As the 55-plus crowd mushrooms in size, so does demand for a new type of rental product.
By Lynn Peisner
Rental homes experiencing the strongest demand among able-bodied adults who are age 55 or older go by a lot of names. Call them age-targeted, age-restricted, 55-plus or active adult. Just don’t call them independent living.
Multifamily communities that offer amenities and social programming, but no services, to persons either age 55 or 62 and older are all the rage at the moment. And the product is in short supply, so developers are pouring into the active-adult sector.
“When you look at the housing market for 55-plus, what you do not see today is rental housing: purely conventionally financed, market-rate rental housing that is age-restricted and that is not independent living,” says David Dixon, senior managing partner at Atlanta-based OneStreet Residential.
Independent living properties typically include services such as communal dining, housekeeping, transportation, emergency call systems and social programming services in the monthly fees.
Two cultural developments make up most of the wind behind the emerging active-adult rental sector: changing perceptions about renting apartments and changing perceptions about aging.
“As long as adults are still ‘active,’ most don’t want to think about the possibility of needing skilled nursing, nor do they want to live in the same community as those who do,” says Manny Gonzalez, KTGY Architecture + Planning principal. “They would rather cross that bridge if and when the time does come for it. They just want to keep active and have fun.”
Most of the Baby Boomers, a group that coincidentally also includes a large percentage of seniors housing executives, concede that if faced with the decision to move from their home to an apartment, the chances of choosing housing that is connected to “seniors” is very slim, unless there is a physical or mental need to do so.
“Much of the active adult rental product is positioned differently than independent living,” says Margaret Wylde, CEO of Oxford, Mississippi-based ProMatura Group. “The message is ‘come and enjoy freedom,’ not ‘come and live with us seniors, and let us do everything for you.’”
Stigma of renting dissipates
The frequently cited statistic from Pew Research that 10,000 Americans will turn 65 every day until 2030 — at which time retirement-age citizens will make up 18 percent of the national population — has the commercial real estate world racing toward a palette of products catering to a waiting market.
Age-restricted communities are coaxing empty nesters — married or single people who are done with home maintenance and mortgages — into apartment living.
“The most obvious reason [for the uptick in demand for active adult rental housing] is the recession and the lack of confidence in the stability of the investment of owning a home,” says Wylde.
“Age-qualified housing is a more predictable environment than an all-age rental complex and is appealing because the clientele has reached a level of maturity. It suits the need for a place to move when they no longer want or are capable of keeping up with the house and yard and don’t want to have to spend extraordinary prices for all the services to keep their investment in shape.”
A study by the Joint Center for Housing Studies of Harvard University shows that the number of renters age 50 and above grew 50 percent between 2005 and 2015, rising from 10 million to 15 million.
Typically referred to as the barbell effect, renters today are primarily made up of two groups: Millennials and Baby Boomers. Seniors housing developers report similar numbers and trends in the conventional multifamily arena in their individual markets.
“In downtown Greenville, South Carolina, approximately 50 percent of rental units are going to people over 50 years old,” says Charles Lindsey McAlpine, managing partner of Charlotte-based CitiSculpt, which also has an office in Greenville.
CitiSculpt will start construction this year on 230 units of independent living, assisted living and memory care that abuts Sun City Carolina Lakes, a Del Webb community located near Charlotte in Fort Mill, South Carolina.
Some companies like CitiSculpt are finding a reason to develop seniors housing near for-sale, active-adult communities, and not only because such communities are strong feeder markets. Well-located seniors housing also can be a resource for residents’ family members.
“A very interesting statistic about Sun City Carolina Lakes is a very high percentage of buyers come from out of state,” says McAlpine. “We have had a groundswell of people in and around that community tell us they have aging relatives still located out of state. It’s much easier to help them if they live close to you.”
This is just one vacuum of demand developers are tapping into. But how the active-adult rental sector will intersect with seniors housing is a question that has yet to be answered in full.
