Pivot play

The story of how real estate investment firm TJM Properties put itself in position to acquire, fix up and run a large bundle of full-service hotels nationwide starts at the end, in retirement.

For starters, the Clearwater-based firm's lead acquisition executive, Dale Schooley, came to his gig after retiring from an auto sales career. And when Schooley hit the National Investment Center for Senior Housing & Care conference in August 2013, he was in possible buy mode. The plan was to find one or two senior living properties to add to TJM's portfolio of 19 retirement centers and continuing care retirement communities, mostly in Florida.

Overwhelmed with the senior living property valuations he heard, Schooley left the conference in a much different mode: It was time for TJM to sell.

That switch, fueled by a $220 million sale, has transformed the strategy at TJM, founded in 1979 by real estate entrepreneur Terry McCarthy. The new focus is on the hospitality sector, especially full-service hotels in urban centers.

The plan, says Schooley, is to buy and hold the properties, fix them up when necessary and replace or enhance the management staff. The hope is TJM can replicate its senior living success in hospitality, where McCarthy started his career, fixing up hotels. It's somewhat of a counter-market move considering hotel revenues are significantly more volatile than senior living. And demographic trends remain positive for senior living.

But Schooley says hotels are more of a comfort zone for the company than senior living facilities. “We started in hotels,” he says, “and we really know that market.”

TJM has bought four hotels since 2013. Two are independent brands in Atlantic City, one is a Radisson in Philadelphia and one, in a deal that closed in May, is a Crowne Plaza in Syracuse, N.Y. The firm, says Schooley, spent about $70 million to buy and rehab all of the properties. “We see a lot of potential in the hotel market,” says Schooley. “The market is doing really well now and we think it will continue this way. We will really build this up.”

The company, in general, seeks hotels with at least 200 rooms and 10,000 square feet of banquet space. The firm has looked at deals from Chicago to Colorado, and Schooley says metrics matter more than the geography, which fits the company's opportunistic mindset when it comes to deals. “If it's a good property and we see an upside,” he says, “we will take a look at it.”

To get to hospitality, TJM needed to pivot out of senior living, something Schooley had no intention of doing three years ago. But at that NIC conference he received five letters of interest in the portfolio from real estate investment trusts. Some of the offers were double what TJM paid for the facility, and at least one, he says, was triple the original price.

In August 2013, TJM closed on a deal to sell 14 properties it ran in Florida and one location in North Carolina to Fortress Investment Group/Holiday. A real estate investment trust that specializes in retirement housing, Fortress paid TJM $220 million for the portfolio, which totaled 2,500 units. It included two locations in Bradenton, two in Polk County and one in Venice.

“Well shoot, if it's worth that much, it is for sale,” Schooley recalls thinking. “Prices were so high, we didn't want to have our heads in the sand.”

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