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A Wall Street Landlord Chose A Troubled Company To Run Its Senior Homes. Executives Got A Bonus.

For the past decade, investors have poured billions into building a massive stockpile of senior housing for aging baby boomers. At the height of the boom, it felt like one of the surest bets on Wall Street.

Then came the global COVID-19 pandemic. 

Now, instead of a guaranteed payday, the commercial real estate firms and senior housing chains that dominate American eldercare have seen demand go over a cliff. Hospitals are sending fewer patients to nursing homes, and no one is moving their mother into an assisted living facility if they can help it. Costs are way up; staff turnover is astronomical.

It’s left an industry that relies on high occupancy rates — what health care professionals deride as the “butts in beds” model — scrambling to maintain enormous profit margins. 

That was the backdrop last year when CareTrust, one of the largest owners of eldercare housing in the country, swapped out one of its operators for a different one with a checkered safety record.

In summer 2020, with the pandemic roiling, a contractor that leased and operated five CareTrust-owned senior assisted living homes in Virginia was asking CareTrust to defer some of its rental payments.

Instead, CareTrust hired a replacement: Noble Senior Services, a senior home operator with an alarming safety record but a proven ability to meet CareTrust’s financial expectations. 

Noble already ran several CareTrust-owned facilities across the country, including one in Fort Wayne, Indiana, that CareTrust leased to Noble starting in 2019. Indiana state health inspectors have visited that facility 18 times since Noble took over, in response to a total of 60 complaints. Half of those visits involved a complaint about the facility’s handling of COVID-19. In September, the executive director of the facility told inspectors she had not implemented corporate’s COVID-19 policies because the facility had so many other problems. 

At the same time, state authorities sometimes found evidence of gruesome mistreatment: The same September inspection found that a nurse had treated a wound on a resident’s finger with a sloppily sterilized box cutter, leaving the digit looking like “raw hamburger meat.”

Fort Wayne’s executive director told inspectors she had not implemented the corporate COVID-19 policies because the facility had so many other problems.

Other complaints were about deeper systemic problems: In February 2021, more than a year after Noble took the reins of the Fort Wayne facility, residents, staff and the facility’s own records revealed that residents had not been getting all their medication on time — drugs like insulin, Lipitor and psychiatric medications. And one resident said there weren’t enough staff members to get residents to their doctor’s appointments.

The director of nursing told inspectors the facility still didn’t have a good system for keeping track of whether residents who needed help with their personal care had taken a shower. During that same inspection, inspectors spoke to a resident who complained that there were not enough staff to help residents get dressed; the inspector noted that the resident was not wearing pants.

Inspectors substantiated 56 of the 60 complaints and cited the facility for deficiencies 29 times. In 2019, the average number of citations for an Indiana long-term care facility was three. (Noble told HuffPost the statewide comparison is unfair since the Fort Wayne facility houses mostly low-income seniors with a wide array of health challenges. CareTrust said the citations are typical for the “transitional period” the first year a new operator takes over, and not a sign of chronic mismanagement.)

But CareTrust executives felt Noble was doing a “great job,” as COO Dave Sedgwick put it in a recent investor call. And in December 2020, notwithstanding those health inspections in Indiana, Noble took over the five new assisted living facilities in Virginia. “The operator that exited essentially felt like these assets would be in better hands with somebody else in terms of the ability to meet the rent,” Sedgwick said. 

CareTrust hailed the changing of the guard as one of the “operating and financial performance highlights” of 2020. 

Come bonus time, the move paid off. Partly as a reward for replacing the prior contractor with Noble, partly as a reward for collecting nearly 100% of rents from its other operators, CareTrust showered its CEO, Greg Stapley, with a $1.2 million cash bonus this spring. Its three other top executives took home another $1.45 million. 

