Rendina Companys Remarkable Rebound

Rendina’s Remarkable Rebound

It’s been a rocky road, but the pioneering development firm is once again on a roll.

This doesn’t seem like it will be a story with a happy ending.

A healthcare real estate (HRE) firm’s founder, CEO and primary new business developer dies of cancer at the age of 52 in 2006, leaving his oldest son in charge at the tender age of 26.

The firm sells its property management division and nearly its entire medical office building (MOB) portfolio during 2005-07, adding to concerns about its future viability and commitment to the MOB space.

Recognizing the need to reestablish relationships and credibility with both existing clients and new prospects, the son works with one of his two younger brothers and his experienced executive team to take steps to restore confidence and rebuild the business – only to run into the teeth of the Great Recession of 2007-09 and the healthcare reform hangover of 2010.

The company endures one and a half years without starting a new development project and a third of the employees have to be let go when the recession hits.

Then, when it finally seems the firm has turned the corner in 2011-12, first the son, then one of the firm’s other executives, receive their own cancer diagnoses.

Despite this almost unbelievable string of personal and professional calamities, HRE development firm Rendina Cos. does have an upbeat story to tell – and company officials say they have no intention of writing the final chapter for many years to come.

Under Chairman and CEO Richard M. Rendina, now an industry veteran at 33, Rendina Cos. appears to have restored its credibility and refilled its development pipeline. Since Bruce A. Rendina, the firm’s founder, passed away Dec. 13, 2006, after a 17-month battle with glioblastoma multiforme, an aggressive form of brain cancer, the firm has developed 21 new real estate projects and acquired one, adding a total of about 1.1 million square feet.

Meanwhile, the younger Mr. Rendina completed treatment for non-Hodgkin’s lymphoma in June 2011 and the cancer remains in remission, while former Executive VP – Business Development Todd H. Varney also recently celebrated one year of being cancer-free after being treated for prostate cancer.

Mr. Rendina has also apparently turned out to be a pretty good boss. In March, he received one of the South Florida Business Journal’s Ultimate CEO Awards, which honor “exceptional leaders who have set the standard in the corporate community, including civic leadership and charitable contributions” in Palm Beach County. Rendina Cos. is now back up to more than 60 employees – including all three Rendina brothers. Middle brother Michael D. Rendina has been with the firm since November 2005 is now chief operating officer. The youngest brother, David, graduated from Florida State University in 2010, worked for the company during 2010-11, and rejoined in January of this year as Internet Marketing Analyst.

It had been more than four years since Healthcare Real Estate Insights™ last did an extended interview with Richard Rendina – back in fall 2008. We recently had the opportunity to speak with him again and he brought us up to speed on Rendina Cos.’ remarkable rebound.

Murray Wolf: Rendina Cos. sold a 22-building portfolio to Windrose Medical Properties at a price of about $241 million in 2005. Then, in January 2007, Health Care REIT Inc. (NYSE: HCN), which had just acquired Windrose, announced the acquisition of more MOBs from Rendina Cos. That deal, which closed in May 2007, ultimately included 17 MOBs and was valued at $287.7 million. It also included Rendina’s Paramount Real Estate Services property management division. When we spoke not too long after that, in November 2008, your father’s death and the sale of the MOBs to Windrose were still fresh in people’s minds. But you had also just reached a major milestone by breaking ground on the first project to be sold and started under your leadership, so it looked like things were heading in the right direction. Then the Great Recession hit. Can you please bring us up to speed on what has happened since?

Richard Rendina: Sure, will do. The timing is good to do a recap. We just had our advisory board meeting in April, and I did a look back on where we’ve come since my father passed away. Since January of 2007, we’ve built up 22 projects in total (including one value-added acquisition), and that’s over 1.1 million square feet. We also did one additional portfolio sale in 2010, where we sold five assets to Healthcare Trust of America, prior to them going public. But since then the goal and the focus and the strategy – especially given my age and my brother’s age, and the youth of this company – is long-term hold, repeat business and ethical business. We feel repeat business is the most important business, and we feel ethical business leads to repeat business. So right now the focus is not on selling the pipeline. The pipeline is pretty robust. The focus is now on building a portfolio.

