When Thilo Best was recruited to manage a portfolio of properties owned by White Hall Real Estate Funds, he knew he would befacing a difficult situation.
Operations needed to be improved and the most recent acquisition wasn’t working out as planned.
Best accepted the challenge and formed Horizon Bay SeniorCommunities to manage the portfolio, and took the dual roles ofpresident and CEO.
“My first month on the job was going out to see all the communities, to start assessing the quality of the people and start figuringout what was the good part of the company, what was the not sogreat part of the company and taking actions to fix, what was atthat time, a cash flow drain.”
He spent the next 90 days assessing which properties could besold to fix the cash flow problem as well as finding people toreplace the ones that didn’t fit into his plans.
“We were really taking some of the team from that [previousmanagement] company and going to the market and buildingmy own team,” he says. “The reality is we really had to buildour own culture.”
Best says you need to build a solid team regardless of whatsituation your company is in, but when facing a turnaround,that task needs to be done promptly, which will most likelylead to some mistakes. Some people look better on paper thanthey really are.
“You put them in a situation where they really have to execute and perform and they just don’t,” says Best. “You won’tknow until you hire them.”
Because the initial team had to be put together quickly, it wasmade up of employees who had a few key traits.
“Basically, I was looking for a willingness to listen, a willingness to approach the business a different way and a knowledgeabout the industry and business.”
Some vacant positions were filled through recruitment fromother senior living companies. Best says if you are in a turnaround situation, you may have to overpay to get the talent youneed, and you may need outside help to find the right people.
“One thing I did was once we identified core team members,I brought in somebody to advise us on interviewing,” says Best.“We laid out the skills we were looking for and they helped usformulate our questions. The best way we have found to dointerviews is to give them a hypothetical situation and askthem how they would handle it.”
Once everyone was in place, Best kept them focused on theshort term.
“The early years were very interesting,” he says. “The bigquestion to me from the team was, in essence, ‘Who are we,what are we going to do and how are we going to grow? Whatis our niche?’ For 12 months I said, ‘We are not going to answerthat question. We are going to focus on profitability and delivering quality care to our residents and that is all we are goingto focus on.
“We’re not going to have a grand mission statement or somebig branding company come in and think about what our strategy is for the next five years. If you are in turnaround mode,frankly it’s about survival. There may not be a next five years.”
Trim the fat
Some of the communities in Horizon’s portfolio weren’tdelivering results.
Some were not yet at full occupancy, some were poorlydesigned and some needed more capital expenditures to fixthem and some couldn’t be fixed at all.
Best looked at which properties were profitable and whichweren’t, and within 18 months of taking over, sold 22 of the46 properties and reinvested $40 million into others.
After selling the properties, Horizon’s revenues onlydeclined 10 percent, and by the end of 2006, the companywas managing a total of 48 properties.
“You can tell we definitely sold the right communities,” hesays. “There was a dramatic swing in our earnings in a positive way. When you sell your underperformers it also helpsyou on the whole 80/20 rule, where 80 percent of your timewill be spent on 20 percent of your company that’s reallycausing the problems. When you sell the 22 properties thatare causing the problems, it frees everyone up to do a betterjob on the properties you retain.”
Through the process, Best also realized what type of communities they had the most success at overseeing.
“What we did recognize, as an organization, was what wewere good at managing were large independent living communities that have some level of assisted living,” he says.“Our core competency was not managing small assisted living communities. We really had a hodgepodge of properties.If you are managing five different types of hotels versus aMarriott Courtyard, it’s going to be easier to manage a bunchof Marriott Courtyards.”
Creating the right culture
Once things stabilized, it allowed Best to start answeringthose questions about the company’s direction and culture.
“We had an identity statement,” he says. “We interviewedpeople at the communities and at the regions and asked,‘Who do you want to be and what kind of organization do youwant to work for?’”
Out of that feedback, the core values of respect, teamwork,responsibility, professionalism and integrity were created.
As part of living those values and reinforcing the culture hewants the company built on, he relies on the talents of thosearound him.
“If we have a lot of talented people in a room, let’s getaround a table and identify the challenges we have and identify which best practices come up from the group,” he says.