Noble Senior Services is now one of CareTrust’s top 10 operators. In May, local news reporters investigated another senior facility that Noble operates for CareTrust, this one in Pensacola, Florida. Photos that the local ABC affiliate said it obtained from a resident’s family member showed soiled sheets, rodent droppings and piles of clothes and trash in a resident’s room; state inspectors who visited the facility in 2021 observed trash and strong odors. Noble did not respond to a request for comment about the complaints in Florida.

Intense Profit Pressures 

Underlying this whole episode is a relatively new trend in American eldercare: Increasingly, the company that operates a given facility does not actually own it. Even if the name on the marquee says Noble, which is a relatively small operator, or Genesis, a nationwide chain, a growing share of eldercare real estate — the most valuable part of the business — belongs to commercial real estate trusts like CareTrust.

Trusts like these have historically invested in shopping malls and hotels; they’re a tax-advantaged way to pool income from lots of individual commercial properties and funnel the profits to shareholders in big, steady dividends. Over the past decade, they have begun to dominate eldercare, where they earn a profit from the operators by taking a cut of a facility’s income or charging a substantial rent. 

That puts the companies that actually run the facilities under intense pressure to deliver aggressive profits on a rigid timetable. Operators that fail to deliver can easily lose their leases.

In 2020, an untold number of operators relied on a huge transfer of taxpayer money in order to pay their rent. CareTrust reported that in 2020, its 200-plus facilities received more than $150 million in various forms of federal COVID-19 aid, including aid from a $100 billion fund established by the CARES Act for health care providers that lost revenue or incurred costs because of the pandemic. (Two operators plan to return unused funds.)

Without saying how much, exactly, of all that taxpayer money went directly toward satisfying CareTrust’s rents, the company has made it clear that federal coronavirus aid was “critical” in enabling CareTrust to collect nearly 100% of rents since start of the pandemic, including from nursing homes that were demanding rent deferrals.

Wall Street is handling the catastrophic impact of COVID-19 on the senior living industry by placing extreme pressure on day-to-day operators to deliver the same staggering profits as before.

Sedgwick, the CareTrust COO, sent a lengthy statement in response to HuffPost’s questions about its choice of Noble as an operator. He noted that the seven facilities Noble took over in November 2019, which includes the troubled Indiana facility, and the five facilities Noble took over in December 2020 are “predominantly lower-income private pay and Medicaid-funded senior communities.”

Most assisted living communities, by contrast, serve upper- and middle-class families who can afford high fees. Noble, Sedgwick said, is one of just a few operators specializing in running assisted living facilities for those who can’t.

“We have no control over the day-to-day operations of the facilities,” Sedgwick continued. CareTrust mostly relies on state regulators to make sure operators provide quality care; it parts ways with operators with chronic safety problems.

That said, Noble has invested tens of thousands of dollars in improving the Fort Wayne facility and was “making steady progress” in improving “some troubled operations” when the pandemic hit, he added.

“We understand the difference between a chronic pattern of underperformance and the problems that occur during transitional periods. The first year of a transition is usually the most challenging as the new operating company implements their own systems, policies, leadership and plans. The unprecedented COVID-19 pandemic magnified the customary difficulties by many times,” he continued. “[Noble] has worked cooperatively with state regulators to identify and self-report existing problems as they attempt to fix them, one by one.”

Noble CEO Lorne Schechter, in response to questions from HuffPost, chalked up Noble’s staffing challenges in the Fort Wayne facility to the industry-wide worker shortage, which has gotten worse because of COVID-19. 

He said the volume of complaints at that location was due to random inspections, self-reported violations, and the fact that the majority of the facility’s residents are low-income seniors who face a wide range of issues.

“Noble prevents them from being homeless, imprisoned, addicted, hospitalized, or dying inhumanely and or alone,” Schechter wrote. “Providing a safe and secure environment for their residents is the highest priority of each Noble facility, and it has often come into these residents’ lives at a time where prior management has failed to provide for their most basic needs. The nature of Noble’s residents makes it likely, perhaps even inevitable, that they will encounter more problems than any statewide statistical average.”

