But, there is no single version of small-home senior living. And, although the pandemic appears to have shown how small homes can shine, there are questions about associated costs and margins with different approaches.
The traditional single-family, household-centric care model is among the most popular for small-home senior living communities. But other approaches include small homes that focus on memory care or franchise models that involve many different entrepreneurs instead of centralized ownership. Other kinds of small-house senior living include vertical communities, where intimate households are spread across multiple floors; and pocket neighborhoods, where residents live in clusters of smaller homes.
Senior Housing News spoke with the leaders behind three different small-home senior living companies to learn more about the product type and its granular differences: Shepherd Premier Senior Living, a small-home provider based in McHenry, Illinois; Castle Rock, Colorado-based Assured Senior Living, which focuses on memory care; and Majestic Residences, a Phoenix, Arizona-based small-home franchise company.
All three providers offered a window into their operations, including their operating margins, staffing ratios and financial strategies.
Shepherd Premier Senior Living
3 key numbers:
- Payroll expense: About $18,000 a month
- Development costs: About $150,000 per bed
- Operating margin: About 38%
Shepherd Premier has four small-home communities open in Illinois — but that number is soon to grow to five with the opening of another community in August. That same month, the company is slated to close on a portfolio of seven more small-homes in Minnesota, encompassing 55 total beds.
The provider offers all of the traditional senior living services, including assisted living and memory care, but in residences that resemble a standard suburban house, with 5, 10, 15 or 20 beds each. The company’s monthly rates differ from market to market but usually fall between $5,000 and $6,000.
Shepherd Premier Founder and CEO Brandon Schwab calls his small-house model “boutique senior living.” That is also the name of a $75 million fund that Schwab started to fund the development of hundreds more small homes across the country.
Premier’s experience with the Covid-19 pandemic informs Schwab’s worldview that small-home senior living is primed for big growth in the future. The company went nearly all of 2020 without a single case of Covid-19 — a streak that was broken on the day before Christmas Eve last year — and its occupancy hovered at about 95% in the third and fourth quarters, representing its best-ever year with regard to occupancy, according to Schwab.
Shepherd Premier is not the only small-home community with that experience. The company’s low rate of Covid-19 mirrors the findings of a study published in the March issue of JAMDA, the academic journal of AMDA – The Society for Post-Acute and Long-Term Care Medicine.
According to that study, which examined data from 43 Green House Project locations and small nursing homes, residents living in those communities had fewer cases of Covid-19 and Covid-related deaths than those living in traditional congregate settings. Other research on Green House Project homes has found benefits including better resident quality of life, fewer hospital readmissions, better quality indicators, reduced Medicare spending and possibly less staff turnover, according to the study’s authors.
And Schwab believes that prospective residents and their families will take notice of that track record versus the wider senior living industry as pent-up demand returns.
“They aren’t as comfortable going to these huge buildings anymore,” Schwab told Senior Housing News. “Our overall business expanded through 2020 … because people are interested in being in an atmosphere that is cozy and just like home.”
For a typical 10-bed Shepherd Premier acquisition community, Schwab seeks to invest about $1 million — half to purchase a property, and half to renovate it. That can vary from market to market, however. On the whole, the provider aims to spend about $100,000 per bed.
“If I can keep it to 10 beds, $100,000 per bed, I can have a very profitable business,” Schwab said. “If it’s able to earn $20,000 each month times 12, that’s $240,000 per year, and if a bank gave you a 10% cap rate, that’s [an appraisal of] $2.4 million dollars.”
For a new build, Shepherd Premier invests about $150,000 per bed, and that number is impacted by rising construction costs. But that is still a discount versus the price that developers of traditional senior living communities pay per bed, Schwab said.
The company’s staffing ratio differs by location but is typically one caregiver for five or six residents. That works out to a payroll expense of about $18,000 per month. Schwab likes to build communities with beds in multiples of five, as that keeps workloads manageable for the company’s caregivers. Shepherd Premier usually runs at an operating margin of about 38%.
The company’s business model, coupled with its success during the pandemic, gives Schwab the belief that small-home senior living communities will usher in a new age of disruption once the pandemic abates.
“Post-Covid, I feel that our business is going to be the Uber for this particular industry that’s going to turn things upside down,” Schwab said.
