The aging population in the United States is creating new opportunities in real estate. Notably, the Baby Boomer generation, which marked a tremendous period of birthrates in the U.S., is responsible for causing this demographic shift.
Now, as this generation of Americans enter their 60s and 70s, real estate developers are seizing the opportunity to capitalize on the incoming wave of demand. Many see this wave crashing onto the senior housing sector with anticipation that there will be increased demand for traditional models that offer care and services in a community setting.
While there is no doubt that this will eventually be the case, let’s just say that the boomers are still riding out the wave, not yet ready to commit to a traditional senior housing community. This creates a market gap, which is where the opportunity in active adult communities is revealed. Active adult communities differentiate themselves by promoting a choice-based model that focuses on lifestyle and supports healthy aging for the young-old cohort. As it stands, and in the coming years, developers are hoping to capture a piece of the growing market share in this emerging sector.
So, what exactly is ‘active adult’ as it compares to the crowded field of purpose-built housing for seniors? According to the National Investment Center for Seniors Housing & Care (NIC), “Active adult rental properties are age-eligible, market rate, multifamily properties that are lifestyle focused; general operations do not provide meals.” To offer another perspective, the active adult model positions itself as an additional housing option between conventional multifamily housing and traditional senior housing. It is bridging the gap for the resident who may feel uninspired to move into a multifamily building that lacks a social setting, but is also not inclined to move into a senior housing community that offers supportive services, not to mention at a higher price tag.
According to NIC’s report, the standard active adult resident is a renter by choice who enters the community in their upper 60s to mid 70s, may still be employed and making income, and is looking to engage in an active, community setting with their peers. In other words, they are seeking a community where age is a driving factor, but not a defining factor, offering a happy medium between conventional multifamily housing and traditional senior housing.
At the property-level, amenities and common areas are located throughout the community to foster an engaging environment. In a sense, these spaces become an extension of the resident’s unit, encouraging them to participate in programmed activities that enhance their wellbeing. From the fitness center to the pub, residents can balance a healthy, social lifestyle.
Many communities also offer an abundance of outdoor areas, extending this experience to spaces such as the pool, clubhouse, and dog park.
While the physical setting sounds no different than conventional multifamily, it is how active adult communities are programmed and branded that sets them apart. They utilize a familiar platform to appeal exclusively to a niche audience. The wheel itself is not necessarily being reinvented, but the customer is.
The active adult product type, aside from consumer demand, garners as much interest from the investment community as a result of current market conditions. In a period of high interest rates, escalating construction costs, peak inflation, and limited labor, the senior housing deals just aren’t penciling out, hence the pipeline buildup.
Senior housing is relatively expensive to develop and operate due to several factors. There are significant costs associated with employing a large group of staff to operate the communities, pursuing and maintaining a license for certain community types, and building and running a full-service commercial kitchen. Active adult communities do not need to be licensed, nor do they involve the cost volume associated with employing dozens of staff and preparing and serving hundreds of meals a day. For developers and owners, this signals that active adult housing is positioned as a more feasible model for sustained success, as it currently boasts higher and more stable margins than senior housing. Ultimately, the savings are passed down to consumers, making this model a competitive option compared to senior housing, where rents are 30% to 50% greater in independent living (NIC).
Among the players in the race to capture market share in the growing active adult sector, Greystar is at the forefront. The property giant, which develops, owns, and manages residential communities throughout the U.S., operates over 13,000 active adult units predominantly located in the sunbelt region. To cater to varying markets, they provide several different housing brands, with their standard model offering a value-oriented option for the middle market, and the higher-end model offering a service-rich option for the more affluent market.
As for the other developers entering the sector, some are working up from multifamily, while others are working down from senior housing. The developers and operators who have robust experience in senior housing will be better prepared to manage the risks associated with residents aging in place, who may potentially require care and assistance. Beyond the challenge of devising an operational solution, the onset of an aging community also threatens the core identity of the active adult concept, which markets itself as being fit for the younger-old cohort of seniors. Successful operators in this space will be capable of managing the needs of aging residents while maintaining the appeal of the community for potential residents.
The active adult property type offers a promising value proposition to both users and developers. Potential users value the lower price point compared to senior housing and the added component of a communal setting absent in conventional multifamily. Potential developers, on the other hand, favor the lower operating costs relative to senior housing and the rent premiums over conventional multifamily, which presents an opportunity to sustain high margins and generate healthy returns.
At a relatively early stage, it remains yet to be seen how the active adult sector will evolve and grow. As it stands, there are promising opportunities for the active adult property type as it establishes a growing position in the residential rental market.
Do you think active adult properties can sustain a long-term position in the residential rental market as the U.S. population ages?
Sources:
Leave a Reply