A short history of how Karaka Pines Villages and our capital gain model came to be, from Adam Yates, CEO.

I first encountered retirement villages in 1998 when I started work as the Financial Controller for Manor Group. At the time Manor Group operated Cedar Manor, which was a 100 bed resthome and hospital which had 53 retirement units and 25 serviced apartments. I became Chief Executive of Manor Group in 2000. Over the next 7 years we expanded the company to incorporate 4 aged care facilities and associated retirement units and serviced apartments on 6 sites around the Bay of Plenty. All of these units and apartments were operated on a model similar to the traditional model, where the residents paid a large fee to us for the care services and facilities we provided and received no capital gain.

During this time Manor Group began to place an emphasis on providing care to residents in their retirement units (and the increasing need for this was the motivation for building serviced apartments). We developed a service model where we had registered nurses and care staff who visited residents with care needs in their homes. Manor Group sold the business in 2007 and (because of a restraint of trade contract) sat on the sidelines while the industry came to terms with the new Retirement Villages Act.

One of the things that I noticed during the lead up to the sale of the business was the number of times that we came across people who wanted to move into one of our units or apartments (so that they could access our care plans) but who couldn’t afford to leave the village that they lived in. The reason for this is that the period leading up to 2007 was one where there was a large property boom and capital gains similar to the size of those we are currently experiencing was happening. This meant that large numbers of people who had moved into villages where there was no capital gain were being left behind by the market.

This was a wake up call for us at Manor Group. It seemed to us that even though these people started off being quite wealthy they were very quickly being impoverished through the sacrifice of capital gain they had made when moving into their village. We realised that we were only able to satisfy people who had never moved into a village (or had other sources of income). It seemed to me that some people were being trapped in their village in a sort of financial servitude.

There was a severe recession in 2008/2009 (you may recall) and so we at Manor Group did very little for a few years. In 2010 we began looking at developing land that we had acquired over the years and looked at building gated communities. When looking at these ideas we realised that our ideas looked very similar the retirement villages we used to build. So we asked ourselves this key question:

“If a gated community can be developed at a profit without the LTO, why can’t we do the same for a retirement village?”

And so we did. Kempton Park Village was registered in 2011 (after a not inconsiderable battle with the council over the resource consent!) Roseland Park was started a few years later and Woodcroft Estate in 2016.

I left Manor Group in 2017 to form Karaka Pines Villages. I did this so that we could begin developing our capital gain villages for other investors. My idea is that with Manor Group we could only build villages as fast as they wanted to release capital towards projects whereas in Karaka Pines we can build villages as fast as we can find investors to provide the capital to build them (and they do take a lot capital!) This allows us to create retirement villages in which everyone gets a very good deal. The residents are true winners.

Along the way, the investors also do well. They get a fair return for the risk they take in setting up and running the village. What they don’t get is a return which is so high it is unconscionable.

In this I am reminded of a friend of mine. She has been overseas as a missionary since I was at university. She started saying to me that she didn’t need to worry about her retirement because she would get her mother’s money when she died. Unfortunately, her mother moved into a retirement village nearly 20 years ago. All that time she had to pay the monthly outgoings which went up each year. Her unit was worth $1.1M (Auckland prices!) My friend’s mother’s share is less than $100,000. In our system, she would have received $935,000. Now that is what I call better off in every way.

Adam Yates 2018.