Boomers stay youthful
Will active adult become part of the continuum of care, in which it will be commonplace for a 55-plus rental community to be developed on the same campus as independent living, assisted living, memory care and even skilled nursing? For now, that answer is mostly “no.”
“There are so many people in this age group that there are certainly some who are going to want an active-adult component of a continuing care retirement community (CCRC) so they only have to make a move once, but that group is definitely not the majority,” Gonzalez says.
Bill Ness is CEO of 55places.com, a website that compiles and presents reviews and information about for-sale, active-adult communities nationally. Prior to founding the company, Ness worked in sales for Del Webb.
“I have seen some builders who try to run the gamut all the way from active adult to nursing care,” says Ness. “For some people, that type of development will be beneficial, but by and large it really turns off a lot of potential active-adult buyers. I think most people would say, ‘If and when that time comes, I will find a separate facility that works for me, and move.’”
“Even though it might seem like a logical progression, to us it seems like more of an assisted living facility that has villas on site, rather than an active adult community that has the next stage of care nearby,” says Ness.
Gonzalez adds that current and future seniors are more likely to avoid communities that offer services or care because, frankly, they just want to have fun.
“Boomers don't want a one-size-fits-all solution,” he says. “They want their freedom and independence, and the ability to choose what they want and when they want it.
“And, they don't want to be around 'old' people, which is why we are seeing more integrated 55+ communities within an all-ages master plan,” continues Gonzalez. “Some may say that Boomers are afraid of dying, but I say that they are just focused on living life with complete gusto."
Development fires up
Annie Gerard, vice president for Beverly Hills, Calif.-based
Meyers Research, has been conducting market research on the seniors housing sector since 1985. The level of development and interest in the active adult rental niche has never been higher, she emphasizes.
Data is scarce on new development starts in active adult rental housing. It’s a sector that is either not being tracked, or information gathering is still in the early stages of ferreting out age-restricted from traditional multifamily development starts.
Gerard ran down a list of a number of projects in the development pipeline to illustrate that the sector is strong: Greystar’s luxury age-restricted Overture brand has 26 projects in the first phase, totaling $400 million.
Phoenix-based Alliance Residential Co. has a $1 billion commitment in apartments targeting the 55-plus crowd. Affinity Living Communities, part of the Oak Brook, Ill.-based Inland Real Estate Group of Companies Inc., has nine properties in development in the states of Washington, Idaho and Colorado.
Austin, Texas-based Bonner Carrington is building nine of its Mariposa brands in Texas. In 2016, Atlanta-based Cortland Partners announced the launch of Attiva, its new active living community platform. And there are still many more to come.
Definition of sector is elusive
One challenge for data providers tracking this sector is that the category is loosely defined, not only for those measuring supply, but also in some cases for the developers themselves. For example, Gerard performed a recent study in Santa Clara, Calif. The study revealed six different marketing labels for age-restricted apartments in Santa Clara as well as in various parts of the Bay Area, where Gerard pulled data.
Terms abound, including senior apartments, 55-plus apartments, independent senior living for 55 years and above, luxury adult apartments, and so on.
“Every conversation you have about 55-plus rentals starts off with what is it and what is it not?” explains Gerard. “Descriptions of this one sector, all targeting the same consumer, are all over the board.”
Troy, N.Y.-based United Group is actively developing as well as growing its third-party management portfolio in the 55 and older age-restricted rental housing sector. It also offers a product called “independent living (IL) lite,” which is differentiated from the age-restricted model by a larger clubhouse and catered food service offerings.
United Group will break ground on three new communities in Florida during 2018: A 183-unit IL lite project called The Belmond at University Groves in Sarasota; a 182-unit age-restricted project in Stuart; and a 220-unit IL lite project called Arcadia Gardens in Palm Beach Gardens.
“This age-restricted product type reminds me of the student housing space 20 years ago,” says Jeff Arnold, COO of United Group. “Developers started building purpose-built properties instead of the multifamily product and began leasing to students. That’s when REITs started to take notice and cap rates started to compress. My guess is everyone is trying to find the right nomenclature to make it feel and sound like active living and not a nursing home.”