MW: How many projects do you have under development and in the pipeline?

RR: We’ve had three to four projects breaking ground every year since 2010. We currently have three projects under construction, and we have five more with very high probability for either the tail end of this year or 2014. There’s certainly more hanging out there that we’re working on, but those five I feel very confident about.

MW: What projects do you have under construction?

RR: We broke ground in October on the $10 million two story, 32,750 square foot Southside Regional Medical Arts Pavilion in in Petersburg, Va., which is scheduled to open in August for Community Health Systems. We broke ground in January for the $16 million, two-story, 60,000 square foot Bluffton Medical Campus in Bluffton, S.C., which will be completed this fall for Tenet Healthcare Corp. And the third is the 41,000 square foot Green Medical Pavilion for Akron General Medical Center. This MOB is attached to the 100,000 square foot health and wellness facility we completed for them in 2012.

MW: How about projects in the pipeline?

RR: We’re in the midst of solidifying a fantastic relationship in the New Jersey market with one of the largest health systems in New Jersey, and that’s going to provide both development and acquisition opportunities for us.

MW: Is that something you can talk about yet?

RR: I don’t know that I can mention that name yet. We have yet to sign the master development agreement, although we’ll probably sign a PSA (purchase and sale agreement) in the next week or two to acquire those assets… It is a good example of what our strategy is and the service I was alluding to … because these are assets that the REIT world most likely is not going to be interested in. They’re not 10-year, long-term leases. The average lease is maybe between three and five years, and there’s vacancy and they’re older buildings and there’s lease-up required. And you’ve really got to dig in and get the feet on the ground and get your hands dirty to kick those things into shape…. We don’t shy away from that… I don’t have to answer to an investment committee or the stock market on what my immediate return will be. We’re willing to study the market, understand the market and put the faith in the hospital system that we’re partnering with.

MW: Do any other current projects particularly stand out?

RR: That Bluffton project was an important one for me, because my dad had developed 25, 26 MOBs for Tenet, but we hadn’t developed one for them since he passed away. So this is our first project start with them in six years or so, and I am really excited about that. We see more projects actually coming down the road. The goal for us is really just to be one of the preferred developers. You know, if it’s two or three or four that a health system has, we just want to be in that mix and receiving the opportunities, and given the opportunity to compete. That’s all we ask for.

MW: How do you become one of those preferred developers?

RR: I have all the faith in my team to bring it home, make it work and deliver it on time. We look at the history my dad had prior in the DASCO years, as well as Rendina, where he was signing on the personal guarantees and now my brothers and I are signing on those personal guarantees. Over a billion and a half – it’s probably getting closer to two billion now – but over a billion and a half in financing and we’ve never defaulted on a loan. We’ve never failed to complete a project that we’ve started. We’ve developed for – actively developing for – four of the 10 largest health systems in the country. I feel like we have a very good understanding of healthcare reform and a very good understanding of healthcare, but we’re striving every day to learn more, both on how it affects our clients and how that translates to the real estate business.

MW: What are some of the major trends you are tracking?

RR: Outpatient, off-campus. It is obviously a trend that we’re well aware of and I feel like we have a template that we can take to a client who is looking to explore those avenues to let them know what type of uses will typically go in off-campus, outpatient centers, and what type of physician alignment basically needs to take place. And we’re even going so far as to identify locations proactively and market where we know we have relationships with health systems and hospitals. Or we’re hopeful to create a new relationship by way of presenting them with an opportunity in the location, making use of the land that we think would fit the criteria and have the patient mix and payer mix that they would look for in a new extension. That’s the way and the trend to gain market share, as I’m sure you’re well aware. The days of those 500-bed behemoth hospitals – unless of course it’s a replacement hospital – there’s not a whole lot of new hospitals projects being planned. It’s more about planting your flag in a competitor’s backyard or extending your service area by doing an off-campus outpatient facility.

