- Bob May, Managing Partner, Avenida Partners
- Michael Hartman, Principal, Active Adult, Capitol Seniors Housing
- Michael Uccellini, President & CEO, United Group of Companies
- Chris Guay, Founder & CEO, Vitality Living
- Ryan Maconachy, Vice Chairman, Health & Alternatives Assets, Newmark (Moderator)
By Jeff Shaw
Active adult communities are a hot development class within the seniors housing continuum right now. One complication, though, is that the concept is much more nebulous than independent living, assisted living, memory care and skilled nursing.
The National Investment Center for Seniors Housing & Care (NIC) does not yet track active adult metrics. A CBRE survey from 2019 showed that investor interest had skyrocketed — 22 percent of respondents said active adult was the most desirable seniors housing type, compared to just 6.4 percent three years earlier. However, CBRE also did not provide any metrics on development, occupancy or investment levels.
Active adult is more popular than ever, while still remaining mysterious as the definition of the product type is not yet clear. What should it be called for consumers? How do we get potential residents to understand this type of housing?
Industry experts interested in those answers gathered in Dallas on Aug. 4 for France Media’s InterFace Active Adult conference. Following the keynote address, several developers active in the sector led a panel titled “Defining Active Adult and its Place and Role in the Continuum of Care.” Below is an edited transcript of that panel.
Maconachy: We’re all here today to talk about active adult. We’ve seen it perform through the pandemic. The last 18 months has been an incredible view into this asset class, why it’s so great and why these guys up on this stage today are so excited about it.
What do we call this? Is this active adult? Is it age-restricted apartments? Is it senior apartments? I’d like to poll the panel and see what you would call it if you were talking to an investor.
Hartman: For some reason my position is controversial — I don’t like active adult. I don’t like calling it that. The reason for that is other industries — hospitality for example — have gone with just Residence Inn, Westin, Ritz-Carlton.
They’re just names that they put at the top of a placard, and we all know what that means. When we go to a Westin, we all know what that means. When we go to a Ritz-Carlton, we know that stands for something different. It’s a different price point, a different value proposition.
So Avenida is a great name. Overture is a great name. If we do our branding right, then we won’t have to go through a further definition beyond that. The only people that say Residence Inn is a limited-service hotel are industry people going to a conference. The customer doesn’t care because the customer already knows. That’s why I think it doesn’t really matter what we call it. But we’re industry wonks and we’re insiders.
I don’t like the term active adult for the simple reason that the word adult to me is both confusing and for some reason it sounds sort of dirty. What’s the opposite of adult? It’s child. So are we calling it active adult to distinguish from children’s housing?
No. 2 is the other times we use the adjective adult: adult beverage, adult movies. To me, that doesn’t tell me anything about it. Active adult, what is that? I like using “55-plus.”
Uccellini: It depends on who your audience is. If you’re marketing it to your resident, that’s one audience. If you’re speaking to the lender world, that’s a different audience. I interchangeably use 55-plus, age-restricted apartments, active adult and choice-based seniors housing. They’re all together and they define the product.
The challenge for us is when you put that sign out on the road to draw people in, how do you distinguish what your property is going to be? There hasn’t been one good nomenclature that you can put out there.
With all due respect to Michael, we know it’s a hotel when we’re driving up, right? But when you’re developing in Florida, you could be driving past and you don’t know if that’s an apartment community or a condo community. You want people pulling in to be qualified prospects because you want your staff spending time with the right prospects.
It is a challenging situation in the industry. When we do put things on a sign, we use either 55-plus or age-restricted community.
May: It is an area of ambiguity, and I agree that the industry itself is trying to put a label on it — understandable so we can have some kind of a conversation about it.
The general public itself is far less concerned about it. They want to know that it fits what they’re looking for. We hedge, using both active adult and 55-plus.
Guay: I’m the newest player in the group to this space, and I’m not a fan of active adult as a term. But I also don’t think 55-plus is the right term, either. Since our average age is 72, that could be misleading.
We came from seniors housing, and I have an issue in that space as well. We tend to try and label people. That’s the problem. We try to label you memory care or assisted living or independent living and now active adult. I don’t think people want to be labeled. None of us want to be labeled.
What do boomers want?
Maconachy: One of the exciting things about this industry is the fact that we are marketing to the 72- to 75-year-old senior. It’s that first touch of the boomers, who are actually the right age to move into your building, versus the 82- or 83-year-old in independent living, assisted living or memory care. Coming from the more traditional seniors housing, and now jumping into the senior apartment side, how do you differentiate between the different customers you’re trying to market to?
