The Early Years
David Freshwater founded The Fountains in 1985, establishing it with sweat equity, management contracts and consulting assignments. The company achieved early success with its first senior housing venture, The Fountains at La Cholla, in Tucson, Arizona. As general partner in The Fountains at La Cholla, Freshwater owned a fractional interest in the asset. While investors fared very well, at times management revenues were so thin Freshwater didn’t collect a paycheck and he and his team were forced to headquarter out of a two-bedroom apartment located near a dumpster beside the kitchen.
One of the original members of the small management team Freshwater assembled was David Barnes, who helped build information systems (when there were no off-the-shelf options) for the upstart company. To supplement revenues during the late1980s, under the name Fountains Retirement Communities, Inc., Freshwater worked as a fee manager taking over non-performing senior living properties for institutional owners. While Freshwater’s client list read as a Who’s Who in the financial sector (with clients such as Chase, Bank of New York, CitiCorp and Mellon Bank, as well as bond funds including Dreyfus, Fidelity and Allstate), the small firm quickly realized this was not a sustainable business model. These institutions’ goals were to turn the assets around and unload them as soon as cash flows improved enough to buffer their losses. In essence, the quicker Freshwater and his team were able to do their job, the quicker they were out of a job. It was clear the only way to capitalize on the company’s expertise and create a viable business was to control the assets through investment.
Unfortunately these were not good economic times. From about 1988 to the early 1990s, the real estate and finance markets were in total collapse. Very little equity or debt was available, especially for senior housing, an asset class not too many in the financial world were familiar with. In 1991, David teamed with Mitchell Pozez, whose business acumen, financial savvy and world-wide contacts helped the company find investment capital and investment deals. Armed with a track record in turning around dozens of non-performing senior housing properties, Freshwater and Pozez pitched their business plan to Tulsa-based billionaire, George B. Kaiser who subsequently invested more than $40 million in FRC’s first four transactions. This was the beginning of a long relationship with Kaiser that broadened over time.