This week, we’re sitting down with Kelly Arduino and Brandon Christopherson of Wipfli, a leading accounting and consulting firm, to discuss growth strategies and the latest market updates. Together, they unpack how today’s market forces like tariffs, interest rates, and tax reforms are influencing M&A in senior living.

‍

Produced by Solinity Marketing.

‍

Apply to become a Bridge the Gap Ambassador. 

‍

Become a sponsor of Bridge the Gap.

‍

Listen to more episodes here.

‍

‍

Intro 

Welcome to season eight of Bridge the Gap, a podcast dedicated to informing, educating, and influencing the future of housing and services for seniors. The BTG network is powered by sponsors, Aline, NIC MAP, Procare HR, Sage, Hamilton CapTel, ServiceMaster, The Bridge Group Construction, and Solinty and produced by Solinity Marketing. Bridge the Gap in three, two.

‍

00:52 - 01:12

Lucas McCurdy

Welcome to Bridge the Gap Podcast. The senior Living podcast with Josh and Lucas. Another awesome interview. Another awesome conversation here in Austin, Texas, one of my favorite cities. We already had our tacos and our brisket, and now we're having great conversations. I want to welcome Kelly Arduino and Brandon Christopherson of Whitley. Welcome to the show.

‍

01:12 - 01:14

Kelly Arduino

Thanks. Happy to be here.

‍

01:14 - 01:40

Lucas McCurdy

Did I nail that or what I totally nailed it. Listen, obviously, we're having fun here. It's been an incredible day. Earlier, we were talking about just like momentum, energy. And it seems like you are both at the forefront of seeing how that actually plays out in the M&A market, the advisory world.

‍

And it is a special day and a special conversation to be able to pick your brains because you guys get to pull back the kimono and really see what's going on. And so I would love to just start out here. Can we get some background, Kelly, on Wipfli? What are you guys involved in?

‍

01:58 - 02:52

Kelly Arduino

Well, I think that's why we can see, you know, in the kimono is that with Lee is an accounting and consulting firm. As I have mentioned before, it started in Wisconsin in 1930, but we've had many and multiple acquisitions over the years across the states. And now we're a national firm. But we started out with this notion, what we call the wifely way, is being more than just doing your accounting, your taxes, really, truly understanding the business.

‍

And we developed consulting services as a function of what the business needed. So over time, we have this very diverse array of services that extend well beyond accounting, well beyond tax, into technology. And then, of course, a specialty consulting that is very specific to whatever, not just industry, but even sub-industries. And we can talk about that in the senior living space, too.

‍

02:52 - 03:05

Lucas McCurdy

Yeah. I mean, so, an array of, you know, lenses to look, look through. Brandon, you know, how did you get started at roughly what age, what really pointed you in this direction?

‍

03:05 - 03:28

Brandon Christopherson

Yeah. My role has really evolved over the eight years that I've been here at Wipfli, starting back in a small firm that merged in, to where, like Kelly had said, that's how the firm has grown. Found myself now in a role where I'm doing really healthcare, financial due diligence, and transaction advisory work across a variety of different healthcare verticals.

‍

03:28 - 03:33

Lucas McCurdy

Kelly, currently, what's one of the biggest challenges your customers are facing right now?

‍

03:33 - 04:34

Kelly Arduino

I think the biggest challenge is facing in particular in the senior living industry. And as it bleeds into other service industries like health care, like hospitality, you know, much more than just it's a building where people live, is thinking about how do we make that transition, and also one of the big questions is where do we invest? It's easy to think, hey, we need some new paint on the walls, and we need to update the kitchen.

‍

But the new world is really filled with different kinds of business models that have complex services for seniors in different kinds of care settings, and I think that's what the contemplation is right now. That's what the buzz is: the old way of doing business is not going to be the new way. We have new expectations from the group coming up. And how does my business model morph to be able to meet those demands?