The Fort Wayne facility director who, in September, told inspectors that she did not have time to implement the COVID-19 protocols is gone, Schechter said, and staffing levels, medication and shower schedules have not been an issue since an inspector cited Noble in February. A follow-up inspection by the state did not find the same problems. 

Schechter added that the Fort Wayne center has not experienced a single coronavirus-related death. According to Noble’s own reports to the state, however, a total of 32 residents and staff have been infected with COVID-19 and between 1 and 4 people had died. When asked about the discrepancy, Schechter said one resident had died after contracting the coronavirus, so Noble was obligated to report it to the state, “but she had multiple co-morbidities” that could have explained her death. (HuffPost has no details about the resident, but someone who dies of COVID-19 and was more vulnerable because of a preexisting condition is still considered a coronavirus casualty.)

As for the incident involving the box cutter, Noble fired the nurse involved and is cooperating as the state revokes the nurse’s license, although the company called the hamburger meat description “an exaggeration designed to shock.”

Federal coronavirus aid was ‘critical’ in enabling CareTrust to collect nearly 100% of rents since the pandemic started.

Priority Life Care, the company that ran the Fort Wayne facility before Noble, denies that any of the Fort Wayne facility’s present problems are due to its past management. The companies worked closely together to transition operations, said Priority Life Care CEO Severine Petras, and at this point, Priority Life Care has not managed the facility’s operations for more than 18 months.

But Petras agreed that the facility is a challenging one. The 14-story building was originally a hotel; it was not constructed as a long-term care center or used for that purpose until 2010. “It’s a tough building for any operator, and COVID probably didn’t make that any easier,” Petras said. “[Noble] probably has done as great a job as anyone could have, although I can’t speak to the specific complaints.”  

Concerning the new facilities under Noble’s management, in Virginia, Sedgwick said CareTrust and the former operator of those facilities, Twenty/20 Management, “mutually agreed” to part ways after Twenty/20 asked for a rent deferral and the conversations about rent led CareTrust to realize the companies had “significantly different” views of the facilities’ long-term prospects. One major factor, CareTrust said, was Twenty/20′s decision in 2018 to discharge several dozen low-income residents on Virginia’s Medicaid-like assistance program from one of its facilities, which changed the business outlook for that facility.

“As we understand it, the primary reason for the takeover was prior management’s poor performance,” Noble’s Schechter said, which, according to Schechter, included discharging those low-income residents and “a substantial number of deficiencies and life safety issues.”

Mike Williams, the CEO of Twenty/20, said he could not go into detail about the discussions of rent leading up to the loss of the lease due to nondisclosure agreements with CareTrust and Noble. But he took strong offense to Noble’s claim that his company had run the facilities poorly. 

“Steve and I are blindsided and disgusted by these false and misleading comments by CareTrust and Noble,” he said in a statement, referring to the co-founder of Twenty/20, Steve Orndorff.

The 2018 decision to discharge some low-income patients was made because the building they lived in was old and ill-suited for long-term care. Many of those residents moved right into another building on the same campus. But the whole issue is a red herring, Williams said, and not related to why Twenty/20 lost its leases to Noble after asking for a break in the rent.

“We obviously consider this an attempt at deflecting a story regarding them toward [us],” he said. “Steve and I will have a public debate anywhere, anytime, anyplace with CareTrust regarding our love and commitment for our residents and caregivers, versus CareTrust’s love and commitment for Wall Street.”

Throughout 2020, just one of the eight campuses Twenty/20 managed had to lock down due to a COVID-19 outbreak, he said. None of Twenty/20′s facilities has been subject to a state inquiry, and the state has granted several of them multiyear licenses, which are reserved for facilities with clean compliance records. 

“We did not know Noble from anyone,” Williams said. But during the transition, he learned about their record at other facilities. “I guess I would say, I have been disappointed.”

