Senior living operators, owners and developers are still continuing to grow their active adult holdings in 2024 as demand for the product type stays relatively steady.
Companies with sizable scope and scale, including Greystar and the middle-market-focused One Clover, are scaling up now with a belief that older adults will continue to flock to the property type in the years to come.
According to the latest tally from the National Investment Center for Seniors Housing and Care (NIC), there are at least 780 active adult properties in the U.S., consisting of 116,000 units. They carry an average occupancy rate of 92.6%, which is a measure higher than the latest senior living industry average rate of 85.9% in the second quarter of 2024.
“The demand continues to be there,” NIC Senior Principal Caroline Clapp told Senior Housing News.
That demand has prompted Greystar in particular to go big on additional development for the product type, according to Michael Levine, senior managing director of real estate and active adult. Over the past three years, the company has expanded to both owned and third-party-managed properties, growing to 124 active adult assets in the process.
Like companies behind other senior living product types, uncertainty surrounding interest rates and other factors are a constant challenge, especially when growing through acquisitions. At the same time, new development remains tough and costly for most operators in the U.S.
But that hasn’t dampened the enthusiasm of many companies in the space, Greystar included.
“Greystar is all in on active adult,” Levine said.
Active adult companies continue to expand
Large companies have put lots of money behind the active adult sector in recent years. Among the biggest investors in the product type is Welltower (NYSE: WELL), which in February acquired Affinity Living Group for almost $1 billion.
Greystar has also steadily expanded in active adult in recent years, and demand has remained “red hot” in the sector, according to Levine.
Once a product type limited to investments from niche groups, Levine said that now multifamily investors and real estate investment trusts (REITs) are acquiring and building their own communities with an eye on the future of demand.
Greystar has its own development branch that is continuing to build more active adult communities annually, with brands including Overture, Everleigh and Album. This year alone, Greystar is looking to complete 10 new active adult communities.
“We’re still developing quite a few sites each year in the field,” Levine said.
Additional growth for Greystar comes from third party management contracts.
Among the major players for active adult in the U.S. is One Clover. The company has previously collaborated with Welltower, and is moving forward in 2024 with a growth plan that includes developing four additional properties, and two that have opened but are still in lease-up. That growth plan is complicated by the fact that adding there are challenges with development for the company because it focuses largely on middle market offerings and therefore can’t afford the same price per land and as higher end companies..
“It’s more challenging, but the demand still dramatically exceeds the supply, and so if you can figure out how to do it and where to do it, then I think you can be successful at it,” One Clover President Michael Joseph said.
One Clover is somewhat different from other active adult operators in that it focuses on middle-market rates, with monthly fees closer to multifamily than independent living in many cases. The company’s current portfolio includes 57 communities.
The current state of interest rates has dampened enthusiasm for new active adult transactions, according to Joseph. He added that demand is still steady for the product type, and said that new communities in the space are typically leased up within a year or less. Over the past five years, while demand hasn’t been accelerating, it hasn’t slowed, either.
“We will continue to build as many as we can get done,” Joseph said.
BVO Capital, a real estate private equity company, focuses exclusively on expanding its active adult offerings in the space. The company is seeking to develop between four and six new communities per year, but like with One Clover, that plan is complicated by the state of interest rates and higher construction costs.
Woodley and Lindsey also noted finding the right fit for developing new communities is the key to moving forward. For BVO Capital, that average is around 160 units per community, as its possible to build too many units which do not lease at the same rate as multifamily properties.
“You have to get to a certain occupancy within year one. Otherwise you’re kind of leasing against yourself,” Woodley said. “Size is a limiting factor. It takes just much time to build 160 units as it does 350 from a company perspective.”
At the moment, the company has a $300 million development pipeline, and Woodley and Lindsey noted this year around three new developments will break ground.
Stephen Ordway, senior vice president of ZOM Senior Living’s senior housing division, told Senior Housing News said the current constraints from the capital market have caused considerable headwinds for new growth in the active adult sector.
“Sourcing suitable sites across our target markets in today’s high-cost and tight capital environment has been a considerable headwind,” Ordway said. “We have a small strike zone for qualifying opportunities and only focus on high-potential deals.”
Defining active adult still a challenge
One big challenge for senior living operators with active adult communities is actually defining what those communities are and who they’re for. What is sometimes hard for consumers is that active adult communities usually lie in a space between multifamily and independent living, but carry some attributes of both.
According to Levine, the general public – and notably also investors – still need more clarity about active adult and where it fits into the overall market. Additionally, Levine said investors have wanted to come in and operate active adult communities similarly to the way multifamily communities operate, but a key difference needs to emphasize value for residents rather than simply charging more for the units.
“You need to also offer the activities, hospitality and the lifestyle, and that’s a huge component of what we do,” Levine said.
Clapp added she has observed the educational component being the biggest uphill battle the industry is facing, particularly with landowners and municipalities.
“A lot of municipalities think anything you know, 55 and older, you’re talking about skilled nursing,” Clapp said. “So I would say that’s probably one of the largest barriers that I hear from people on the street are obtaining land and entitlements.”
Still, demand for the product type remains hot, even with some lingering confusion among prospects and investors about what it is.
“We see the untapped demand,” Woodley said. “We certainly think it’s a red hot asset class … as institutional capital becomes more comfortable with the asset class, sees the growing demand and seeks out investments where rents continue to rise, it will only increase demand for the asset class.”