‍

04:31 - 05:09

Josh Crisp

Well, so, Kelly, I've got a lot of things that I would love to ask both of you about. And we'll have time, maybe, to touch on a few of those. But we're obviously here at NIC. Capital Market meets the developer. Owner operators. Seems very positive. Yeah. And spring was positive. Falls even more positive.

‍

But curious to see how you're seeing market conditions impact decisions. So everything people are talking about is the tariffs. Is that impacting? How is it impacting interest rates? What's changing? What's not changing? Do you have any read on that? What are you seeing in real time?

‍

05:09 - 06:30

Kelly Arduino

So I think when the tariffs came out, people were very concerned that that was going to be a dead stop for a lot of new construction or even remodeling and acquisition, but it really has not people have people. I call them people, as organizations have been very resilient in finding ways to absorb those costs, and kind of keep moving ahead, because the demand for senior living of many kinds is just not stopping.

‍

And so we're not in a situation where the tariffs are stopping us. And then you think, well, what about the higher interest rates? There's certainly optimism that interest rates are going to decline. But even then, what we've seen is that the financiers are they abhor a vacuum, right? They don't like times. And not to do deals. So they're coming up and being creative about how to do financing, even with the higher interest rates.

‍

And that started to kick in. But also, it's become normal. And the interest rates we're seeing right now are normal in the grand scheme of interest rates. So I think it's a combination of the acceptance of a state that we hadn't seen before, because we were really in abnormal conditions for financing, and also the just unbelievable demand that exists.

‍

06:30 - 06:45

Josh Crisp

So, Brandon, I believe you're on the M&A side of the business pretty heavily right now. So, how are things in the market conditions? What are you seeing happening in the market right now and over the next, maybe between now and the next? Nick, what do you see happening?

‍

06:45 - 07:48

Brandon Christopherson

I mean, I think there's obviously going to be a higher demand for high-quality assets. I think, for the most part, really like the supply hasn't been able to catch up to meet that. And there is a lot of opportunity for either one to build something new. I think the one big beautiful bill act has a really, I mean, in the grand scheme of things, it's really an extenders bill, more than anything else.

‍

And the permanent implementation of the hundred percent bonus depreciation will really incentivize capital expenditures. And then on the more of the acquisition side, I think that's going to continue to take off with one, the opportunity to develop some of these underperforming assets and reinvest in new, I mean, for better facilities and meeting, really what the expectations are for seniors as they, as the boomers age.

‍

07:48 - 08:08

Josh Crisp

Well, it seems to me to and maybe Lucas, this is something you could chime in on, for the reconstruction and renovation business, but it seems like a lot of operators are investing in putting a lot of CapEx into their existing communities. What are you seeing from your partners and providers in the space?

‍

08:08 - 08:59

Brandon Christopherson

Providers in the space, I think, are looking, like I said, for just opportunities to become more efficient, and cutting costs is a big one. I think, on the, the biggest piece of this, I think, is people, and a lot of times, I think that gets overlooked in senior living when we look at, the difference, from a senior living transaction in comparison to a, your typical, business, the senior living is very real estate driven, operations, I think, sometimes gets overlooked.

‍

And that's where we come in and kind of do the financial due diligence and understand these different financial ratios and whatnot that help, really, determine whether something has room for improvement or they're operating effectively.

‍

08:59 - 09:10

Josh Crisp

Yeah, yeah. Lucas, you see a ton of this with what's going on in the markets and the renovations and capital expenditures. A lot of people feel very favorable about occupancies going up.

‍

09:10 - 09:48

Lucas McCurdy

Yeah. And I mean, this is, I'm leaning in because. So I have a construction company, and we renovate senior housing. You're the developer operator. You're leaning into this, like, it's really interesting to be able to talk to people who have this kind of outsider perspective that you're looking at this macro and micro, and consulting with people.

‍

I mean, Kelly, I know that you don't have a crystal ball, but could you take us through, you know, the end of, you know, through Q4 of this year and then, you know, kind of starting into next year? Can you give us a little bit of the tea leaves? Can you help us out?