The National Investment Center for Seniors Housing & Care (NIC) does not collect data at this time on the active-adult, 55-plus sector, according to Beth Mace, NIC’s chief economist and director of outreach.
NIC classifies active-adult communities as single-family, for-sale homes, townhomes, cluster homes, mobile homes and condominiums with no specialized services, restricted to adults at least 55 years of age or older.
NIC defines senior apartments as a multifamily residential rental property restricted to adults at least 55 years of age or older. “These properties do not have a centralized kitchen and generally do not provide meals to residents, but they may offer community rooms, social activities and other amenities,” says Mace.
CBRE classifies senior apartments as being “similar to apartments but which may have a special access and common-area designs.”
The minimum age eligibility for entry to senior apartments can vary from 55 to 75, according to CBRE, and the average length of stay is between five and 12 years.
The products coming to market today are courting varied demographics and markets.
KTGY’s Manny Gonzalez says the rental products in very high demand are led by tax-credit financed apartments for seniors on fixed incomes (see sidebar about OneStreet Residential’s evolution of this product).
Beyond that, Gonzalez says most people in the 55-plus market don’t want to be segregated like they used to be.
“I think there are even issues of whether a CCRC really has legs anymore,” he says. “Many don’t want to carry the stigma of being in a ‘senior’ community.”
To that end, KTGY has designed properties such as Azulon at Mesa Verde in Costa Mesa, Calif., a 55-plus apartment community built over a stalled second phase of a shopping center that backs up to the first phase. This gives residents walkable access to restaurants, a grocery store and a pharmacy.
“Developers are starting to get creative as to where the industry builds,” says Gonzalez.
He also notes the importance of understanding the threshold of a market when it comes to adding services to the 55-plus communities.
“We’re seeing people investing in a product that has limited services,” he says. “These products don’t have full services like independent living, but possibly a bistro, a salon or concierge services — those things that make the community higher-end. You need to be careful on how far you go in that direction and whether enough people are willing to pay for it.”
Some new luxury senior apartments can rent upwards of $4,000 per month. Apartments in this price range typically include high-end finishes and amenities such as large swimming pools, modern fitness centers with a variety of programming, club or game rooms, and sometimes bocce ball courts or separate yoga rooms.
Long lease-up period
Those schooled on the conventional side of the multifamily business often rely on Gerard’s research and market knowledge before leaping into the age-restricted arena. One of the first things she shares is that lease-up rates are slower for 55-plus communities than they are for conventional apartments but faster than independent living or assisted living.
Independent living typically leases at approximately four to seven units per month. 55-plus apartments lease approximately eight to 12 units per month. Conventional apartments can lease up to 20 or more units per month.
“It’s a slow fill. On the flip side, turnover is much lower,” says Gerard. “The industry standard for turnover among stabilized 55-plus apartments (95 percent occupancy) is 20 to 25 percent a year, whereas turnover for a conventional apartment is about 50 percent annually.”
Gerard adds that while the tagline of “55-plus” is popular shorthand for this product, a 55-year-old moving into one of these communities is a rarity.
“The reality is that the 55-plus market is really 55-plus-plus-plus,” jokes Gerard. “People in their late 50s for the most part are still working and not living in age-restricted apartments.”
The rising age of residents in“55-plus” communities — combined with the trend of people being physically stronger and healthier overall as they hit the senior age group — has some wondering if independent living could become obsolete. In that scenario, active-adult communities could eventually lean on home healthcare and other models of services and care to keep their residents with them longer.
“I think there will be more hybrids of independent living,” says Gerard. “We’ll go through the same metamorphosis you see in other settings. You have two choices: You can go to where the services are, or you can have the services brought to you.”
“The care industry understands the CCRCs without walls and how to expand their business by providing services to people who don’t reside within their community,” continues Gerard. “I think there’s going to be a lot more of that.”