Guay: If I could find that answer, we’d all be having a good time. It’s still the million-dollar question. We’ve taken a really hard stance on trying to draw clear lines.
What I mean by that is, when you walk into an independent living community it’s actually an assisted living building. It’s people that are putting off that move. We’ve tried to get better at really defining services in those buildings, because then you have people transitioning through the continuum.
In the active adult space, we try to not put amenities in that are typical of more traditional seniors housing. Let’s not put movie theaters in, or call systems and check-ins. If you’re truly independent, you don’t need us to make sure you’re okay. You have to do that for yourselves. We start clearly defining it.
What I don’t want is the 68-year-old that would move into our community to say “this is not me.” People want to be around people they can connect with. When aging people see someone who maybe is further along in the aging process, sometimes it scares them. We have to make sure we set it up right for people to really match.
Maconachy: You’ve now broadened the spectrum of unit types to your cottage program. We’re talking about the same label for a diversity of product. How do you address that?
Guay: I’ll be very candid, we opened this project in December so it’s still a work in progress. It is all single-story patio homes on 86 acres. So obviously you’ve got factors — land and cost to build — to be able to do that type of project. But we’re seeing people that are more focused on really, truly being active. It’s about a mile from downtown. We have people walking back and forth. It’s more of a destination feel.
Our second project is a multi-story building in a suburb of New Orleans. You have to understand your market. When we do market studies, we look at people demographics and income demographics, but we don’t necessarily look at what’s around the building. What kind of services are already there? Don’t replicate something that might be accessible to your residents. We want to promote them to stay as independent as possible.
Uccellini: We’ve been in the business over 25 years, and in the last five to 10 we were marketing to two generations. We were marketing to mostly to the silent era and the baby boom generation. The average age in this product type is early 70s, and depending on geography you will find some areas where that average can creep down into the 60s.
But if we tie up a site today, it takes us a year to two years to get it approved, a year to two to build it. The oldest boomer is 76 today, so that person will be almost 80. That means that Eisenhower generation really is phasing out of this choice-based seniors housing that we’re doing.
So we’re looking at doing multiple product types on a property. We’re doing townhouses with some garden buildings, and we’re looking at different types of amenities and programming.
Prior to COVID, we were starting to look at an urban kind of 55-plus because the boomer population was moving back into the cities. You saw that flight to the cities going on with both the millennials and the boomers. I agree that in an urban location, you have those amenities around you. You don’t really need to recreate those within your buildings. Instead, you create relationships and partnerships with those entities that have those amenities around your building.
Maconachy: One interesting point you just mentioned is the time it takes to get one of these buildings developed, land purchased, get the design done. We’ve seen a huge compression in cap rates, so that has changed materially in the last 24 months. This product type has become institutionally accepted in the private equity and REIT space. Especially with commodities prices changing in concrete and steel, how have you seen return on cost to build change in the last 12 to 18 months?
Hartman: A couple years ago we were trying to develop north of a 7.5 percent return on cost. Today, we’re probably at 6.5 percent or slightly below.
The investment community, the lending community and the equity community have gotten enough data and information about the product type in terms of rents, the percentage premium to Class A multifamily or where the discount is to full independent living, and what the absorption trends are. Two years ago there was still education going on. There’s a lot more knowledge in the marketplace now and people want to get in.
In terms of cost, 2020 was like a roller coaster for lumber, we all know. It typically trades between $300 and $500 per 1,000 board feet, and it went up to $1,600. So we typically work with the general contractor in a local market because we want to get the benefit of that contractor’s strength over the subcontractors. In the past we would take the design documents and go get pricing. Now you do that, they’re burying in a lot of variability because they don’t know where costs are going to go.
It’s created a challenge. It’s not just lumber — it’s steel, it’s appliances. The whole supply chain is affected.
A premium product
Maconachy: Where are you targeting as far as rents compared to multifamily and independent living?
May: It’s our belief that you can’t downsize units for active adult. We can’t change the fit and finish. We can’t change the specifications. The residents are coming out of single-family, detached homes. They have certain expectations. It’s not like a millennial or a hipster that says “just get me in the right location.”
I see it almost more like a purchase decision. Culturally, we’re all inclined to be in that single-family, detached home with the picket fence.
As to the relationship between our rents and multifamily, there’s much more empirical evidence out there now. Deals have gone full cycle. So there are some metrics to take a look at. We’ve had communities where we were 50 percent above the rents of a Class A multifamily property. That’s because our resident is not looking at that as an alternative. It’s a site-specific solution. We’re still in a very provincial kind of business. Find micro-locations that are going to have a major impact on the success of the project.