MW: Let me just back up a little bit and ask a couple of follow-up things. When you talk about the 22 projects since January 2007, that is a pretty robust record, particularly in light of the economic downturn and all the other things you and your company went through. Was the flow pretty steady and how did you manage to keep that up even during the Great Recession?

RR: You know, it wasn’t very steady. In the beginning it was difficult. I think when we last talked it was about overcoming the loss of our founder who was a well-known individual in the marketplace. He was really the driver of our business development initiative. It was a big question mark for us. It was truly a team effort. With change comes opportunity and there were many who stepped up to the challenge. In the business development department, Steve Barry, one of our leasing executives (now EVP – business development & leasing) was an all-star for us.

MW: How did clients react to the change?

RR: You know, there are some special people out there who got on planes and came down and sat down with me after my father passed away. Guys like my vice chairman, Larry Juran, who was retired at the time, dropped everything to jump back in at the ground level. Larry was and still is an invaluable resource for me and many others at Rendina. Barry Schochet, ex-vice chairman of Tenet Healthcare – he and my father had built a friendship over the years. Maybe a month or so had passed, and he sat down and asked me, “How can I help?” I needed to find a way to get out there and forge relationships with those groups we already had relationships with, but also new relationships. We had the team. We could get it done if given the opportunity. We just needed someone to help us open the doors.

MW: What were some of the ways you did that?

RR: Barry and I came up with the idea of an advisory board and at that, point (Mr. Schochet) and I set out to find individuals to join our board. And they are a pretty amazing board of retired and semi-retired healthcare executives from all walks of healthcare, whether it’s development, the hospital side or the group purchasing side. It isn’t all about business development. We also discuss strategy. I’m a big believer in “a smart man learns from his own mistakes, a wise man learns from another man’s mistakes.” So I ask a lot of questions and do a lot of listening and learning before I make my decisions, but once I make them, I stick to them and we go with it. That advisory board has been a great help to us to forge new relationships and revive existing ones. Tenet Healthcare is a good example of that. (Editor’s note: Mr. Rendina says the firm’s eight-member advisory board meets twice per year and conducts three conference calls.)

MW: What impact has your advisory board had?

RR: I felt like we needed to create an identity internally that would translate to our clients externally. Everybody was marching to the beat of Bruce Rendina’s drum, and that was fine, we were very successful doing that. But after his passing we needed our identity… So we created core values together, with my senior staff, and obviously we present and get great input on these types of things from the advisory board. We present our strategic plans, they’re aware of the financial performance of the company. I think that helped create an identity. We still put a huge emphasis on core values here internally.

MW: In addition to forming your advisory board, what other steps have you taken?

RR: We have also tried to raise our visibility by attending and presenting at HRE conferences, and by continuing to serve on the HREI Editorial Advisory Board, as my father did. All of that has given us the opportunity to get more exposure to those individuals who control the RFP (request for proposals) process, so we get to look at more RFPs than we had been seeing in 2007 and 2008. There was definitely a tail-off there. We didn’t really have anything in the pipeline when my father passed, nothing that was coming up soon. We’re only as good as our last deal, and getting in front of our clients and letting them know we’re here to stay (is important). We had to prove ourselves all over again. I’m not sure that a lot of health systems were ready, willing and able to do a medical office building project with a 27-year-old. So sometimes I took a back seat and let my team go out there and do their thing, and playing the role when they need me and when necessary in solidifying the relationship. It came with time… We spent a lot of time building that track record and taking note of those things that we’ve accomplished to make sure we were touting our competitive advantages to prospective clients. Seventy-five percent of our business is repeat business. So we take a lot of pride in that.

MW: It must have been a difficult time after your father passed away.

