I oversee. Their staffing from the administrative standpoint is probably more than double of what we have. We’re getting the work done and I just can’t imagine what these other people are doing with their time.
So those are some recommendations that you hear from people sometimes. And really, there are more cost-effective ways to get things done. But also keeping in mind that you want to make sure that the residents are being put first and that you’re providing the services that they need and that everything is getting done properly and your residents and their families are happy.
In The Last Two Years, What Have You Become Better At Saying No To?
That’s a tough one. I’ve gotten good at saying no to whatever I need to usually, in general. So I can’t really think of anything specifically that I’ve gotten better at saying no to.
I guess when I’m meeting with my management team, I say no occasionally to things. But overall, I probably say yes. We’ve become pretty good at working together as a team and we are on the same page most of the time. So by the time they come to me and say, “Hey, we need to spend some money on this,” be it some additional funds for activities or, prior to COVID, some bus trips that we were going to take people on or any number of things those are all things that I say yes to.
If it’s a capital improvement, I think we’ve gotten pretty good at working together to find out what the actual need is. Sometimes we have to separate needs from wants. I say no to a lot of wants, but obviously, if it’s something we need to do then we look for the most economical way to deal with that. And those are the things I say yes to. But I do say no if the cost seems excessive or if we haven’t really researched what the costs need to be. Because you can get one estimate initially of what something needs to cost and when you really start looking into things, a lot of times you can come in significantly lower. In fact, I’ve had the cost of things come in two-thirds lower than first thought on several occasions in my years in business.
A fine example of that was the staff wanted a new nurse call system in one of the facilities. To get the model they were thinking of would cost us about $25,000 to $30,000. And then we found one that works really well. It didn’t require a lot of wiring because it’s Wi-Fi-based and has worked out better than the other would have at about one third the price. That is an example that I can think of that recently came up.
What Is The One Book You Recommend Most Often And Why?
“How to Negotiate Anything” by Herb Cohen. I read it several years ago in my 20s and it gave some excellent strategies on how to negotiate, especially at a business level and even at a higher level.
What Advice Would You Give A Smart And Ambitious Recent College Graduate? What Advice Should They Ignore?
The best advice I would give to a college graduate or even one of my three children is to go through life doing something you enjoy. If being an entrepreneur and a business person isn’t something that you enjoy then don’t do it.
When I was in high school, I had a part-time job. I worked in fast food. Well, that was never my dream. But on the other hand, it gave me some experience of working at a job and learning some responsibilities and even learning skills. Granted, I didn’t need the skill of knowing how to flip burgers, but I did learn some skills in being in a workplace. Obviously, you may not always just be able to work your dream. You don’t start out at the top, but you have to have your dream in mind and where you want to go and work toward that and go for it.
What Is Your Favorite Quote, One You Aim To Live By?
“Everyone says you can’t. Until you do. Then everyone wants the key to your success. And you say, The key is I don’t listen to everyone,” – by Jon Gordon.