3 key numbers:
- Franchise fees: $10,000 for an existing home; $49,500 for a new build
- Staffing ratio: 1 caregiver to 4 or 5 residents
- Franchisee margin before royalties: 29%-34%
Another example of small-home senior living lies in Majestic Residences, a Phoenix, Arizona-based franchise company founded by CarePatrol Founder and former CEO Chuck Bongiovanni and Gene Guarino, who runs the Residential Assisted Living Academy.
Instead of developing the communities itself, the company instead gives entrepreneurs the tools and knowledge to either open their first small-home community or bolster the operations of an existing one.
The company has awarded 17 franchises in states including Arizona, California, Colorado, Tennessee, Texas and Kansas since its launch last July. And, Bongiovanni told SHN he expects there will be as many as 80 Majestic franchises by the end of this year.
Under the Majestic Residences model, franchisees can open a franchise in a couple different ways. One is to convert an existing small-home community into a franchise location, which carries a fee of $10,000. For providers who want to open a brand-new small-home operating company in an existing home or build one from the ground up, the franchise fee is $49,500.
From there, the cost of opening a franchise depends on the local construction market and the scope of each project. For example, the cost to convert an existing small-home community into a Majestic community is small compared to the cost of building anew, which in some markets could be up to $2 million.
In addition to operational guidance, each Majestic franchisee gets access to a slate of “flagship features” including Bluetooth-activated aroma diffusers, vertical grow towers for fresh produce and a streaming television service with programming and performances for older adults.
“It’s a lot easier to open up a smaller home than it is to build a huge community,” Bongiovanni told SHN. “They just need to have the same mindset, and understand the importance of branding, understand what a values-driven company looks like and have everyone on the same page.”
Majestic Residences communities have a staffing ratio of one caregiver for about four or five residents, not counting a community’s manager.
For franchisees, a Majestic Residences community usually carries margins of about 29% to 34% before royalties. Communities typically lease up “fairly quickly,” according to Bongiovanni, but don’t usually have waitlists for new residents.
“[After] 27 years in the industry, I don’t believe in a waitlist,” Bongiovanni said. “If a family comes to us, and Mom really needs to be somewhere and we have no other homes in the area, we’ll talk to the family about some of our competitors, or connect them with a referral agency.”
Assured Assisted Living
3 Key Numbers:
- Staffing ratio: 1 caregiver to 4 to 5 residents
- Development costs per project: $2.5M to $3.5M
- Margin: 27%-37%
Assured Assisted Living is yet another example of small-home senior living. The company has 10 residences in Colorado geared toward memory care residents.
Each of Assured’s communities have memory care-centric features, such as secured entries and a secure backyard patio; and staff are trained in art and music therapy along with Montessori and person-centered care techniques to keep residents feeling engaged and purposeful, according to Francis LeGasse Jr., president and CEO of Assured Assisted Living.
“We put a lot of emphasis on the Positive Approach to Care philosophy, which is a Teepa Snow philosophy,” LeGasse told SHN. “We are the [residents’] navigators — we help guide them throughout their day.”
Staff at each Assured community care for about nine or 10 residents, with a staffing ratio of about one caregiver for about four or five residents.
“Our residents get to see the same consistent five to six people every given week,” LeGasse said. “We can really listen to the needs of our residents, because we’re not having to go take care of 20 people in a single memory care unit.”
The communities also have dedicated dwellings for workers to live onsite, and staff who take advantage of the program pay a reduced rent compared to the surrounding area’s rental market. In the future, LeGasse hopes to cluster multiple communities with staff housing in an area to leverage the model’s efficiencies.
“We think we can add even more robust staff housing when we start clustering some of the residences together,” LeGasse said.
Assured’s construction costs vary from project to project, but for a typical two-house, 18-bed development, LeGasse said the company spends about $2.5 million to $3.5 million. For acquisitions, the company typically spends about $2 million and $4 million, depending on the home that is being acquired.
The company’s average monthly rates range between $5,000 and $6,800.
Assured’s communities are intended to serve as its residents’ last homes, resulting in a typically longer length of stay. And the communities’ small size means they usually fill up quickly and garner waitlists, according to LeGasse.
The company’s margins vary with market conditions, but typically range between 27% and 37%.
“In the end, we do things the right way for the right reasons, and the margins are there,” LeGasse said. “And it comes down to meeting both our residents and our direct care team where they are to give them the most opportunities for success.”