Conventional wisdom is that larger senior living communities are more profitable. The Cottages sees it much different.

When building a new senior living community the prevailing thinking is “the bigger the better”. Within the constraints of available land, market demand and capital availability, the larger the community you are able to build the better off you will be.  Larger means spreading costs over more units, resulting in lower resident fees or increased profitability.

What If . . . . . . rather than going big, a senior living company went small?

The Cottages is an Idaho based senior living provider that believes small is beautiful.  A few weeks ago I had a chance to visit with Mark Maxfield, President and COO of The Cottages, about their counterintuitive approach to developing and managing senior living communities. Here is what he had to say.

The Cottages

The Cottages is based in Eagle, Idaho. Their primary model is to develop and operate in small markets that can be as small as 8,000 people. Their typical scenario is to purchase a parcel of land that is large enough to build two 16-unit buildings.  They build one  building and, when that building is full, they add a second building that will serve as their dedicated memory care building.  Each building operates more or less autonomously, using a universal worker staffing model, though I prefer the way Mark put it, “everybody does everything.”

Their monthly service fee ranges from $2,800 to $3,800 with an average of around $3,400.  Their target is private pay residents but they do allow rollovers to Medicaid when private resources are exhausted.  They only operate in waiver states. They have 17 communities operating or under development.  In addition they have identified 20 markets for future development.

How and Why It Works

My big question for Mark was this: “How do you make any money?” Here is why it makes sense:

• Their target market is small communities where land, entitlement and development costs are low.

• Fill-up marketing costs are low.  In many markets the communities they build are the only thing (or the best thing) in town.  There are no long fill-up costs.  There is no need for a marketing director for each individual location.

• Once they are built and operating they become a high barrier to entry for other providers because of limited demand.

• Each of their buildings hold a uniquely high appeal for residents in rural America.  These communities look and feel a lot more like the home the resident moved from than a big institution.  This means it becomes a lot easier to get residents engaged in community life.  It is common (but not required) for residents to help in the kitchen and lead out in activities.

• The Cottages tend to group their communities in clusters of 2 to 3 so that they can provide easy supervision and assistance with one or two regional resources.

• They centralize all financial, marketing and quality assurance activities, freeing the local staff to do local things.

The Market

The final area I explored with Mark is how he sees the broader senior living marketplace.  He expects that we will continue to see an increase in medical acuity in the assisted living setting.  He also expects to see resurgence in the independent living marketplace. I expect as an industry we are just on the verge of seeing a wider variety of choices for senior living consumers and, if you are working one of those options, I would love to hear about it.

Steve