While franchising is embraced in home care and hospitality — not to mention fast food, rental cars and various other industries — it has been slow to catch on in senior living.
But a handful of senior housing companies — including BeeHive Homes, BrightStar Senior Living and Avendelle Assisted Living — are breaking the mold. Their models could offer a way forward for others interested in starting a senior housing franchise operation.
The franchise model offers advantages, including the ability to quickly gain scale by partnering up with local entrepreneurs who are passionate about the industry. Challenges exist as well, including possible limitations in building size, and potential difficulties in leveraging scale to recruit and train up a workforce. But those companies that have turned to franchising believe that the model translates well to senior living and could become more common in the future.
Busy as BeeHive
Boise, Idaho-based BeeHive Homes has been at the franchise game for nearly three decades and has 207 small-home senior living franchises spread across the U.S.
For BeeHive, the small-home assisted living and memory care format — more financially attainable than large-scale senior living properties — has blended well with the franchise model, according to Troy Veach, franchise sales director with BeeHive.
“We feel like we’ve discovered a niche across the U.S. where we’ve been able to really find our market,” Veach told Senior Housing News.
While BeeHive doesn’t directly own any of the homes under its banner, the company had some real estate holdings in Utah about 28 years ago, according to Veach. But, it gave those communities up to go all-in on the franchise model.
“We decided we couldn’t own and operate homes at the corporate level and also service all the new homes coming on board,” Veach said. “So, we have focused on making our owners successful and providing them the support they need and oversight.”
The company is currently targeting a growth pipeline of about 15 to 20 new franchise homes per year. Each BeeHive home has between 16 and 24 units, and is designed to resemble a typical suburban residence.
The company’s communities follow a small-home model, with ratios of roughly one staffer per four or five residents. That allows caregivers to form close bonds with residents, thus boosting resident satisfaction and helping to tamp down turnover, Veach said.
“We get to know the family a lot better, we get to know the resident a lot better,” Veach explained. “If we have a resident that likes to have a glass of wine and peanuts before they go to bed at night, we should be able to provide that.”
Franchisees interested in opening their own BeeHive home need to pay an initial $75,000 franchise fee. They must additionally agree to pay a 5% royalty to BeeHive on revenue from occupied units once the property is 65% full, and sign a 10-year contract that is renewable after five years.
A typical BeeHive home has a total development cost of between $2 million and $4 million. To finance that development, BeeHive provides to its owners a list of preferred lenders, including those that offer small business administration (SBA) loans.
“BeeHive’s reputation with lenders is very good,” said Tre Luckett, an SBA business development officer with First Bank SBA. “From a financing standpoint, I’ll do every BeeHive I can my hands on.”
Starting a BeeHive franchise is slightly more expensive than other types of franchises, with ground-up construction costs making up the difference, Veach said.
A typical margin for a BeeHive franchise is between 25% and 30%.
Franchisees own the home’s real estate and operations, and get ongoing support and training from the BeeHive corporate office and can leverage the company’s relationships with local and regional partners.
“We’re not dictating to you how to run your home,” Veach said. “The main thing is, we come around every year and do audits to make sure they are being run correctly.”
The model is built specifically to help guide owners through the process. Oftentimes, prospective franchisees have little or no prior experience in senior living.
“In a typical smaller-home model, they’re on their own and they don’t have that support system,” Veach said. “With BeeHive, you have a corporate office that’s watching your policies and procedures and keeping you up to date … with what’s going on nationwide in the industry.”
Many franchisees with the company own and operate more than one location. One owner even maintains a portfolio of more than 30.
“Our owners and staff are empowered to take the last few years of a resident’s life and make it the best few years,” Veach said. “There is a reason that franchising works, and it works in this space if you do it right and provide the right oversight and tools to be successful.”
Like BeeHive, BrightStar also believes franchising is a viable model for senior living. The Gurnee, Illinois-based company has three senior living franchises open today in Wisconsin and Indiana with another under construction in Ohio and possibly more on the way.
