Small-home senior living franchise company Majestic Residences has big plans to scale up its stable of small-home franchisees in the coming years — and to help get there, the company is taking a cue out of the McDonald’s (NYSE: MCD) playbook.
Majestic Residences CEO Chuck Bongiovanni told Senior Housing News that the Gilbert, Arizona-based company plans to create a fund for its franchisees to purchase homes after five years, akin to what he called the “McDonald’s model” of franchising, where new entrants into the fast-food company’s system can lease locations that the corporate entity owns.
Over the years, the small-home senior living trend has smoldered on, but has not yet become a core part of the industry. But Bongiovanni sees growth of small-home franchises a la the huge national reach of McDonald’s as the key to reaching the property type’s next evolution.
“I really think that progression needs to happen for the small-home concept to be taken seriously,” he said during an episode of the SHN Transform podcast.
Majestic Residences is also seeing success outside of the country with its first franchise in the Dominican Republic. The community opened two months ago nearly fully-occupied, with the franchisee basing rates on pre-existing care homes in the country.
With eight properties operating at 91% occupancy and aa roadmap to bring 35 more online this year as franchisee’s complete construction or secure final financing to fully open. Of that total, 12 homes will be open in the next 60 days, Bongiovanni said.
“That’s been a really big trend-changer,” Bongiovanni said. “We’re opening up a couple of brand new ones and we’re finding them receiving tours much earlier before we even have a grand opening.”
As demand for the small care homes grows, Bongiovanni said he foresees future opportunities to partner with outside organizations, signaling plans to acquire four senior living-related companies with an end goal of franchising three of the four remaining companies to allow for growth.
“We will create a franchise system and a portfolio of franchise companies with that,” Bongiovanni said.
On the Majestic Residences business model:
We are a small home assisted living franchise system. Our assisted living facilities are communities of six to 16 residents and we’re actually averaging now 10-bed homes with very high occupancy. We are a franchise model in eight states and the Dominican Republic.
On operations in 2023:
I don’t have a single word for it but I would say high occupancy but slower growth due to the higher interest rates. We have about 35 franchisees. I have eight of them open right now because the rest are looking for funding or they’re in the process of building. But as I’ve seen an uptick in partners who are already established knowing our brand. We’ve got 12 of them right now coming on board in the next 60 days and that’s been a real big trend changer. I think our whole system, I think we had two cases a Covid and that was it.
In terms of occupancy, we’re at about 91% right now and it’s pretty steady at that. We’re opening up a couple of brand new ones and we’re finding them receiving tours much earlier before we even have a grand opening. We’re seeing younger residents coming to us with a little better health than normal, like pre-Covid. Families aren’t hesitating like they did to make the move.
Small home climate in 2023:
I think since Covid, these small home operators have really been on an island so they’re looking for that system or that camaraderie among other care homeowners to share in one vision together. It almost immediately started about two months ago, we started having a lot of already operating homes say they like what we’re doing with occupancy and I like your programs, let’s talk.
With having a very successful placement company and franchise, I was in a lot of these homes and a lot of the big communities, also. I just saw the difference between the two…through that whole process, I saw the difference in the better care that was given more individualized and personalized care, and realized that because they don’t have the standards for marketing or operations.
So anytime you’re looking at franchising and industry, you want to look for things like that, you want to look for situations where there’s not too many, you’re going to universal standards. Look at the actual abilities of care homeowners, I mean, they’re knocking themselves out getting care. They’re not they’re not marketers. They’re not thinking of innovative new programs for seniors. So having that knowledge and knowing that we should bring that into the small home model.
Outlook for small homes in senior living:
I think the small home world right now is just starting to run or infancy of that change. And what I mean by the change is the change from the mom and pop mentality and I am seeing some of the non-franchise owners that may one five homes, 10 homes now and be much more professionally one. That’s our goal with Majestic. We’re buying 300 homes in our portfolio over the next five or six years and I really think that progression needs to happen for the small home concept to be taken seriously.
They’re gonna shoot me when I say this, but It’s a personal pet peeve of mine. I think that if operators spent as much time on how to personalize care and make their care more productive as they spend on their dining rooms and dining experience, I think they are missing the boat. I think some of the big boxes could look at that and figure out how can we get personalized care.
Managing strategic growth without growing pains:
A lot of it is just innovation. Some of the things in our homes aren’t anywhere else. WE have an incontinence program which uses radio waves to determine if an adult brief is wet or not. It’s about having a lot of the things other care homes don’t. We’re working to be JCAHO accredited with a new assisted living program and many other things that some of the big communities just don’t do.