RR: It was, both personally and professionally, but God blessed me with a great family, friends and colleagues who provided me with a muchneeded support system then and now. It may have been partly because of my youth at the time that (prospective clients) weren’t really ready. I think many in the industry just wanted to wait and see if we were still going to be around in a few years, which could have been case in point (when) you look at our pipeline in the years 2007 and 2008. Those were tough chugging. I think the first shovel we put in the ground after my father’s death was the middle of 2008. So it was almost a year and a half or so before we got a new project in the ground. Then the recession hits and my brother, Michael, and I are looking at a real estate development company with a lot of overhead to cover. We were around 60 (people) when my father passed, and we got down to 40 or so in 2009.

MW: I assume it became even more difficult during the economic downturn.

RR: It was. It was a perfect storm. We definitely had the odds stacked against us in a number of different areas, but we overcame them all. I was just recently reflecting on that – I won a local CEO award down here – sometimes I don’t think I deserve such an award. When you sit down to write your speech and start thinking about all that you’ve overcome and accomplished during that time, it really is remarkable. We’ve got tremendous people; the average tenure of our staff is approaching 13 years. So when you think about what has transpired over the past five years, with the recession, downturn in the market and the real estate market being in dire straits, it really is a case in point where people talk about “I can’t wait until things get better” and “it’s starting to pick up a little bit” and “man, I miss the good times.” I don’t know anything different than the rough times. If the going is tough right now, I can’t wait to be booming.

MW: I recently heard through the grapevine that Todd Varney left the company. Was that a surprise?

RR: While the news of Todd’s departure was surprising, I assure you that I will not lose sleep because Todd is no longer part of our team. I certainly valued Todd and his contributions to our companies, as he was a longstanding and great member of our team. But this company is bigger than one person. We’ve already proven that we are extremely resilient. We lost our founder, our leader and our most dynamic relationship builder when we lost Bruce. We rise up when faced with adversity and will do it once again. Steve Barry assumed the role vacated by Todd. We have also bolstered the business development team by elevating other members of our internal sales team – with change comes opportunity – and that I expect to have a West Coast business development executive on board in the next month or two.

MW: From your perspective, when did things really start to turn the corner?

RR: The biggest component to that was feeling like I had my team, and not just my father’s team… But I think when it most became evident to me was when I actually got diagnosed with cancer in 2011. Having my brother, Michael, and that team in place gave me a lot of peace of mind knowing that I was going to have to endure five months of chemotherapy and not really knowing how that was going to affect me. The prognosis for me was a very high probability for a cure. I felt confident that I was going to beat it, and I have been in remission for a couple of years now. But just taking a step back and not being in the office every day. And I remember talking to the company and letting them know what I was facing – all the while thinking about how I had addressed them just five years prior to let them know that my father had passed away from cancer and now I’m telling them I have cancer. I could only imagine what was going through people’s heads. But at the same time I was telling them that I think we’ve got the team to succeed whether I am here every day or not. I finally had the confidence that we were there in every department… So 2010 was a big turnaround year for us in terms of project starts, and 2011 was what I really think solidified that – project starts and the team I had in place.

MW: After you completed your treatment, when were you able to get back to work full time?

RR: I really didn’t stop working. I did nine rounds of chemotherapy in five months from February to the end of June (2011). Three of those rounds required me to be inpatient. When you’re sitting in chemo chairs or in hospital beds for that period of time you would’ve thought that I watched a lot of movies. I don’t think I watched more than one. I spent a lot of time on the Blackberry and on the iPad staying in touch with things. I certainly took the time to focus on my body and my health during that time. I picked up a lot of good habits during that time. Acupuncture and Yoga and exercise, I’ve always stressed the importance of balance in my life, and those of our employees. I realized I needed to regain that balance in my life. Having my son turn one year old during those five months helped put a lot of things into perspective. All work and no play is not a good way to spend your day, and you won’t be around long, either. So it was five months where I was running around without any hair. I was fortunate enough to catch a Marlins or Cardinals spring training game with a client or friend just about every day during the month of March; Roger Dean Stadium is less than a mile from our office. I was here in the office but I certainly wasn’t traveling during that time because your immune system is so depressed, you don’t want to be flying around on airplanes.

MW: How long until you felt back to normal?