‍

09:48 - 09:50

Kelly Arduino

Well, I'm, I'm never shy at least trying.

‍

09:50 - 09:52

Lucas McCurdy

Right, right.

‍

09:52 - 12:14

Kelly Arduino

At the worst. You know, it's a laugh, about me. But I see that, and we hear a lot of activity because we were in this time frame where there was a lot of distress because of the occupancy rate. And what happened during that distress? People didn't invest anything. They let things go. And so now it is a lot of diligence around, you know, how much does this facility need in terms of renovation?

‍

Is that the issue for their occupancy, or is there something else going on? So I think there are a lot of looks. I mean, folks that I've been talking about talking to here at the conference have said, you know, we passed on a lot of stuff, but we are looking, looking, looking, looking. There are a lot of things coming on the market.

‍

I mean, the other side of this equation that sometimes gets forgotten is that some of the, especially when you look at single sites, those might be family-held or single operators, and those folks are aging out, and maybe their kids don't really want to take it on. And so they're interested in selling to. So the demographics of the owners in this space are also aging and fueling the demand.

‍

So what's going to happen this year? I think we're going to see a lot of due diligence. I think toward the end of Q4, you're going to start to see those transactions close because it's going to take some time. We can talk a little more about the level of due diligence that needs to be done, because I think it's different from what it was.

‍

And then, you know, starting into next year, that rhythm of kind of the acquisition, plus, how do we start to really capitalize on the economies of scale that we've created now that we have these bigger entities? And these entities may not be just independent living or just assisted, or memory care. You know, I think we're running into this age where it's going to be a mix of things.

‍

The new investors are thinking at some point when my independent living resident gets old, I don't want him to move out. I want him to move to my next thing. And it's not a CCRC per se. It's more of a I'll call it a loose network model business model that I see changing.

‍

12:14 - 12:28

Lucas McCurdy

Well, I'm interested in the diligence part of it. But before you dive into that, is deal flow going to hit a record or be on track or on pace to be as high this year? Has it been on in previous high years?

‍

12:28 - 12:32

Kelly Arduino

Oh yeah, I think so. I think we may see all-time highs toward the end of the year.

‍

12:32 - 12:33

Lucas McCurdy

Interesting.

‍

12:33 - 13:10

Josh Crisp

Well, and Lucas, you read my mind. So you said something just a few minutes ago. Kelly on the due diligence. And so whether you're looking to build, buy or expand, you said maybe the diligence that once worked maybe need to be a little bit different. You've had there obviously had a lot of people not necessarily sitting on the sidelines, but maybe licking wounds. And now with occupancies up so much, positivity in the market, people are like, Hey, let's get back to work. Let's go. Let's do some things. How does that need to be a little different nowadays?

‍

13:10 - 14:02

Brandon Christopherson

I think it's much more thorough now. And like I alluded to a few times already, it's much more driven. I think, by the operations and what, the actual results are from the operations rather than more like a real estate value. So when we look at this, when we do what we would call a quality of earnings, we'll look at the company's historical financial statements on a monthly basis, look for any trends in their revenue and earnings streams, normalize for anything that would be either non-recurring, non-operating, and try to come up with that future financial picture.

‍

What would a buyer really realize? Is a new owner of the facility that's that's being sold. And that's really, I think, the key driver of value, revenue is vanity, profit is sanity, and cash is king, is something that we say in M&A,

‍

14:02 - 14:21

Josh Crisp

Saying that's quotable. That is quotable. Yes, absolutely. I love that. So from the operators, sort of what an operator looks like nowadays versus then, do you see some key differences in how operators are setting up their shops and the skill sets that they have on compared to several years ago?

‍

14:21 - 14:40

Brandon Christopherson

I think the focus is on technology. How can we cut costs? I think with the push towards value-based care, that's obviously a key driver. How can we cut costs? How can we make operations more efficient? And investing in what that future looks like.

