Product for middle-income elderly enjoys strong consumer demand, yet market is still evolving.
By Jane Adler
While developers chase upscale independent retirees and those who can afford expensive assisted care, apartment communities catering to moderate-income seniors are in high demand.
NorSouth Development has five senior apartment communities in the Atlanta area, two projects under construction, and two others in the planning stages.
The buildings operate under the brand name of Hearthside and are positioned as active adult rentals. Activities and a rich array of amenities are available, but no meals or medical services.
A mix of market-rate and affordable units are included with rents ranging from about $650 a month to $1,250 a month. “Occupancy is fantastic,” says Brendan Barr, senior vice president at NorSouth, an Atlanta-based developer, owner and manager of senior apartments.
New NorSouth projects lease up in about 12 months, and stabilized communities are 98 percent occupied with waiting lists for units. “We see demand from people with moderate incomes,” says Barr.
Half of all households headed by persons age 65 or over — about 21 million people — have an annual income of $50,000 or less, according to a 2012 survey by the U.S. Administration on Aging. But despite a huge pool of potential residents, senior apartments are sometimes treated like the neglected stepchild of the seniors housing industry.
Previously referred to as congregate care buildings, senior apartment buildings have traditionally featured small units, no meal service, and few amenities beyond a community room. Financial and construction data on apartments is scarce, making it difficult to predict returns and attract a wide array of investors.
The Seniors Housing Construction Trends Report, issued by the American Seniors Housing Association (ASHA) and the National Investment Center for the Seniors Housing & Care Industry (NIC), no longer tracks senior apartments citing concerns about the difficulty of collecting data and its accuracy, according to David Schless, ASHA president.
Market-rate developers have shied away from the projects, many of which are at least partially funded through the Low Income Housing Tax Credit program — a complex and sometimes arcane program that gives states considerable discretion in its implementation and is described by one builder as “a world of its own.” Also, older people tend to be cost conscious, making it difficult to charge competitive rents or raise prices.
Despite the challenges, the business model for moderately priced apartments is being tested in a variety of new forms. Some building owners are gradually introducing services for renters who are aging in place.
Others are rolling out highly amenitized projects in prime locations designed for younger seniors who prefer to rent.
Take, for example, the Hearthside projects by NorSouth. Hearthside Peachtree opened last December about 45 minutes south of Atlanta in an area that includes 80 miles of multi-purpose trails. NorSouth built a 500-foot path extension to link its apartment building to the existing trail system where residents can walk, jog and bike.
A large percentage of seniors also possess their own electric golf carts that they drive on the trails. The building even provides a car port for the golf carts and charging stations.
Another NorSouth project, Hearthside Johns Creek, is located north of Atlanta and is also connected to a multipurpose trail system — the North Fulton Greenway. Residents have access, via the path system, to retail destinations.
NorSouth plans to start construction this fall on another Hearthside building in Tucker, near Atlanta, within walking distance of a post office, library, retailers, banks and churches. “It starts with the location,” says Barr. “We try to emphasize lifestyle.”
Demand for apartments in the suburbs is strong, says Barr. Older local homeowners who are downsizing often prefer to rent. Retirees from out of town also relocate to the area and lease apartments to be near their adult children and grandchildren.
“When we look for locations, we focus on the 35–55 age demographic,” says Barr. “They have parents who will move to apartments.”
Other developers target extended families. Kisco Senior Living owns and operates 20 seniors housing campuses in six states. The company is currently expanding five campuses and developing three new ground up communities. Though Kisco has always focused on seniors housing, the company decided about 10 years ago to extend its brand and developed four age-restricted market-rate apartment projects in California. The projects were built between 2002 and 2005 and were aimed at younger retirees, some of whom had adult children nearby.
“We did well with the projects,” says Mitch Brown, chief development officer at Kisco based in Carlsbad, Calif. The company, however, sold the communities to concentrate on its core business of service-rich seniors housing. New York City-based Clarion Partners bought one of the projects in 2006 and then purchased the other three communities in 2011 for $100 million.
Kisco’s Brown believes multifamily developers are best suited to operate senior apartments that are, in his opinion, managed more like non age-restricted rentals.
Architect Manny Gonzalez is working on several new market-rate apartment projects for seniors aimed at attracting tenants with children and grandchildren nearby. Though the projects are still in the planning stage and he can’t discuss the details, Gonzalez says the apartments will function as a kind of second home for the retirees.
“Maybe you want to visit your kids for a few months, but don’t want to stay in a hotel,” says Gonzalez, principal at the architectural firm KTGY Group Inc. based in Irvine, Calif. “It’s an interesting concept.”
Amenity rich
Gonzalez designed Heritage Oaks, an affordable apartment project in Oakdale, Calif., in the Central Valley, that includes units with back porches and patios. The community features a clubhouse, hobby and craft studios, theater, and plots where residents can garden.
