The active adult senior housing sector is still hot with many large companies going all in on the product type.
But despite the big opportunity it offers, the sector carries challenges that could make growth difficult for companies lacking scale, sophistication and long-term vision, according to Adam Cohan, senior director of portfolio management at Greystar Development.
“You need 50 or so assets just to be profitable, and that’s probably a deterrent from people getting into space as an operator,” Cohan said during a NIC webinar Wednesday. “But we made a commitment.”
Challenges aside, active adult communities are still well-positioned to capture demand from the coming baby boomer demographic. People ranging in age from 55 to 74 currently make up about a quarter of all renters in the country, according to Caroline Clapp, senior principal at the National Investment Center for Seniors Housing and Care (NIC). That population is anticipated to grow rapidly in the next decade, with an additional 2.2 million aged 65 and older anticipated to enter the rental market in that time.
According to Clapp, there are nearly 800 active adult communities in the U.S. today, and the sector carries an average occupancy rate of about 93%, including communities in lease-up. Properties that have been open for five years or longer carry an average occupancy rate of 95%, she said.
“We expect variation and new product types to continue to evolve,” Clapp said during the webinar. “And we expect developers and operators to also continue to evolve and to customize active adult communities to meet changing lifestyle preferences.”
‘Those are the deals that really go wrong’
In the last decade, the active adult sector has become much more crowded with large companies all seeking to grow their holdings in it. That has included many companies well-versed in senior housing, and many others that are not.
According to Cohan, some multifamily operators that have entered into the active adult sector with new projects have done so with a strategy similar to rental apartments. But as many in the industry have said before, multifamily and senior housing are two different things entirely.
“The physical product looks similar on the surface, but executing is totally different,” Cohan said. “And those are the deals that really go wrong: Trying to execute them as multifamily with a multifamily team.”
Multifamily operators are often designing new communities to appeal specifically to millennials. But active adult properties are more for Gen X and baby boomers, according to Kimberly Byrum, managing principal at Zonda Advisory.
“The multifamily operators that are coming in and throwing all of their toolboxes of all the things they’ve researched that hit Millennials perfectly – they can really miss the mark,” she said during the webinar.
Those differences can be seen in the shopping behaviors of the different generations. For example, “baby boomers prefer websites and portals and they do a lot more research on the internet,” Byrum said.
Greystar, which is growing in active adult with 10 projects in 2024 alongside increasing its third party contracts, has approached the product type as a “hybrid” between multifamily and senior housing, according to Cohan.
Multifamily companies must figure out the best and most effective ways to market to a new audience, said Mitch Brown, principal at Senior Housing Consulting. On the other hand, companies more versed in senior housing are often used to managing communities with dozens of employees. That is why they are sometimes challenged to operate active adult communities, which have fewer workers, he said.
“It takes, certainly, a best-of-both to be successful,” he said.
The biggest demand for multifamily operators in particular is going to be the level of dedication that is required for their teams and resources, Cohan said. Residents are on average around 30 years older than traditional multifamily renters, and they require a different approach when being interacted with.
Additionally, active adult residents tend to stay in their unit longer than typical multifamily renters do, and often stay there until they have to move to assisted living, according to Brown.
Cohan noted that adults at Greystar active adult communities can range from as young as 55 and go up to 97.
“We may see our average age increase slowly, and that’s okay as the population ages,” Cohan said. “But just because the average age is increasing doesn’t mean the underlying mental health and physical health of the resident is deteriorating. It can be the way it is today.”
Development trends
According to Brown, the active adult sector today resembles assisted living in the 1990s in that there are many different players trying to get their hands around the product type and growth. That is both a good and bad thing.
“There was this explosion of capital, and a lot of people jumped into the space,” Brown said. “And the outcome at that time wasn’t particularly pretty.”
On the one hand, “a lot of people struggled,” he said. But on the other hand, “there’s a great opportunity for segmentation.”
For example, he noted a project from Avenida saw roughly 90% of its 48 cottages leased before the main building was built. Another Avenida project, he said, was built right next to an independent and assisted living community coming in at the same time and essentially created a small continuing care retirement community where different family members can remain close.
“I think we’re going to see more active adult affinity communities,” Brown said.
Another issue Brown sees coming for active adult will be operates the properties once new development becomes viable again, and the gap between “good and bad” operators is already beginning to widen.
Despite the challenges, Brown noted the sector is particularly defensible property type due to the lower costs compared to more traditional senior housing, with three-fourths of residents able to pay for rent in the space. Because of this, the product type is particularly suited for the middle market.
“If you look at multifamily, half the country is overburdened by rent. In active adult, it’s like 90% [or more] can’t afford independent living,” Cohan said. “And when you look at active adult specifically, our rents are roughly half of what you see in independent living, so if you’re going up market or mid-market, you’re already opening up the demand pool.”
Knowing where to place a property is becoming increasingly important as well. Cohan said he has seen communities attempt to put “up market” pricing in areas that can’t afford the prices, leading to the properties struggling.
Byrum noted the most popular unit type she has seen is a one-bedroom unit and occasionally two-bedroom units. While studio options are available, the odds of a tenant staying in a small space for years on in are particularly low. Looking at units that are for sale, the most popular unit type is around 1,400 square feet, she said.
“They sell two times the amount of homes at a pace faster than a new home on the regular market and active adult,” Byrum said. “There’s a great demand for that product on the for sale side. We have to be careful to convince people to rent by not building and pushing people into that 1,400 square foot active adult home.”
