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How Discovery, Merrill Gardens, Benchmark Have Evolved Operations to Fuel Growth

The nature of senior living management companies is inherently evolving as providers look to make regional inroads and grow in a challenging economic climate.

Management companies have changed structurally over the last two decades, going from predominantly triple-net leases to management agreements that more closely align operators and owners behind the same goals. Rather than fragmenting, smaller operating companies have grown and consolidation is now a viable way to scale growth.

“We didn’t have some of these things that are an absolute necessity today,” Merrill Gardens CEO Tana Gall said during the panel. “The biggest evolution is not just how we set up our contracts, but actually how we do our jobs and technology has played a huge role in that.”

That’s a good fit for delivering care services to seniors over time, and paired with greater alignment, has been a benefit to the industry, according to Ventas EVP of Senior Housing and Chief Investment Officer Justin Hutchens, who served as moderator of the panel.

‘Several iterations of evolution’

Senior living providers have spent the last three years building back losses from the Covid-19 pandemic, which fueled rapid change due to necessity as all aspects of the business changed. By having multiple third-party management contracts, larger operators can grow steadily.

Discovery Senior Living CEO Richard Hutchinson said the fast-growing company has more third-party management contracts than ever before, reaching 53% across its portfolio as third-party agreements.

“I think it’s important to distinguish during that evolutionary time and how we’ve morphed into this hybrid model of some third-party, some ownership and everything in between,” Hutchinson said. “For the first time in a long time, it’s almost like our economics wasn’t the construct in which we’re operating.”

Going forward, operators need to have a transparent capital relationship and better understand the property ownership side of the business, Hutchinson said during a panel on Tuesday at NIC.

“It makes us better operators to understand the ownership size,” Hutchinson added. “It’s just understanding the stresses of the ownership groups that we partner with.”

Discovery Senior Living through its family of management companies operates 300 senior living communities across 40 states based in Bonita Springs, Florida. The company earlier this year welcomed Integral Senior Living (ISL) into its umbrella, effectively creating the fifth-largest operator in the country in the process.

Technology has helped play a “huge role” in the evolution of management companies, even some from outside of the senior living space, Gall said. When she started, she recalled using oversized index cards to take notes as her customer relationship management (CRM) tool, and even a time before the organization didn’t have a human resources department.

Another way the structure of management has changed is through the infusion of data to deliver actionable insights for real estate owners and capital partners, as exhibited by Ventas launching its Operational Insights platform to deliver data to help operators succeed Hutchens said.

“We take data and we give it back and that’s the approach,” Hutchens said. “The other approach is investing in communities.”

But one thing that hasn’t changed, Gall said, was the mission operators are on in caring for older adults with staff rosters full of mission-driven employees.

Merrill Gardens operates 67 communities in 17 states based in Seattle, 66 of which are operating on Merrill Gardens’ proprietary tech platform, Gall said.

Another way operators have evolved over time is through developing new joint-venture management structures with institutional partners, as demonstrated by the buildout and growth of Benchmark Senior Living. Boston-based Benchmark Senior living operates 64 communities across the northeast,having crafted a dance card of over a dozen institutional real estate investors, CEO Tom Grape said.

Benchmark’s structure includes minority ownership for its partners, eventually bringing in new capital partners that continue to own and operate the communities, according to Grape.

“We’ve certainly been capitalizing each of those where we’ve been able to bring in a successor partner and continue to give the operator continued ownership after the new capitalization,” Grape said during the panel.

But in order to grow efficiently, operators must consider what the “right size” is for their respective organization, Grape said.

“ All I know is that having fewer communities, it’s hard to support any kind of infrastructure,” Grape said. “For us, it’s probably a little bit bigger than what we are now. But we’re not interested in growing a lot bigger.”

Relationships key to management success

Senior living operators have had to get creative when it comes to building capital and management agreements since the pandemic. To limit situations that don’t benefit an operator or capital partner, operators have relied on past relationships and seek mission alignment in a potential management partner.

“We’re in constant communication,” Gall said. “I think the key to the positive relationship part is just the ongoing dialogue and communication.”

One mechanism that helped grease the wheel of the management and owner relationship for Discovery is its asset management team, with well-placed staff within its smaller management subsidiaries like LakeHouse Senior Living, launched earlier this year to oversee a swath of Midwest properties, Hutchinson said.

“It’s all your leaders out there just deciding who you want to be as an operating company, and then just make sure you’re partnering with people who fit that profile,” Hutchinson said.

But it goes further than just building a relationship, Grape said, adding, “You have to dig deeper and make sure that you know about the company. And its broader goals and implications and investment strategy, not just for the relationship.”

That was evidenced by Benchmark’s joint-venture partners standing by the company during the pandemic, with some directly supporting Benchmark’s operations during the pandemic in securing resources like masks.

“You find out what people are really like when the sh-t hits the fan,” Grape said. “And we were pleased to find out that our investor partners were terrifically supportive.”

Like the launch of LakeHouse for Discovery, Merrill Gardens has seen success within the launch of its sub brands Truewood by Merrill, its middle market product launched in 2021. During the panel, Gall said the effort has been “hard” due to changing its operating model and integrating existing residents into the new model.

“We looked at that as an opportunity at a low basis to go in and be able to hold rents down and provide services to a much broader audience,” Gall said.

Discovery’s Hutchinson said he believes there is a “consolidation timeframe” approaching for operators and owners, and that operators need to take a moment of introspection to determine which platforms to grow scale with, while considering how industries outside of senior living operate.

“It’s comforting to know every other industry out there that is operationally intensive has already done this with help and so there’s a playbook,” Hutchinson said.

The post How Discovery, Merrill Gardens, Benchmark Have Evolved Operations to Fuel Growth appeared first on Senior Housing News.

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