‘I have never seen it this bad.’

The handover of Twenty/20′s facilities to Noble, details of which are pulled together from CareTrust’s SEC filings and recent investor calls, highlights one way that Wall Street is handling the catastrophic impact of COVID-19 on the senior living industry: by placing extreme pressure on day-to-day operators to deliver the same staggering profits as before. 

Capital Senior Living, a publicly traded assisted living and memory care facility operator, has talked openly about its plans to pay cut-rate wages in an industry that is already notorious for underpaying, undertraining and overworking staff. 

“Premium labor costs [are] trending downwards,” the company said in a recent update, in a tone that was unmistakably sunny. “With millions of Americans out of work, as well as the hospitality industry being hit hard, we expect the labor market will loosen and senior living is a natural fit for hospitality workers from restaurants and hotels.”

At Life Care Services, which bills itself as the country’s second-largest manager of senior housing rentals, a regional sales director tried to juice new move-ins to a facility it owns called Clarendale at Indian Lake, in the Nashville exurbs, by dangling a “call now!”-style promotion for new residents: priority access to COVID-19 vaccines at a time when vaccines were still incredibly scarce. 

“Simply refer someone that makes the choice to move to Clarendale by February 12th* and we will add them to the list for our vaccine clinic in February,” read the email, sent in January. “*Must sign residency agreement on or before February 12th.” 

The sales director sent the email not to families, but to the network of local medical professionals and care providers who serve the area’s seniors and are a major source of referrals. One of them shared the email with HuffPost on the condition of anonymity.

A spokesperson for Life Care Services said it had sent the email to referrers because the facility was getting questions from potential residents about vaccine availability. “The email left too much to interpretation when read out of context,” she said.

If you don’t make this very large return on investment, you will be subject to a review, you may be put on probation, and if you don’t cut it after a while, you’re gone.
Kathryn Stebner, attorney

But the person who forwarded HuffPost the email claimed the facility has been aggressively seeking new patients and accepting much sicker patients than before the pandemic.

“I have never seen it this bad,” this person said. “It is not always about the care given; it’s about the census” — meaning how close facilities can get to max capacity. Life Care Services did not respond to HuffPost’s further questions.

Many of these strategies — keeping occupancy high and wages low — are just supercharged versions of how the industry operated before the pandemic. A 2018 federal occupational survey found that tens of thousands of health care aides earned a median wage of less than $30,000 a year.  

Roughly half of the country’s nursing homes and assisted living communities — where residents are not supposed to require round-the-clock care, and which are more lightly regulated — are owned or operated by large corporate chains like these. 

Whether operators are owned by a trust or not, middle managers at the companies that actually run the facilities are typically under intense pressure to deliver aggressive profits on a rigid timetable. Many management companies — Life Care Services is one — offer them regular bonuses as frequently as every month for recruiting a certain number of patients. (Life Care did not respond to questions about its incentives structure.)

For failing to meet benchmarks, the consequences can be just as extreme as the incentives: “If you don’t make this very large ROI [return on investment], you will be subject to a review, you may be put on probation, and if you don’t cut it after a while, you’re gone,” said Kathryn Stebner, an attorney who frequently represents families in lawsuits against assisted living facilities.

The pandemic has only turned the pressure up. Not only is occupancy down at nursing and assisted living homes, but it could stay that way as more and more families find solutions that enable their older relatives to age at home. Operators were forced to spend millions procuring PPE and had to contend with a staffing crisis caused by widespread burnout, bargain-basement wages and the physical risks of doing the job in a pandemic.

Unlike some of its competitors, CareTrust collected virtually all its rents during the pandemic, which the company said it took into account when awarding executive bonuses. 

The company also believes its strategy of toggling between operators is key to its long-term success. Stapley, the CEO, calls it “rins[ing] out any real softness in the portfolio.”


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