RR: You obviously don’t feel 100 percent shortly thereafter; it was five or six months after I finished the treatments. During the treatments, I certainly felt like I was kicking the chemo’s butt two months in, but it’s a cumulative effect. By the time the last month rolled around I was done. If they told me I had to do another round or that the scan found something, I would’ve been like, “Now I need a month off,” just to take a month off, because the chemo really beats you down after a while. My team did a great job of coming to me only when they felt they needed to, and that helped solidify what I was talking about earlier. I’ve got such a great team in place, they really didn’t miss a beat from the client’s perspective, that’s for sure.

MW: How did the cancer diagnosis and treatment affect your perspective on the business?

RR: That gave me some tremendous insight … into the patient experience, the extreme value of the nurses and physicians that you are working with. They are working to save your life. I put a lot of value in that partnership. At the groundbreakings I go to I talk a lot about what goes on behind those walls we build. There are people going in there every day who are fighting that fight. It is these healthcare professionals who are making the difference. I like that we can provide first class office space and cancer centers or whatever else it is we’re developing for these doctors and hospitals to perform their magic. It’s rewarding to see… It’s not (only) that there’s going to be a tax basis for the municipality, and new jobs created. But now these patients will have access to quality medical healthcare. It’s an underrated value, to have quality healthcare. If you don’t have your health you don’t have much.

MW: Has it affected your business in any other ways?

RR: Health and wellness. As I mentioned earlier, we completed a project for Akron (Ohio) General Medical Center – both the 100,000 square foot Health & Wellness Center and (we) just completed the 41,000 square foot attached MOB. They’re certainly pioneers. They’ve been in the health and wellness business for 20 years and they do it successfully and they do it profitably. We’re working with them to take their model out to our client base because we believe it is the future of healthcare.

MW: What are some of your other business initiatives?

RR: We launched VERSA Property Management in June 2010 so we have been very focused on building the foundation of that company and positioning it for the growth we anticipate now and in the future. The No. 1 goal for both companies is portfolio growth via development, acquisition and our long-term hold strategy. We’re well-capitalized and the focus is on smart growth. Development is our bread and butter, but we’re looking to be very active on the acquisition side because we feel it’s a service we can provide to our hospital clients. We’re also taking a … run at some of these very large (portfolios) that are trading on market.

MW: Do you think we will see more hospital-driven monetizations in the near future?

RR: Since the recession… the attitude or assumption was hospital systems are going to be liquidating their non-core assets to gain access to cash and shore up the balance sheet, and so everybody was waiting to see the large portfolios from various health systems hit the market, and it never really took off. I feel that Obama’s healthcare reform had a lot to do with that. Now the focus for the C-suite executives is around physician alignment and physician integration, and either being very active on the hospital acquisition and merger front, or trying to do what they can if they’re a smaller hospital or hospital system to fortify themselves so they’re not an acquisition target… So I feel that right now the focus is on hospital operations. But I don’t think any C-suite executives would deny that real estate has to be a component of their strategic plans. As they realize that, “Hey, we really want to build this new outpatient facility,” and they go to look at their available cash to fund the portion of the build-out and the FF&E (furniture, fixtures and equipment), and that’s when they realize, “Hey, maybe we should look at selling these MOB assets sitting on our balance sheet.” We are starting to see more and more opportunities, where there’s a great development opportunity, but the providers also need us to buy some of their medical office buildings.

MW: You mentioned earlier that the recent acquisition you made was a value-added opportunity. Would you consider acquiring more value-added assets?

