When Talya Nevo-Hacohen first joined the real estate investment trust (REIT) world, the model itself was still relatively new — and the former architect had never before covered health assets in her time as an investment banker.
But in the decades since, Nevo-Hacohen has risen to the top investment post at Sabra Health Care REIT (Nasdaq: SBRA), a powerhouse in the senior housing and care real estate space.
Over the years, health care real estate has turned from a publicly traded “backwater” to serious business, and Nevo-Hacohen has had a front-row seat to all the changes and innovations that have swept the industry.
Today, she’s a key leader at Sabra as the REIT attempts to navigate the choppy waters of COVID-19 in senior living and care, while continuing to explore new avenues of growth — including behavioral health.
For her work at the forefront of investment in the industry, Nevo-Hacohen is one of Skilled Nursing News’s inaugural class of Changemakers.
Tell me about your background.
Once upon a time, I actually was an architect. I went to college, studied architecture undergraduate, went to graduate school in architecture, and worked as an architect in New York for quite a few years. At some point, I essentially got kind of bored and felt like there wasn’t really very much to do. I didn’t see 40 years into the future in that career, which was pretty depressing at the time.
I decided, just through a series of events and meeting people and talking to people — maybe I should just go to business school, because there was a recession and it was at the time the savings and loan crisis was underway; the real estate depression around the world was underway and there was no way I was going to be able to segue into a different career within the real estate segment.
So I said, “OK, I’ll go get my ticket punched at business school.” I went to business school, and when I got out of business school — I had gone to Columbia — and then was recruited by Goldman Sachs to their investment banking group. I joined Goldman Sachs in 1993, which was still in the early stages of the REIT boom.
The real estate group at Goldman was basically like other real estate groups, in the midst of being transformed from a private company orientation and customer base for financing and asset sales to a public company orientation — taking companies public, IPOs and the whole spectrum of capital markets, public capital markets, products that you would pitch and customize to a public company. That was all brand new.
The public REIT world as we know it really began in 1991. So it was early-stage, and we were a small group. It was a recession. There was a lot to figure out; and it wasn’t like it just needed to be learned by me. We had to figure out how hotel REITs worked and how the REIT rules were changing. it was really interesting. That’s the period — which is a very much of a transition period for real estate capital markets — that I got started in the finance world.
I covered a lot of different companies under the real estate and REIT category. I also covered homebuilders for a period of time when I was at Goldman. But the segments I typically covered were multifamily, industrial, some office, a lot of hotel, and retail — I did a lot of mall deals.
I never covered health care. Ever. The only time that health care showed up in our organization at the time was for CMBS transactions — and I didn’t do any CMBS work.
At some point after I’d been at Goldman for almost 10 years — and I had a couple of other jobs at Goldman that focused more internally — I was kind of just ready to do something different. I was ready for change.
An opportunity came up at a company in California that was a health care REIT. And I got the job. It was with a company that was then called HCP, and Jay Flaherty had come on board from Merrill Lynch as their president, with the expectation that he would rise to CEO at the next annual shareholders meeting — which is of course what happened. He brought me in.
I suddenly was in this really interesting world of health care REITs — which were pretty much a backwater back then. They were really sleepy. They hadn’t really turned themselves into an institutional product; they didn’t access capital markets; they hadn’t grown as busily as the apartment segment or the retail segment. In terms of the investor base, they oftentimes had a significant retail investor base — very significant. You still see that in some of the health care REITs.
Then eventually I found myself at Sabra. That’s how I found myself in the health care space in 2003 — so 17 years ago.
It’s wild to me, as someone who’s covered the industry for three years, to picture a world where health care REITs were a “backwater.” How did we get from there to here?
A few things happened. First of all, different companies were pushed along to various extents, and at different timeframes. They didn’t all accelerate at the same time and at the same pace.
Jay Flaherty, also having been an investment banker, probably had a view not that far off for mine. We’ve never talked about it, but my guess is he also saw a lot of opportunity — particularly opportunity to grow through M&A. As you recall, he did a lot of large-scale M&A deals when he was at HCP. Now, whether or not they were priced correctly, or they were brilliant, it is a separate conversation. But the point is, he actually went out and he said: I’m buying.
With the CNL deal, he doubled the size of the company when he did it. So they went from three and a half to about six or seven billion in size — not dissimilar in scale to what Sabra did with CCP [Care Capital Properties], by the way. So he really transformed the company dramatically and created a structure and an infrastructure in that organization; that company’s become a model that both Ventas and now Welltower have replicated. Now, they’ve each done it in their own way — I wouldn’t say they’re copying, but they created platforms, and they created a diverse essentially conglomerate of health care real estate companies under one umbrella.
