Carlyle Group, Other Active Adult Pioneers Venture Into ‘Uncharted Territory’

The most experienced developers and investors in active adult communities are reaping benefits from the product type, as the senior living industry at large scrambles to define its parameters.

More seasoned players in the active adult market — including private equity giant The Carlyle Group — say that it is a product where average lengths of stay are more than two times the average of independent living, and at profit margins that outperform senior housing.

And active adult is coming into its own as part of the senior housing continuum. It is not interchangeable with independent living, where residents today are older than in the past, but complements traditional senior housing.


The idea of active adult as the new independent living was the topic of a panel discussion at last week’s National Investment Center for Seniors Housing & Care (NIC) 2019 Fall Conference in Chicago, featuring executives from The Carlyle Group, Avenida Partners, Cortland Partners and Capitol Seniors Housing.

As the active adult market has heated up in recent years, the need for a more standard product definition has emerged.

NIC has charged its Future Leaders Council with creating a concrete definition for active adult, so that the industry group can better track its investment volume. What is known is that the product type grew from its roots in age-restricted, tax credit-funded senior apartments to become a much in-demand product, CBRE National Senior Housing Vice Chairman Aron Will said. Will moderated the panel, which focused on active adult rental models — as opposed to Sun City-style, sprawling communities of single-family and multi-family houses sold to seniors on a fee-simple basis.


Carlyle Group in particular has emerged as a major presence in the space, beginning a concerted push about five years ago. The investment firm works with several partners in the space, including with Greystar on its Overture brand. Over the past four years, Overture has rapidly scaled, with 40 communities across 13 states now listed on the Overture website.

Capitol Seniors Housing Founder and Managing Partner Scott Stewart compares the wide open field for active adult to when the Washington, D.C.-based company entered the broader senior living industry in the early 2000s.

It’s a very stable asset class, especially when adjusted for risk.

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The Carlyle Group Principal Zach Crowe

Back then, institutional groups that were initially spooked by senior housing’s high insurance costs and operational intensiveness returned to the space, chasing yield after multifamily cap rates plummeted.

That same multifamily landscape is now driving investment in active adult. Stewart sees a lot of runway for active adult, with the oldest baby boomers entering their 70s and at least a decade away from entering independent living. Capitol Seniors Housing is pursuing active adult development and remains bullish despite some initial setbacks, stepping away from three projects after costs exceeded projections.

“[Baby boomers are] looking for a third act and will find it here,” Stewart said.

Positive demographic trends

The aging baby boomer demographic is the primary driver of investor interest in active adult, Carlyle Group Principal Zach Crowe said. The Carlyle Group studied demographic trends before it first invested in active adult and found that the oldest baby boomers — in their late 60s and early 70s — are at least 15 years away from entering traditional senior housing.

Carlyle Group’s active adult portfolio includes a mix of acquisitions and ground-up developments; 15 communities are stabilized. The company observed that active adult grew out of workforce housing — plain, simple suburban-style apartments — before adding market-rate active adult. Crowe sees opportunity for active adult across all price points, but emphasized that careful market analysis is needed to determine what consumers in a particular area want and what they will pay for.

The average age in Carlyle Group’s active adult portfolio is between 72 and 73 years, which excited the company from a demand perspective, and creates a potential pipeline for residents to move to Carlyle investments with higher acuity care. Carlyle has been investing in traditional senior living and care for decades, with its holdings at one time including skilled nursing giant HCR ManorCare.

“The most interesting thing we saw about the [senior housing] space is that the oldest baby boomer was going to age directly into the average age of an active adult [resident],” Crowe said. 

You can’t have one foot in, one foot out.

Avenida Partners Founder and Managing Partner Robert May

Crowe sees active adult occupying a gray area between traditional multifamily housing and independent living. It is not competing with either product; rather, the competition in active adult is with seniors looking to stay in their homes.

Crowe estimates that between 60% and 70% of active adult prospects are selling their family homes and downsizing. Carlyle Group found, in its initial focus groups on active adult, that very few residents shopped traditional multifamily apartments when looking to downsize their housing footprints.

Those residents were also turned off by what they found in independent living.

“They will shop independent living, but they generally come back and say, ‘There are a lot of walkers and wheelchairs in the lobby, and that’s 10 years from where I want to be. That’s where I put my parents 10 years ago,” Crowe said.

So, there is demand from consumers in the gap between multifamily housing and independent living, but that does not mean that the sales process for active adult is easy.

To build a referral base that can be converted into move-ins, active adult operators need to borrow senior housing best practices for a successful sales pitch. Fancy backsplashes and the latest treadmills are less important than showing prospects that they will have a vibrant social life if they move in.

“We’re adding a personal touch to our marketing pitch, to convince prospects that we’re building community,” Crowe said.