During the design process, Gonzalez imagined what kind of amenities he’d like for himself and what renters who moved from a single-family home would want. His idea: a communal garage with a rollup door that functions as a workshop. “It’s a man cave type of place,” he says. “It’s really cool.”
Amenities can be a big draw for middle-market seniors. Multifamily developer Noah Drever purchased a distressed age-restricted rental community, the Village at Southlake in Lexington, S.C., for $9.5 million and spent $1.4 million to refurbish the property.
“We wanted an affordable project for retires,” says Drever, senior managing director of Drever Capital Management based in Tiburon, Calif.
While the 122-unit community offers some services, including meals, Drever is targeting middle-income seniors. Rents start at $1,700 per month, a price below the competition. Studio, one- and two-bedroom apartments are available, as well as one- and two-bedroom patio and garden units with private entrances and yards.
Originally built by a multifamily developer, the 13-acre property was over-amenitized, says Drever, who notes that other rental projects in the area don’t offer as many features. Units include full kitchens, plus washers and dryers and hardwood floors. Common amenities include a clubhouse, pool, movie theater, fitness center, a courtyard, barbecue area, walking paths and a lagoon.
Under Drever’s ownership, the occupancy rate has risen from 50 percent to 90 percent. “We have a superior product at an affordable price,” says Drever. “Seniors are willing to move for that.”
Service creep
Recognizing that apartment residents tend not to move and prefer to age in place, developers are seeking sites with access to services. New rental projects are being built on infill locations and on campuses that include assisted living and nursing care facilities.
The $28 million Perris Station Apartments celebrated its grand opening last month. The 84-unit affordable project is located in Perris, Calif., southeast of Los Angeles. Rents range from $310 a month to $818 a month.
The first floor of the three-story building includes 9,000 square feet of retail space for services. The complex, located across the street from city hall, is part of the redevelopment plan for downtown Perris aimed at attracting businesses and services to the area.
“The entire building was leased in a month,” says project developer Michael Costa, president and CEO at HighRidge Costa Housing Partners, LLC. The company, based in Gardena, Calif., owns 93 affordable senior apartment projects with a total of 8,800 units.
“There is such demand for this product, we can’t come close to scratching the surface,” says Costa, who’d like to be the first developer in California to build affordable assisted living projects.
Other apartment developers keep services in mind. The NRP Group, a multifamily developer based in Cleveland, is building Parsons Senior Village on the south side of Columbus, Ohio. The project, slated to open a year from now, will feature 56 senior apartments and is situated on two acres of land that is part of a larger development. The site includes a new health center which is already complete. Retail space will also be added.
In Kent, Ohio, NRP plans to expand Maple Brook at Golden Pond, a 68-unit affordable apartment project that is located adjacent to an assisted living and nursing care facility, the Gables of Kent Ridge.
NRP’s Thornbury Pointe project in Avon, Ind., near Indianapolis, has 94 affordable independent living apartments. The site also has an assisted living building and nursing center.
“Everyone is looking for proximity to services,” says Aaron Pechota, vice president of development at NRP in Cleveland. He prefers sites near transportation or established bus lines in highly developed areas.
Services, such as health care and meals, are also being brought into buildings by property managers and residents themselves, further blurring the lines between apartments, market rate independent living properties and assisted living facilities.
At its Kent project, NRP works with Clearpath Home Health Care, a provider of home health and hospice services. Clearpath also leases space in NRP’s building. “We believe there are crossover services they can provide,” says Pechora. “We’ll see that need grow.”
Senior Lifestyle Corp. owns and manages 22 affordable apartment “Senior Suites” projects in the Chicago area. Meals are available five days a week. The buildings also offer activities, weekly transportation services and a daily wellness check, along with monthly housekeeping.
Presbyterian Homes & Services based in Roseville, Minn., owns and manages 41 communities. Five of those projects are freestanding apartment buildings for seniors, who have access to home-delivered meal services and in-home care, if needed.
The organization’s new developments, however, are campuses with a variety of housing arrangements and services.
The group’s latest project is a 14-acre continuum of care campus known as Folkestone in downtown Wayzata, a suburb of Minneapolis. The project offers independent living, assisted living and a nursing care facility. The site will eventually include a hotel and retail shops.
“The campus model fits our mission,” says John Mehrkens, vice president of project development at Senior Housing Partners, the development arm of Presbyterian Homes & Services.
Services aren’t yet available at the apartment buildings owned by HighRidge Costa Housing Partners, though some residents contract with third-party providers for in-home help.
About half of the units are in two-story walk-up buildings — a concern considering that the average resident age at move-in is 70, and the average age of residents overall is 80.
“We watch to see if residents are having a hard time,” says company president Costa. Those who struggle can move to a first-floor unit.
But Costa realizes he may eventually have to provide services. Luckily, the buildings are situated around a central clubhouse, a design that should lend itself to the addition of services such as meals. “We’re looking at that,” he says.