At some point, they’ve spun pieces out. It’s not been a passive and permanent situation. But conceptually, that was totally different. Nobody did medical office buildings within the cadre of health care REITs 17 years ago — and it was LTC and NHI and HCP. There were a couple more, and Ventas at the time was still getting through their bankruptcy.
But when Jay did that CNL deal, it kind of woke everybody up — and it woke Debbie Cafaro up, I think, and she was poised to start doing things. And that started the competitive juices flowing.
Jay grew HCP really significantly through these large transactions and transformational transactions. Debbie did similar things. And that vaulted them way ahead of a lot of the other REITs.
Healthcare REIT, at the time — pre-its name change — was really quite sleepy, even through that period. Then after the RIDEA regs came into place, they really started to take advantage of that. Part of that is I think they had some additional talent, some new talent that had come on board that was interested in doing things. I think that really invigorated the organization and made them start to look at things differently.
And of course, then, even though it was not the same timeframe, where HCP and Ventas really started pushing to grow and expand and become more institutional in nature. HCN started to do that as well, but they did in a different way. They’ve ended up now as Welltower, with a series of platforms for different businesses. Ventas has the same thing: Ventas has a hospital platform, Ventas has a senior housing platform. It spun out most of its skilled, so it doesn’t have that, but it has a life science platform and an MOB (medical office building) platform.
So these concepts were copied around and utilized and leveraged. Those ideas were real game-changers in the business. Before, companies grew slowly. They were like some of the small, sleepy REITs we still have. They grew modestly. They didn’t really go out into the capital markets. They used their dividend reinvestment programs as a way to raise equity. And that was it.
And by the way, nobody had asset management programs [at the time]. But then everything changed. Structurally, it changed. The interest in creating different business lines under the REITs evolved. And then the idea of regs coming into play really, really changed things on the senior housing front, because it allowed REITs to no longer simply be capital partners — because as a landlord, realistically, you’re a finance company, right?
Once you went beyond being a finance company, and you started to really participate in the operations — even if you’re only having, I’m going to say the financial participation, not a business participation — you suddenly have a different kind of stake. And it does require a different kind of understanding, and focus and attention and monitoring. That gave rise to the evolution of significant asset management teams among companies, and that also took time to figure out what you really couldn’t do — because you couldn’t go in and operate these buildings. But you had to be on top of what was going on, because it was entirely your risk, what was happening in the building, in any given community.
We’ve heard multiple voices argue recently that the fundamental relationship between nursing homes and REITs needs to change. How would you redesign the landscape if you could?
I think the biggest issue that the net-lease product has in the health care space is that health care revenue at the facilities — forget about reimbursement rates for a moment — does not increase on a linear and highly predictable basis. Maybe once upon a time, but we feel like we’ve gone through enough shocks in the system that it’s clear: Over the very long term, it definitely trends up and it’s pretty smooth. But in the short term, which is where the capital markets are, and we live in a quarter-by-quarter worldview, in a day-by-day worldview, it does not look like that.
I think that the challenge is: How do you align the interests of the landlord more closely with the operator? In skilled nursing, the challenge has been that the premise of using a landlord and a lease with a tenant has been in part to shield liability. The second premise was that in the public capital markets, nursing home companies typically don’t get any credit for the real estate that they own, even though it’s obviously a hard asset.
So how do you bridge that? The only way to bridge it is to align the interest, and align it economically. You can use percentage rents, which is allowed under the current tax regs.
It has been used probably almost not at all in the skilled world, in part because of the high operating leverage that exists in the skilled nursing world — where until you cover all your fixed costs, you’re not making a profit — and only then do you make a profit, and your profit is disproportional after that.
So I think that’s the challenge: It’s really hard to craft something that works under the current regime of the tax regulations that govern REITs, and how we’ve constructed their rental streams.
In senior housing, it’s similar, but I think it’s just not as extreme. The RIDEA structure, whether you use simply a management contract with a group, or you do a joint venture with an operator who then has an affiliate who manages — those create much more of an alignment of interest. There’s always issues in joint ventures, and I always caution operators, when they want to talk about them, what their risks are.
But in general, it’s actually a really decent alignment. But there has to be fit. That’s the critical piece, and that’s the challenge, particularly in skilled nursing.