Stronger lease-up, retention rates

Multifamily investors entering the active adult space need to understand that the lease pro formas are different, Cortland Partners Director of Investments Jared Bankos said. The Atlanta-based developer currently operates nine active adult communities under the Attiva brand, totaling 2,200 units in the Atlanta suburbs, Las Vegas and across Texas.

While lease pro formas in traditional multifamily housing can sometimes be as high as 20-30 per month, depending on the size of the building, a lease pro forma between six and eight units per month is considered successful in active adult. So these buildings tend to be smaller in scale than multifamily apartment complexes. Cortland Partners’ Attiva communities, for example, average around 180 units.

Veteran active adult operators establish the sales and marketing teams for their communities while construction is underway. This allows them to venture out into the community, get an understanding of what seniors in the market are looking for, and develop mutually beneficial relationships with independent living providers, Avenida Partners founder and Managing Partner Robert May said.

active adult senior housing Avenida Partners
Avenida Naperville, a 62-and-up active adult community in Naperville, Illinois from Avenida Partners.

Newport Beach, California-based Avenida has six active adult communities in California, Colorado, Illinois, Oklahoma and Tennessee. In May, Avenida partnered with Irvine, California-based Passco Cos. to build active adult communities in Germantown, Tennessee, a suburb of Memphis; and Palm Springs, California.

Avenida launches its pre-marketing and pre-leasing efforts nine months before a community opens, reaching out to influencers in its markets who are interested in the product, as well as senior living providers to assuage fears that they are competing for the same renter.

This results in establishing a mutual referral network to send referrals who would, for example, be better suited for independent living to a competitor, and vice versa. May considers active adult to be a new stop in the senior housing continuum.

“We can play together in the [same] sandbox,” May said. “We can be a complement to what they do.”

Another benefit of active adult is that, once residents move in, they rarely leave until they need higher levels of care. Crowe estimates the average length of stay at Carlyle Group’s stabilized active adult communities is between six and 10 years, once residents have moved in and accepted the sense of community.

“You have to be patient on the lease-up but — once you get [the communities] full — they stay full,” Crowe said. “It’s a very stable asset class, especially when adjusted for risk.”

Having a consistent, stable tenancy allows active adult investors to push rent growth, which translates into higher, more consistent returns. Active adult is second in rent growth among Carlyle Group’s portfolio, Crowe said.

Starting rates at a newly opened Overture community near Chicago ranged between about $1,955 a month for a one-bedroom/one-bathroom and $4,500 for a two-bedroom/two-bathroom unit, according to information that Senior Housing News obtained by secret shopping in April.

But Carlyle is branching out across various consumer price points. It is working with Buffalo, New York-based Clover Management on a development pipeline for the middle-market, on a product that Clover founder and CEO Michael Joseph describes as “independent living-light.”

Margins in active adult generally are higher than independent living, according to sources who spoke to Senior Housing News for an upcoming report on active adult housing. The median operating margin for independent living is about 47%, based on 1995-2016 data analyzed for the 2017 State of Seniors Housing report.

Capital markets still studying

While active adult’s developers and investors are already bullish on the product’s future performance, lenders and firms in the debt and equity markets are still learning about it, Will said.

“It’s uncharted territory for a lot of lenders and equity investors,” he said.

active adult senior housing Cortland Partners
Attiva Central Park, an active adult community from Cortland Partners in Grand Prairie, Texas.

This is due to the hybrid nature of active adult: It is not purely multifamily nor is it independent living. Carlyle Group has found success securing construction and acquisition financing for its active adult communities through the multifamily lending divisions of banks, as well as Fannie Mae and Freddie Mac lending programs.

In many instances, loan approval depends on how the property is defined. If there are commercial wrinkles such as a commercial kitchen, then a lending agent does not consider the property to be multifamily, Crowe said.

Carlyle Group’s success with active adult is driving banks to take notice and approve financing. Agencies love the longer hold periods and higher rent spreads that the product type produces.

[Baby boomers are] looking for a third act and will find it here.

Capitol Seniors Housing Founder and Managing Partner Scott Stewart

The debt and equity markets have been slower to embrace active adult, however. But that is changing. Active adult cap rates are currently in line with multifamily housing, but the higher rent spreads will cause cap rates to decline over time.

“Once [investors] experience [active adult] and how smooth it operates, the markets will appreciate it and cap rates will adjust,” Crowe said.

If active adult continues to grow as an in-demand investment, buyers will have companies like Carlyle Group to thank for paving the road, May said. There are more opportunities for investment, compared to a few years ago. But investors need to realize that, just as in traditional senior housing, they have to be all-in.

“You can’t have one foot in, one foot out,” May said.

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