Best describes his leadership style as participatory onsome things and having full delegation on others, whichhelps create a culture of open communication.
He says much of his participation focuses around askingquestions, especially ones the person coming to him mightnot be able to answer.
For example, he asked some numbers-related questions tosomeone who had come to him with a question of his own.This forced him to go back and find the answers, creating an“ah-ha” moment for the employee.
“But the idea was not to take an approach of, ‘I’m smarter
than you and you need to be as smart as me,’ but more tohighlight the skill set they need to run a particular businessunit,” he says. “Any performance-oriented person is going tobe more embarrassed than anything when they don’t havethe answer and take it as a challenge.
“You have to be open and honest and create an environment where people will be comfortable challenging you oncertain things in business. I am not high-handed, even thoughthe decisions ultimately do rest with me, at the end of theday, to attract performers. And we very much have a performance-oriented culture, you have to have accountabilityand hold people to certain standards and success measurements you have at the company. You have to listen to themand create an environment where they are comfortable ifthey disagree with you.”
While it is important to learn from mistakes, Best says partof creating a positive environment is not dwelling on them orspending time blaming other people.
“As a group, we take ownership of mistakes and get thatout of the way and focus on improvement,” he says. “Thatwas important to create a culture. You have to take risks inbusiness.”
As the company grew from $125 million in portfolio revenue in 2004 to $192 million in 2005, the biggest challengewas changing the company’s orientation from a turnaroundcompany to a growth-oriented one.
“In a turnaround company, you tend to watch every penny,”he says. & #x201C;On the expense side, you probably spend a dollaronly when forced to. Where if you are a growth-orientedcompany, you have to get out ahead of the growth and hirepeople sometime before the growth is in place.
“That is a real mind-set change. But if you explain it to people that this is what we are going through and the why, it definitely helps the buy in. Any major change isn’t going to beeasy.”
Best says he needed to have open and honest dialogue withhis senior management team and explain why the changewas made.
“I have found and learned over the years that it is definitely worth taking the time to explain the ‘why,’” he says. “Eventhough, from an expediency, urgency and execution standpoint, it might not seem like it makes sense to be overly communicative about why. To get the buy-in, as you managethrough change, it is imperative to answer that question.”
He says if you are implementing changes, the main peopleyou want to make sure understand the “why” are the leadersand performers of the company.
“Then they can go explain the why to their respectiveteams,” he says. “I’m a firm believer that you can’t overcommunicate. Oftentimes, if the change is dramatic within theorganization, the first people to push back are your high-performance people.”
Today, Horizon Bay continues to be in growth mode,announcing deals in April that will take total portfolio revenue to around $485 million.
As the company started to focus on growth, Best, who nowserves as chairman and CEO, saw it was time to step backand let his managers take the reins. That was easier said thandone.
“As you get to a certain size, it’s imperative,” he says.“Delegation is not something I think, for a good manager,comes easy. A performance-oriented person, the way I think,tends to mean they personally are pretty good at execution,not at philosophies and policies, but at execution. So, you setobjectives and that person can go execute.
“To me, delegation doesn’t come easy. But, when you do itand do it at the right time, it’s also very rewarding.”
As far as knowing the right time to delegate, Best says itcomes from experience.
“One of two things will happen,” he says. “Either you’ll delegate too early, in which case that will show up in results orin the individual you delegated to feeling overwhelmed. Or ifyou delegate too late, if it’s a performance-oriented person,they are probably going to come to you and start saying toyou, ‘When are you going to give me the reins?’
“But again, you have to create that culture where they arecomfortable having that dialogue that says, ‘I’d like it if yougave me more rein,’ or however they phrase it. You have tocreate that culture where they can come to you and honestly tell you they’d like more rope.”
If you’ve never created that culture, Best says that cancause truly solid performers to start looking for other opportunities if he or she feels unable to grow in the company.
“One way or another, if you’ve gone past the delegationphase, it will probably begin to manifest itself,” he says.“There is probably not an optimal time. You just have to useyour best judgment and delegate and see what happens.”
HOW TO REACH: Horizon Bay Senior Communities, (813) 287-3900 or www.horizonbay.com