There has to be some discipline, of course, and you have to get into the local marketplace and understand it. We do a lot of focus groups ourselves to understand price sensitivity. Ultimately, we try to be no more than a 30 percent premium above a Class A conventional multifamily. The differential from independent living to our product is 40 to 50 percent.
I’m comfortable in both those zones. In whole dollar, it’s still a big difference between what our rent is compared to independent living. For independent living, you walk in and it feels more like an assisted living. That is definitely not what our resident is looking for.
Maconachy: Chris, since your product is more detached, how do your rates compare to what somebody could rent a single-family home for?
Guay: Because they’re destinations and there’s more of a lifestyle appeal, our rates are 50 percent higher than multifamily. We’re a little bit closer to those independent living rates. It’s because of the style and nature of it. People are looking for our lifestyle.
We were sitting down with our residents, and it’s all about the community and being part of it. They’re okay paying a premium for that.
Right now we’ve got unique projects. You have to figure out where your price point fits. Because if you’re just building multifamily and calling it age-restricted, and you think you’re going to charge 40 percent or 50 percent more for nothing other than an apartment just because it’s age restricted, that’s foolish.
You have to do something that creates a draw. This is such a want-based product. You’re trying to convince someone to get away from a single-family home they probably lived in for 40 to 50 years. You’re trying to get them to downsize. You have to create a value proposition for them. It’s not one-size-fits-all. It’s unique to each market and each project.
Hartman: I agree you have to offer more, but age restriction itself should get you more money. Just being age restricted, from the standpoint of a resident, is enough to attract a senior into your building willing to pay more.
I have college-aged kids. My son came home after freshman year and said, “I want to live in University Commons.” What’s that rent? $950 a month. How many will be in that? Three of us. So, that’s almost $3,000 in rent for a three-bedroom. That three-bedroom across the street is $1,500. So it’s a 100 percent premium.
But none of the students think of that. Why? They want to be with other students. They don’t care about anything else other than they want to be with their homies.
It’s the same thing for people turning 55 or 65. They just want to be around other people so that when they go down to the gym, they don’t feel embarrassed when they’re walking on the treadmill and everyone else is jogging. So that when they go to the pool, they’re not embarrassed by their out-of-fashion swimsuit. They just want to be around other people. That has to be worth something.
Uccellini: We underwrite rents about 30 to 40 percent above Class A multifamily. We know we can get it because you need to do the amenity space. You need the activity space because one of the most important pieces is people.
We’re a social society. We like to create new relationships, new friends. To get that you have to have a robust lifestyle program, and you have to cater basically to creating fun and recreation. You have to create education and lifelong learning. You have to create a health and wellness program.
You need amenities in your apartments. You have to have multiple floor plans — we do a small, medium and large one. We do some penthouses, but we’re also adding different types of product to our communities now. We’re doing townhouses. You’ll see people that are 55 or 60; they’ll rent that townhouse. Somebody maybe in their 70s will be in the garden. There will be that transition.
This is a purchase. It’s rent, but it’s a purchase. We know the average stay here is four to six years. If your average rent is $2,500 a month, it’s $30,000 a year. That’s a $120,000 to $200,000 buying decision that they’re making, and that’s how they’re thinking.
May: There is a price premium just for the certainty of who’s going to be around you. Our buildings aren’t that big — 140 to 160 units — and the lifestyle coordinator can recognize those people. It’s much different than a conventional multifamily where 50 percent of it may turn over each year. Residents become friends and get an idea of who’s new or who doesn’t belong in the building. That sense of security is what you get by just the age restriction. That is a premium in itself.
If the resident’s next step is independent living, our rents aren’t high enough. Over time we’re going to find what that rent is.
We’re willing to share everything we know with the industry because everyone’s success will be our success. When we try to create an image among the public, it can get contaminated by poor execution or a community that calls itself active adult and there’s nothing active about it. I hope success for all of you. Just give me a couple miles of market area, if you would.
Guay: In our New Orleans project, we know they’re going to want to have Mardi Gras parties. We’ve already made a connection with the casino for casino trips. It’s matching up lifestyle with your people.
I don’t disagree that age restriction labeling might get you some premium, but I am always thinking of the future. I don’t know how long that lasts. The baby boomers, they have champagne taste on a beer budget. So they want the best, but they want it cheaper. Sometimes multifamily can give them that.
They also don’t see their age the way the greatest generation did. They think they’re younger. That may compress our ability to get rates just by saying we’re 55-plus. Even 55-plus to me is a misnomer — I’m five years away from that. I’m not moving into one of our products.
It’s not about age, it’s about commonality. We’re trying to find that common denominator so we can build a lifestyle that attracts the right people.