To build a big community you’re waiting many months in permitting and those aspects of getting approved by the city or town you’re in. We don’t see that with our residential care homes. In some states we can open up immediately and licensing is delayed until three or four residents. With enough demand, we can hit the numbers of a bigger community quickly.
[Our growth] is a little bit of everything, to be honest. Some of the newer, potential franchisees we’re speaking with say there aren’t a lot of communities in their area. It’s a pretty good mix between the typical markets that everyone is in, but I am seeing some smaller mid-sized markets.
I have just seen so many opportunities and I love it because every day you may have a setback, you may also have two things that are incredible. I’m getting calls from all around the world from a lot of different people in different countries who want to do this since our Dominican Republic home that we built out there. Calls from Canada, Egypt and other Latin American countries who are just seeing the potential of this kind of industry out there. It’s exciting for me. I love building and growing new things.
On the Dominican Republic franchise location:
My master franchisee at the time called me up and said I was born and raised in the Dominican Republic and I want to have a home out there. At the time I said I only wanted to be in the United States right now and he said come out here and if you don’t like it, we’ll reimburse you. So I went out there and saw the “best places.” They were shocking beyond words and anything I had seen in America. She bought a former school and we wanted to turn it into a 19-bed place. The grand opening was two months ago and I believe it’s one to two beds away from being full, and it’s raising standards so much. I am looking for Dominican Republic baseball players to invest in a franchise out there in a way to give back to the country and also a way to make some profit at the same time.
I’ve been getting calls for the last three months. It’s a little easier to operate in countries because there are not too many restrictions as we have here. Don’t get me wrong, restrictions are good and they set up good care. It’s better than I would say, 80% of health care homes that we see in America, we brought some high standards of construction and more; more important programming and, and philosophy of care. We had one condition and that was you can’t charge $1 more than what these guys are charging and it’s worked out incredibly well and we’re seeing care that I’ve never seen before.
There were padlocks on the seniors’ doors on the outside of the doors for evening hours. As a social worker by trade, that just drove me nuts. But what I see in the market here, is kind of on a long-term basis. The caregiver crisis could split the wave into two, I think there’s going to be a lot of coordination between us and and some of the bigger bigger communities, because they may have to find places for the seniors that are taking a lot of time for caregivers, and what they don’t have the caregivers there really want to focus on that model of a more of a healthier kind of senior who may live much longer than the average 18 to 24 months or so. So we’re hoping to build those relationships with the big box communities, also.
On acquisition growth and its challenges:
We’ve had higher interest rates but we were having an issue getting loans. We’re about three weeks away from filing to create a $75 million fund to purchase homes for our franchisees much like the McDonald’s model. We have very strong feedback that the money is there but we just can’t officially collect until we are first through the SEC filing. we’re buying the homes and the franchisees lease them from us. And then after five years, I’ll have the option to purchase them. So our biggest struggle has been getting that funding. And we believe that we will have that problem solved over the next five months.
It’s pretty aggressive. The fund that we’re going to be acquiring four companies that aren’t franchised yet but the concept is there. If we get the deal done, one is already a franchise system and we will create a franchise system with that. They are senior-related companies that have been around for quite awhile but no one has thought about franchising them before.
I called a friend eight months ago to help me devise a model that I can bring to a bank or some attorneys to set up a fund. I saw that these other brand concepts just hadn’t been franchised before. I’m a builder, you know. So when we started talking to other companies and showed them what franchising looks like, and how they should all intermingle with each other with cross referrals, everyone’s excited about it.
On success amid labor challenges:
I really believed deep in my heart that it all comes down to culture. People don’t leave jobs, they leave people. Caregivers are our most precious commodity. If you don’t pay them or treat them properly, they will go work for somewhere else who’s paying fifty cents more an hour and leave you. Part of our model is we have the three caregivers who are actually part of the tour. I’ve been on over 10,000 tours, but over the years with families and I am at a big box senior living community and I am talking to their marketer and they might say hello to staff there, but I don’t see any interaction with the staff whatsoever. So we make part of the actual tour experience, take in the staff and have them be part of that experience.
We’re not having too much of a problem with [staffing.] In general, not only on recruitment, but retention. I said this years ago that caregivers will become a commodity and it’s happened. We’ve reached that point. We encourage our franchisees to do a quick spot check and ask caregivers our mission statement and if they know it, they’ll get $20, $50 bucks and we ask what’s our value system and if you can name them, here’s a bonus.
Outlook for the industry in the remaining months of 2023:
I think there’s optimism but I think that at some point in time construction and labor has to meet at some point where we can really take advantage of what’s really out there. I don’t think we’re going to hit those high levels yet, until we take a look at more of the construction and construction costs and labor costs.