Senior housing remains one of the most booming real estate sectors, and with a huge wave of baby boomers set to enter retirement in the coming years, untested real estate developers are jumping into the industry.
Because operating senior living communities with health care services comes with a lot of responsibility, risk and high cost, some developers are coming into the field by way of age-restricted housing communities meant for adults aged 55 and older. Age-restricted communities, also known as 55+ communities, offer big opportunities at a lower cost and risk to developers looking to get their foot in the door of this attractive market.
Not only does this housing option fill a growing need for more affordable options for seniors, operating these communities could open up long-term opportunities for developers that may already be established in multi-family housing and are eyeing the senior living space. Established senior living providers should be aware there’s more than meets the eye to some of these new developments, as today’s age-restricted specialists could be tomorrow’s senior living competitors.
Independent living alternative
Part of the reason more developers are starting to build 55+ communities is due to the appealing demographics of the sector and strong performance over the last several years.
“With 10,000 people turning 65 every day, [developers] are looking at those numbers and it looks like an attractive time to get into the market,” says Jason Childers, formerly a senior vice president with Leisure Care and co-founder of 2Ten Consulting, who has 14 years of experience working with developers in senior housing. “The other way of looking at it is over the last several years, senior housing has had relatively strong performance against some of the other real estate categories.”
Developers are already aggressively building in senior housing, and Childers expects that growth to continue.
Construction in seniors housing was up 4.2% in the second quarter of 2015, beating other real estate sectors, according to research from NREI and the National Investment Center for Seniors Housing & Care (NIC). Developments are also expected to grow, as 69% of survey respondents said they anticipate more construction starts over the next 12 months.
The 55+ housing market is a good opportunity to serve a population of baby boomers who may not be looking for assisted living, says Cecil Rinker, a 17-year senior housing veteran who now is senior consultant with Old Pueblo Placement Services, a senior living advisory and placement services company. Instead, these boomers may be interested in a community without a huge entrance fee or and without the need to pay for services they don’t need and don’t want.
Age-restricted communities could potentially fill an affordability gap in the market. According to Rinker, the difference between age-restricted housing and multi-family developments is easy to overcome because 55+ communities do not have to offer additional services or increase prices.
“Senior housing has been catering to the top 2% of baby boomers,” Rinker told SHN. “The 55+ market is helping an underserved population. This is truly independent living for people who don’t need services or want services. That’s why multifamily housing [development] is coming in—the jump is easier. They don’t have the hangups for trying to do these services.”
Childers agrees that as an affordable option, age-restricted communities can be attractive to baby boomers, and developers have the opportunity to create an exciting, new product that will appeal to a huge number of seniors in the years ahead.
“Where these developers will really be successful is if they can foster a sense of community,” says Childers. “Even if they are not providing all the services, if they can foster a sense of community among the residents, it creates a nice, affordable product for a lot of seniors who may not be able to handle the cost of an independent living community.”
Much ado about a kitchen
With a huge influx of retirees about to hit the market, there are also big opportunities as populations in 55+ communities age. New developers entering age-restricted housing that are looking to build new communities would de well to think about how these properties can be converted in the long run.
“If [developers] are starting to think long term, they should develop these communities with the mind that they can be easily converted in the future,” says Rinker. “If developers are going to hold these communities, then they need to convert them into traditional senior living. They are much more attractive to sell also if they are easily convertible. We can build for this 55+ model now, but I think the real winners will be thinking forward enough into the future to build their models with all the pieces of the puzzle to create assisted living later.”
Childers adds that one of the key areas developers should think about is constructing kitchen spaces that can easily be converted for independent living and assisted living communities. Cutting out some of the steps for rebuilding in the future can make age-restricted housing communities much more attractive to buyers and operators later.
“The other area of opportunity is having a commercial kitchen,” says Childers. “For developers who want to start looking at adding services down the road or potentially selling their building to someone that would operate assisted living, making sure they add the space for a commercial kitchen will make the building a lot easier to convert.”
So while the immediate mark for developers eyeing the senior living sector may be age-restricted housing, convertibles could be a natural next step into an area with growing demand.
Written by Amy Baxter