Working on a turnaround

By Thomas Heath
Washington Post Staff Writer
Monday, December 27, 2010; 47

Sunrise Senior Living chief executive Mark S. Ordan was sitting across the table from his company's banker and staring at a disbelieving face.

It was the fall of 2008 and Ordan's McLean-based elderly care company owed $95 million in loans, was reeling from an accounting scandal and seemed headed for certain bankruptcy.

Now he was sitting in a New Hartford, Conn., office of Bank of America, Sunrise's chief lender, pleading for time.

"Those first meetings were horrible," recalled Ordan, who has become one of Washington's turnaround experts based on Sunrise and his previous gig at troubled shopping mall giant Mills Corp. "The bankers were incredibly frosty. If I said the sky was blue, they wouldn't believe me."

Ordan made the case to Bank of America that he was new to the company and did not represent past management. He pleaded for time. He could turn it around. Sunrise could avoid bankruptcy if it could just have time to sell some of its 439 properties around the United States and Europe.

"I said there were assets we can sell, and if we can sell them in an orderly way, we will take some of the proceeds and we will pay you the money we owe you," Ordan recalled as he chewed on a salad during a recent lunch at a Tysons Corner restaurant. "He looked me in the eye and believed."

Sunrise has survived, but its under $6-per-share price is far below the $30-plus price it enjoyed in its heyday. And the company looks much different. It's leaner, and its balance sheet is cleaner. It even made a recent deal to increase its share of a joint venture, a nice switch after two years of divesting itself of properties.

But it took a while to get there.

Ordan's three-year journey through Sunrise, founded by husband and wife Paul and Terry Klaassen, contains lessons for other executives facing similar circumstances.

Although a Washington networker, Ordan was not schooled to be a turnaround guy. A Vassar College philosophy major who graduated from Harvard Business School, he made his first millions building and selling Fresh Fields, the Washington area grocery chain that became Whole Foods. He later formed an investment team that purchased Sutton Place Gourmet and morphed it into Balducci's, selling it to another investment group.

The Mills Corp. board came calling in 2006, asking Ordan to help fix the company, which was reeling from an accounting restatement and an investigation by the Securities and Exchange Commission. He helped find a buyer.

Ordan was working on philanthropy projects when the Sunrise opportunity started percolating. He had known founder Paul Klaassen since the 1990s through their membership in the Young Presidents' Organization, a leadership group. They reconnected when Klaassen called Ordan to ask about a potential hire Klaassen was considering.

"When I was talking to him, I said if I can ever help you, I would be happy to."

Over a beer in the Tysons Corner Ritz-Carlton with Klaassen, Ordan turned down a board position but was intrigued when Klaassen raised the possibility of joining Sunrise's management. Even though he knew nothing about health care, a subsequent tour of a Sunrise community in McLean "blew me away," Ordan said. He figured with the Klaassen's care skills and Ordan's experience at turnarounds, "it was a perfect match."

Ordan went to work at Sunrise in April 2008, months before the financial crisis hit. Sunrise doesn't wholly own most of its facilities. It generally owns pieces of them and manages them for the owners, such as California-based HCP and Chicago-based Ventas. In other words, he had to deal with lots of constituencies.

He started sending frequent e-mails to bankers and partners, and held companywide conference calls -- "fireside chats," he calls them now -- to reassure employees that the company could work through the problems.

"I made an immediate habit of calling any bank or partner with news that was good or bad," he said. For a while, it was not good. The economy was sinking like a stone."

By early 2009, cash-on-hand, a key business metric, dropped to a handful of millions, which is dangerously low for a billion-dollar company.

"It was pretty bleak," recalls Ordan, who was on the phone to his bankruptcy lawyers at Wachtel, Lipton and at Kirkland & Ellis about 10 times a day.

He recruited a new staff from his days at Mills. There was a new head of human resources. A new chief investment officer. A new head of information technology. A new capital markets office. As he brought in his own team, Ordan went after overhead while selling off properties. Out went the free Starbucks coffee at headquarters. Two-thirds of corporate credit cards were canceled. Travel, marketing, supplies, anything deemed nonessential was cut.

The real estate development team shrank from 100 people to three.

He didn't relish coming in day after day, ready to cut, fire, reduce and downsize. It was confrontation after confrontation.

By early this year, Sunrise had sold off its seven Germany properties and many of its management contracts, generating valuable cash reserves and eliminating debt. Separately, Sunrise also recently announced it was increasing its share of a partnership in 29 communities from 10 percent to 40 percent, part of Ordan's plan to take more ownership stakes in properties Sunrise manages.

When I talked to Ordan by phone recently, he was sitting in a Sunrise community near Chicago. He routinely visits properties to make sure the care is up to snuff and get face-to-face feedback from employees.

"I love it," he said, crediting his team. "It's gratifying. I'm betting on our future."

His board is betting on him too. It just gave Ordan a two-year contract extension that included a $3 million bonus and 2.5 million stock options.

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