Construction Backbone

While Colson will push into the assisted-living market slowly, he doesn't approach construction the same way. He wants to build fast. That's why 10 years ago, Colson & Colson began having Hunt Builders in Calgary, Canada, prefabricate its frames, trusses, and floor joists. Hunt ships these parts–about 31 truckloads per typical property–to construction sites. This process helps the company put up a retirement home in about nine months, a month or two less than it would take most builders, estimates Dave Breedon, Colson & Colson director of construction. "It allows us to put a roof on the structure and get the trades through there much quicker than if we were waiting for the building to be framed," Colson says. "We get efficiencies with that."

Usually Colson & Colson Construction builds one wing of a building, followed by the center area and then the other wing. Once the frame goes up, electricians, plumbers, and drywall hangers go through each section. The company tries to use local subcontractors, but if they won't work for Colson & Colson's price, it will bring in its own people. "They control construction internally," says Richard Hubbard, a senior vice president with Wells Fargo, one of the company's biggest lenders. "They don't have a lot of cost overrun."

The company also gets efficiencies from its volume, purchasing HVAC products, plumbing fixtures, roofing materials, siding, and insulation in bulk. These efficiencies add up to as much as $1 million in savings for each project, Colson says. But that's just a bonus for the company. "Our buildings are a means to an end," Breedon says. "Our profit base isn't in construction. It's in managing the buildings."

Ownership Advantages

By understanding that profit comes with management, Colson shares a mindset with Sunrise Senior Living. But that's where the similarities end. Last year, Sunrise announced that it was selling most of the ownership in its properties and keeping its management contracts to help it court Wall Street. "This is where Mr. Klaassen [Paul Klaassen, founder, chairman, and CEO of Sunrise] and I disagree," he says. "If you don't own your asset, you don't have anything. You'd basically be a hotel contract. I don't want a hotel contract."

The corporate staff began to phone shop all of its properties to detect problems. After training, if on-site people still don't handle phone traffic properly, they are let go. "We've increased our traffic numbers just by virtue of capturing traffic that was already there. That's simple blocking and tackling," says Mark.

Colson does want the $38 million per year he earns in equity through the amortization of long-term debt of his properties. "That's what I make that no one ever sees," he says. "If you have a leasehold, you won't have anything other than a management contract. That puts someone else in control of your business."

One reason Colson can keep control of his business is a loyal group of lenders that finance his properties with 20-year loans. In the past couple of years, these banks haven't even asked for a down payment. "They qualify for favorable terms and conditions because of their track record, financial strength, and expertise," says Mary Fling, a vice president with Bank of America.

But ownership does force Colson to deal with government. Owning buildings means paying property taxes. To handle this, Colson is armed with a department and consultants that handle tax issues. "We won't let the states cheat us on taxes," he says. "We have a giant tax bill, and we won't let it get out of hand."