Active adult is one of the most in-demand real estate product types at the moment, but investors and developers need to do their due diligence if they want these to be successful investments.
Active adult is growing in popularity with investors because it does not have a health care component found in other senior housing product types, and because it is tailor-made for the younger segments of the baby boomer generation, Marcus & Millichap Vice President Adam Lewis told Senior Housing News. Lewis is national director for the firm’s National Seniors Housing Group.
“We have a lot of first-time investors trying to enter senior housing right now,” he said. “Age-restricted apartments are an easy landing for them to start being a part of the health care industry, but not get in too deep with expertise.”
For newer entrants in the space, acquiring active adult opportunities is more akin to investing in traditional multifamily, albeit with an age restriction, Plante Moran Partner Dana Wollschlager told SHN.
Active adult communities may in fact be a great way to serve the growing ranks of younger seniors, without taking on the operational risks and complications of full-fledged senior housing. However, anyone entering the active adult sector must be realistic about investment returns, who the consumer really is and what they want from their housing, and how these buildings will fare in the long term.
1. Be realistic about finances and return on investment
Senior living is attractive for seasoned investors, particularly in higher care acuities, because the added care components can lead to better returns when it’s time to sell, Lewis said.
For an active adult community, risks are lower and so are rewards.
“From a financier’s perspective, the unlevered return on cost is much lower and sometimes, in most investment communities that we’ve seen, it’s at almost a very uncomfortable level,” said Ryan Haller, chief development officer with Point Development, told SHN.
Point Development is an arm of the Avamere Family of Companies. Based in Wilsonville, Oregon, Avamere provides a range of housing and care across the continuum, and is actively exploring adding active adult to its portfolio. It will likely do so, but Haller is conscious of the financial risks.
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Land costs are very high in most markets, he noted. With this in mind, it could be dangerous to create a highly amenitized active adult product that is similar to traditional independent living but that charges rents more in line with a multifamily product.
Creating larger buildings with more rental units could be a way to lessen that risk, but that creates additional sales and marketing pressure to lease up. And that could be a big ask, given that active adult as a product type is not yet mature, and so marketing likely will require some amount of consumer education, he said.
2. Be realistic about who the active adult consumer is
Seniors who are retiring in their 60s want to live in intergenerational buildings before transitioning into age-restricted communities.
Active adult, we feel, is an answer in many of our markets.Point Development Chief Development Officer Ryan Haller
So, although active adult communities might advertise as 55-plus, in reality they are serving an older demographic. To attract this consumer base, offering access to higher levels of care could be a smart play. Take Duluth, Georgia-based Active Senior Concepts, which builds active adult duplex townhomes adjacent to assisted living communities.
“We’re not getting the 60-year-old retiree,” Active Senior Concepts Partner Paul Aase told SHN. “We’re getting the senior who knows they need the higher care services eventually, and can stay in the house longer before moving over to assisted living.”
The Active Senior Concepts townhome owners have a shared services agreement with the larger rental product, giving them access to that communities amenities and programming, as well as priority to enter assisted living when it comes time for them to sell their homes.
To date, Active Senior Concepts has sold 24 duplexes, has another 14 under contract and built nine spec buildings in the northern Atlanta suburbs. And interest is mainly from older seniors — buyers in their early 70s.
To accommodate those buyers, Active Senior Concepts reached out to the National Association of Home Builders’ 55+ National Industry Council for advice, and added design touches to allow buyers to age in place better, Aase told SHN. Garages are three feet deeper than average, to accommodate scooters and motorized vehicles. Townhomes are designed with wider entry and passageways, and roll-in showers with benches.
“These are subtle things that do not glare out at you,” Aase said. “It isn’t full legal ADA compliant, but it addresses mobility issues.”
Building active adult as part of a larger senior living community is not a new concept. Garden City, New York-based Engel Burman Group has blended active adult with assisted living for over 20 years, and broke ground in January on a $125 million development in Mt. Sinai, New York comprising of 225-unit age-restricted community for residents 55 and older, and a 120-unit Bristal assisted living facility.
And Avamere is bullish on active adult as a way to fill out markets where the company already offers home health and senior living. Moreover, Haller said, focus group testing he sees indicates that the boomers transitioning into senior living do not want to be in any type of “institutionalized” setting.
“Active adult, we feel, is an answer in many of our markets,” he said. “It is a space Avamere will eventually evolve into.”
3. Be realistic to future-proof active adult buildings
The greater shift within the health care industry from acute care to wellness and prevention will allow future seniors to age in place longer and, hopefully, healthier. By that time, advancements in home health care will be more commonplace, allowing active adult seniors to live longer in their homes before transitioning to assisted living.
However, this raises questions about whether today’s active adult buildings will become de facto independent living or assisted living communities in the future. Developers and operators with foresight are thinking about how to intentionally layer in services to safely and successfully accommodate an aging resident base.
Senior living owners and developers are designing programs and partnering with third-party home health care vendors to allow seniors to stay in their homes as long as possible, Lewis said. This will also add the missing health care component to active adult, which will make the product type more attractive to veteran buyers seeking higher returns on investment.
We’re not getting the 60-year-old retiree. We’re getting the senior who knows they need the higher care services eventually, and can stay in the house longer before moving over to assisted living.Active Senior Concepts Partner Paul Aase
Another reason Avamere is pursuing active adult is the company already has a full range of health care, from home health to hospice, in house, Haller said. Last October, Avamere launched Ovation, a separate company for its “micro-CCRC” concept, which excludes skilled nursing from the care continuum.
“We’re strategic enough to have a sizable home health and hospice business. We have a rehab and wellness business,” Haller said. “Why add skilled nursing when those folks can provide many of the services, allowing people to age in place as long as possible?”
Another option is to leverage community-based services, Wollschlager told SHN, and she believes the future is nigh.
“That will happen in active adult communities, whether it’s private duty home care, apps, chore services,” she said. “Anything to help them maintain their independence.”