Though the company has scaled back on its original plan to have 100 senior living franchises by 2020, it still represents a growing focus for in-home care franchisor BrightStar, according to Peter First, vice president of franchise development.
BrightStar entered the senior living sector after already establishing itself as a major home care franchisor under the BrightStar Care brand, with more than 330 locations open today.
“It works well for us because we have the franchising experience,” First said of the move into senior living. “I don’t think it’s very common [to have] franchising knowledge plus an understanding of health care. We just have a natural niche.”
A typical BrightStar Senior Living community is homelike and contains between 35 and 45 units, with assisted living on the first floor and memory care on the second. They typically carry a total project cost of about $8 million to $10 million, with rates generally on the “upper end” of the local market, First explained.
BrightStar’s franchise model is similar to BeeHive’s, with a royalty fees of 5% of revenue and 10-year renewable contracts for franchisees. In return, the company guides its franchisees are through the development process, helps source financing and supports operations once they get off the ground.
“We work with franchisees all the way through construction, site selection, build-out and ongoing support continues after opening,” First said. “And with the training we have on the home health care side, we have a very robust program we can carry over for the franchisees.”
For BrightStar, franchising represents a new way to grow its brand with passionate local stakeholders. Having a presence in the senior living market also helps the company hang onto clients if they go from using an in-home care provider to moving into a senior living community.
“Local ownership works, whether it’s in in-home care or senior living,” First told SHN. “When you can have somebody local in a market who has ties and a network, that helps with the referrals and helps with the business. That’s what franchising is all about.”
Despite the success that BeeHive has had with franchising, the business model remains rare in senior living.
One reason could be that franchising depends on a standard “out of the box” type of business model, which doesn’t always translate well to this sector.
“It may be that existing franchising models can’t yet accommodate the personalization needed for quality senior care,” James Balda, president and CEO of industry association Argentum, told Senior Housing News.
And then there’s keeping quality and training standards up to snuff.
“Does a franchising approach have the capacities to meet quality standards this industry demands? The training, the understanding of the workforce?” Balda said. “These may be some reasons that there aren’t many using this model.”
But so-called big-box senior living providers also run into many of these same challenges, Veach replied. And companies that have thousands of employees often rely on local leaders to manage employees in the same way that franchises do, meaning it’s still difficult to scale culture and training for a large centralized organization.
“Franchising senior living is so different, yes,” Veach said. “But if you understand that the business of the franchise company is to lend support and training to the owners, the owners will transform into caregiving superstars.”
And another type of senior care has flourished under franchising: home care. There are more than 60 home care franchise brands currently operational, employing more than 350,000 people, according to 2018 figures from IBISWorld. Cost may be a factor in explaining why home care franchising has caught on while senior living franchising has not — considering that there is no real estate investment required to start a home care business, it’s more affordable.
Initial investment to start a home care business ranges generally between $60,000 and $245,000, according to data compiled by Franchise Direct.
That compares to about $450,000 that might be needed out of pocket to finance the construction of a senior living franchise location — given borrowers usually furnish around 15% of the SBA loan amount for a BeeHive home with a total project cost of more than $3 million, Luckett told SHN. Still, this is significantly less than the $750,000 in liquid capital that may be needed to start a McDonald’s franchise.
As demand for senior living ramps up in the coming years, it’s possible that franchising will gain more traction in the industry than it has had in the past. The entrance of BrightStar might be an early indicator of this, and it’s also behind a franchise play being made by Avendelle Assisted Living.
Raleigh, North Carolina-based Avendelle Assisted Living was founded in 2013 and has a portfolio of 21 small homes in North Carolina and Texas, with four of those operating under franchisees and seven more franchise locations under construction.
The provider specializes in residential senior housing properties that range in size between five and eight rooms. The company charges a franchise fee of $39,000, and an ongoing royalty on income of 6%.
Avendelle’s franchise model is popular and growing, according to Terry Hubbard, the company’s president and cofounder.
“The reason we prefer to franchise out some of the homes is because we physically can’t franchise as many as there is demand,” Hubbard said. “Avendelle has a business model that many people will adhere to in the future. I think we’re on the front end of it.”