RR: Absolutely. Sometimes they may be a value-add, but we don’t shy away from that because we are willing to take that risk. We will invest our capital to renovate older building. We bring an experienced leasing team and construction and development team that is in place and ready to help the hospital put long-term leases in place. We understand that physicians are a hospitals most valuable asset and it’s our job to cultivate and nurture those relationships. So we are creative with what we call our real estate advisory services. To get a foot in the door, we’ll come in and offer to give them a fair market appraisal of their MOB assets, potentially purchase those assets and if not, maybe it becomes an opportunity for us to do the property management for those facilities. It’s a great way to both build the portfolio and create a new relationship by what I think is providing a service to a client, in liquidating these MOB assets. That’s a very difficult relationship for a hospital executive to manage, that landlord role. They really should stay focused on hospital operations and (we are) able to come in and help relieve those headaches… Whether they’re aware of it or not, it’s a full-time job working with physicians before and long after they move into your building. I feel very strongly that it serves a hospital best when they focus on their core business and outsource property management, leasing and tenant improvement build-outs to those who do those things everyday as part of their core business. These are all things that Rendina Cos. can provide. We also think it’s a great service to be able to provide liquidity to our clients. So we’re out there actively touting our real estate solutions and advisory services.

MW: If Rendina Cos. makes additional acquisitions, will you fund them exclusively with your own capital?

RR: The capital – 100 percent these days comes from the Rendina family and our principals here at the company. I also will provide the opportunity to our advisory board members if they would like to invest in projects. I think that’s a nice perk. We’ve also done some small friends and family raises – not because we needed the capital, but in part to create a track record with some of these folks … so if there comes a time when I want to do a million square foot portfolio acquisition and the check size is 10 times what I’ve been asking for before, they’re not going to hesitate to write that check.

MW: If the acquisition opportunity was big enough, would you partner with private equity firms or other institutional investors?

RR: We’ve explored the opportunities on the equity market out there with some private equity firms, and there’s still a group or two where we’ve got a great open line of communication… But we really want to keep it acquisition-focused only; we don’t need capital on the development side. We don’t really need it on the acquisition side either, but we certainly would if there was a million or a million-and-a-half square foot portfolio we wanted to chase. Whoever is selling that portfolio wants to see that you have a REIT-like balance sheet.

MW: Is it difficult to compete with the REITs when it comes to acquisitions?

RR: It’s tough to compete on market transactions. The cap rates that some of these portfolios are trading at are a little surprising. It’s a sign of the times. It’s a great asset class and you really can’t fault the price when you consider what some of these groups are able to borrow money at today. If (as a financial partner) you can make me more competitive, give me access to keep the cost of capital competitive and it can be a partnership that we feel our interests are very much aligned, we’ll go out and try to chase a portfolio together. But it’s tough to beat the REITs on the highly sought after portfolios. So really the focus for us is building long-term relationships by using our own capital to acquire off-market, value-add medical office buildings. The financing terms that are available out there – it’s a great time to lock up long-term money. You can pull some equity out at the same time if that’s your desire. But we’re very fortunate that my father left us in a position where we’re very well capitalized and don’t have to rely on any type of external equity.

MW: Were the 2005 and 2007 portfolio sales the primary source of that capital?

RR: Yes, and we sold our property management company at that time, too. We started that back up in June 2010 because we think that’s a very important part of our business model. That’s where the day-to-day interaction is after the building is built. And managing that relationship is so important to me because it all falls back onto the developer at the end of the day anyway. People like to pick up the phone and call the person they did the deal with.

MW: That used to be your dad. Now it’s you and your team. Have clients and prospects gotten used to that?

RR:At this point, absolutely, but it’s definitely taken time for us to build new relationships and solidify existing ones. They weren’t necessarily the same people my father and others here were dealing with… You build a lot of relationships at the hospital level and they evolve upward. Sometimes it comes from the top down, but a lot of times relationships evolve at a local level with people you’ve done work with before who move to a new hospital system. And once people start to get feedback at a higher level about the way we perform, I think that goes a long way to give us an opportunity for repeat business in the future.

MW: And how about you personally?

RR: I’m healthy and feel great. I have a three-year-old son and I love being a father. We are expecting baby No. 2 in Feb ‘14. My wife, Trish, and I want to have a big family. My brother (Michael) and his wife, Lainie, have their first child due in September – the first girl on our side of the family so we are all really excited for the newest member of the Rendina family to join the party. As for David, he’s a fantastic uncle to my son and he just turned 25, so Michael and I enjoy living vicariously through him.

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