‍

14:40 - 15:08

Josh Crisp

Well, there has been a ton of discussion about data technology, AI that's giving information to operators that maybe we didn't have or we had many of data, but we didn't really know what to do with it. Several years ago. So that's been a big change. So, for you all, you know, we are still not seeing the development, the new development of what we were prior to several years ago.

‍

It's been a big M&A. Do you see anything going on with the market trends and conditions that maybe going into the first quarter of next year, that we're going to see an increase in new developments? Or do you still think it's going to be that M&A is going to rule over the next year?

‍

15:24 - 16:13

Brandon Christopherson

Mean, I think it's access to capital and timeline drives that, I think the acquisition process is much quicker. So if you're looking for speed, if you're looking to break into a new market, provide different services, I think the acquisition route would be the way to go. New builds there, I think, without having to run into any issues on the acquisition side. If you have issues with the actual asset, I think that's, like, as far as having to reinvest capital into improvements, I think that's where you can come in and find, maybe some hidden costly issues. Yeah. And that's, Yeah. Something I think that you would want to consider. Yeah. Whether it was building new or wiring.

‍

16:13 - 17:07

Josh Crisp

Well, and you all touched on a point, there's a lot of, I think the legacy buildings where a lot of great operators, that we all know, have weathered a lot of storms. They've been there through 2008. They've been there through the early 2020s. And they've gotten their occupancies back up because they've stayed true to who they are.

‍

They have sort of had to reinvent themselves, but now they're faced with, how do we change this into a product that's relevant for the next generation of senior housing? And they're a little bit tired? Maybe we won't be able to realize the investment of time and capital that they would have to put into doing that. So I think that's also creating this perfect storm of opportunity. For a lot of the newcomers, who see a faster way to the market, in grabbing some market share and some growth markets. When you say Lucas, I would.

‍

17:09 - 17:43

Lucas McCurdy

So, final question as we round out our conversation, this comes off the back of a previous conversation we've had with Nick Mapp. You know, obviously, the data there is, really important to the industry. Is this idea of expansions on existing communities? So we're going to add 24-bed memory care. We're going to add a wing here for IPL.

‍

We're going to add, you know, you mentioned that continuum of care. Maybe it's not a CCRC. But hey, we see we want to keep people here. And maybe those are done through partnerships, or maybe adding on to our existing campus. Right. Thoughts on that?

‍

17:43 - 18:47

Kelly Arduino

I think that's where we're going to see more. And more, you know, in terms of new development around that, maybe those will be more planned because it's easier than retrofitting something like that. Many sites don't lend themselves to expansion or to the kind of room you need for some of those higher acuity types of services.

‍

So if I had to, you know, a crystal ball, and I'd say development is going to be more of that continuum, acquisition will be more economies of scale at this juncture until we figure out the next piece, which is how do you embed technology into the management of your residents wherever they're at in their care needs? And care is more than just health care. Like I said, it's groceries, pet sitting, you know, beauty salon, etc., etc.. So, I see that there's a lot of room to develop some very interesting and robust models in this next phase.

‍

18:47 - 18:47

Lucas McCurdy

I love it.

‍

18:47 - 19:06

Josh Crisp

Yeah, absolutely. Well, an awesome opportunity to sit down with some experts here who are advising our industry, helping operators make wise decisions with the complexity, the changing environment that we're in in senior housing. But what an exciting time. Yep. To be right here, Lucas.

‍

19:06 - 19:24

Lucas McCurdy

That's right. Momentum and excitement. Thank you both for your time today. Coming on Bridge the Gap, the Senior Living Podcast. And for our listeners who want to learn more, scroll down into those show notes right there. Hit the links to Wipfli and learn some more on your own. You can get a btgvoice.com download this content and so much more! Thanks for listening to another great episode of Bridge the Gap.

‍

Outro

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 btgvoice.com.

‍