The only alternative solution is that the pricing changes pretty dramatically, which really means that the value of the real estate is priced more cautiously, more conservatively, which provides basically less leverage to the operator. Because ultimately, what REITs do when they’re looking at a skilled nursing building, they’re supposed to be valuing real estate value and not operating value. And I think that line is a very, very blurry line.
When we last spoke, we talked at length about Sabra’s interest in branching into behavioral health, which is a service that a lot of senior care operators need as well. Looking over the next 10 to 15 years, where do you see the skilled nursing space going — will we see more partnerships and evolution?
There’s going to be a continued push to home health to the extent that sufficient health care can be provided in a home setting — and that home can be assisted living, or it can be or independent living, or it can be the house you raised your children in, where you lived for 40 years. Home can be many, many different places.
I think there are other components that are hard to factor in, and will influence how much of a shift towards care delivered in your home can happen, and that is technology — and technology takes many forms.
Technology can involve telehealth, which is already an initiative that many of the operators in Sabra’s portfolio have undertaken, because it’s expeditious for them and the patients — and actually the physicians as well. By the way, in the current state of affairs, with fears about non-essential workers coming to a building, telehealth is really excellent. An ability to manage, on an immediate basis with essentially no incremental risk to a patient, any kind of health issues — at least the first step of it — I think that’s really important as a gateway to managing health care delivery.
I think you’re going to increasingly see the utilization of sensors, monitors, whatever you want to call them — whether they are wearables, your Fitbit you wear on your wrist — to gauge whether you’re OK, or signal a loved one, or signal a nurse or a physician that something’s out of normal boundaries. I think those components are helpful whether you’re a senior citizen or you’re a 30 year old with diabetes, right?
These are all tools that will be really helpful for people to control and manage health conditions they have, or that they may have — I think that’s an impact. It’s hard to prognosticate how and when it will have real traction, but it’s starting. The ideas have been there; the product has dribbled out over time over the last few years. There’s always, in the early stages, a need for consolidation — so that you have maximum benefit from single devices or devices that can talk to each other. I think those are the key things that will evolve. But I think that’s going to make a difference in the way people deal with chronic illness as well as an event — think about seniors and falls, things like that.
You mentioned some of the other REITs and their platforms earlier — do you think we’ll see more partnerships like the one Welltower has struck with health systems? Welltower’s deal to buy HCR ManorCare with hospital system ProMedica was a major shake-up in the space.
It’s a hard question for me to answer, because frankly, I’m not exactly sure how ProMedica is executing that in Welltower’s platform. There’s significant room for health care providers to create more of a continuum of care — whether that’s through alliances outside of the hospital space, through creating their own Medicare Advantage platforms, and creating networks of providers at different acuity levels.
But I don’t know how it’s going to evolve. There is going to be an evolution. There is someone who has to act as the coordinator, care coordinator, coordinator of wellbeing for individuals.
The biggest challenge is that we have a system that is fragmented, because at every stage of the continuum of care, you’ve got different payer systems, different operators, different nature of payers — government versus private. It’s all so varied.
If you don’t have a continuum of the payer, it’s going to be very hard to have a continuum of oversight, and so I think those two things have to tie together.
In any given marketplace, you’re dealing with so many different payers. Who’s in charge?
You’re 70 years old, you’re 75 years old. You have a heart attack, you go to the hospital; Medicare covers a bunch of that. Then you get discharged because you need cardiac rehab; you go to the skilled nursing facility. Medicare covers you for some period of time, and then you default to your copay — which, depending on your income level and assets, you’re going to be Medicaid, or you’re going to be private-pay, or you’re going to be on Medicare Advantage depending if you’ve signed up. Then your kids decided to move you into independent living, or assisted living. Now it’s all private pay.
I’m not advocating for a single-payer health system, by the way. I’m just saying that the coordination has to come. That’s the piece that’s missing and it’s going to have to correlate to the payment system. That may be Medicare Advantage, or some version of it.
There is a school of thought that once Medicare Advantage penetration rates start to exceed 50% nationally, the private insurers will have achieved Medicare reform by default — with no direct input from Congress.
Right. But then you have to get assisted living and memory care and formats that have traditionally been private-pay — or Medicaid waiver, if they’ve chosen that path to be part of that Medicare Advantage program. Which by the way, is what Lynne Katzmann and her Perennial [Consortium] are basically doing — they’re creating a continuum of care, because there’s a multi-provider MA program. You’re covered across the different levels of care and different sites of care. That’s an evolution, not a revolution. But it does create the ability to have a coordinator of care across the multiple of levels of care and locations.
This interview has been condensed and edited for clarity.
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