5 Numbers That Are Key to Creating Profitable Active Adult Communities

Active adult projects resemble multifamily properties in some ways, and in other ways they are akin to higher-acuity senior living — but profitably running an active adult community means understanding that this is a unique type of asset with challenges all its own.

From identifying and successfully marketing to the active adult consumer base, to creating realistic development pro formas, to setting the right rental rates, managing expenses and anticipating how properties change over time, players in the booming active adult space are quickly learning lessons about how to achieve success.

Two of these active adult players are Troy, New York-based United Group of Companies and Minneapolis-based Ebenezer. United Group operates a handful of active adult communities with more under development, and also offers an “independent living light” product. Ebenezer is part of the Fairview Health Services system and is newer to the active adult space, but pioneered senior co-ops and offers the full continuum of care. Leaders with the two organizations shared their insights in active adult financial and operating models Thursday, during the Senior Housing News Active Adult Virtual Summit.

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Although Covid-19 has upended some of these benchmarks — for instance, move-ins have slowed due to the pandemic — the numbers below represent common features of successful active adult projects.

72 years old

The typical active adult resident is between 72 years old and 77 years old, said Michael DiGiacomo, vice president of student and senior housing at United Group. These numbers were echoed by Susan Farr, vice president of new business development at Ebenezer.

In other words, while a traditional independent living property is typically attracting residents in their 80s, active adult is indeed drawing a younger consumer. However, although the “55-plus” label is sometimes affixed to an active adult community, residents are not typically that young.

While being realistic about the target consumer demographic is crucial to the success of active adult projects, developers and operators would also be wise to keep in mind that age is just a number.

A common refrain that Farr hears from potential residents is, “I’m 75, but I feel much younger than that.” In other words, these consumers are not needs-driven, but are pursuing particular lifestyle goals — and these go beyond having access to a pickleball court or other activities. They generally desire a setting similar to a market rate multifamily apartment building, but without the risk that unruly younger neighbors will compromise their day to day experiences.

“I want to bring my grandchild … and not have a bunch of people partying in the pool,” Farr said, as an example of what she hears.

20% pre-leased

Being something of a hybrid between multifamily and senior living communities, active adult properties have their own typical lease-up cadence. For development or redevelopment projects, having realistic expectations and setting — and hitting — pro forma targets is crucial, DiGiacomo and Farr emphasized.

A good goal is to have a building 15% to 20% leased at opening, DiGiacomo said. With this level of occupancy, most projects will be on track to meet typical pro forma expectations for leasing up, with around six to eight new leases per month.

United Group tracks the volume of traffic to tour, and tour to close.

“If we can go somewhere between 30% and 35% of our traffic touring, 18% to 25% of those tours closing, we close somewhere between 5% to 7% of our overall traffic — I think that’s right where you want to be,” DiGiacomo said.

Farr concurred, saying that seven leases per month is normal for Ebenezer active adult properties. However — despite the growing consumer base of age- and income-qualified older adults — filling up buildings is not a simple matter. Active adult rental is still a relatively new option, and educating consumers is a critical piece of the puzzle.

Ebenezer has found it effective to cite The Villages in Florida as an example of the active adult lifestyle.

United Group and Ebenezer typically bring on a sales team and begin taking a deposit six months out from opening, although Ebenezer will start a bit earlier in a competitive market. Given the consumer education needed around active adult, cutting the marketing budget is not advisable, DiGiacomo said.

For a recent United Group project, $325,000 was the preopening marketing budget, which covered everything from web activity to in-person events and special programs for early residents. That budget can vary significantly from market to market and depending on the size of the building, but that number applied to a property between 100 and 180 units, DiGiacomo explained. 

Finally, offering concessions on rent during the lease-up period for a building can be a major misstep, he cautioned. Maintaining annual rent increases of 1% to 3% while hitting an 80% to 85% lease renewal rate during the first four years of a building sets up a project for long-term success.

“I’ve seen properties fill in that 18- to 24-, 30-month mark increase rents 6%, 7%, 8% at stabilization,” he said.

5 staff members

In terms of the ongoing operating expenses for active adult, labor is a major driver. When monthly budgets are exceeded, staffing tends to be a common culprit. For a 150-unit building, having four to five staff members helps keep margins in check, DiGiacomo said.

Although staffing can be heavier during initial lease-up, when more firepower is needed to drive sales, buildings typically can run with a maintenance super, maintenance tech, property manager, system property manager and lifestyle coordinator, according to DiGiacomo. And that does not mean that skimping on programming for residents; United Group prides itself on this aspect of its operations.

Farr agreed.

“We spend a lot of time keeping our employees happy, paying them fairly, great benefits — we want them to stay,” she said. “When they flip, you could pay $5,000 to $7,000 to recruit someone new.”

If the staff turnover is high, that can lead to a snowball effect, because leasing activity tends to decline, driving more spending on sales and marketing, she said.

$8,000 operating costs

In terms of total operating costs, United Group runs in the range of $7,000 to $8,000 per unit on an annual basis for a building of about 150 to 160 units. Those numbers may differ from building to building depending on unit count and other factors, but a 38% to 40% expense to revenue ratio is reasonable in active adult, according to DiGiacomo.

Active adult’s operating costs can be covered by the rent premium that the company’s active adult product can command over a typical multifamily building, because United Group does offer a robust suite of programming.

At stabilization, United Group’s rents can run as high as 50% higher than a class-A multifamily building. But to charge at this level, residents must “believe in the lifestyle you’re providing,” DiGiacomo said.

For Ebenezer, the ongoing financial success of an active adult building is dependent in large part on the leaders at the community level. They are trained on pro formas and budgets, and are given responsibility for staying on track and managing their operations accordingly.

“We want them to own that budget piece, too,” Farr said.

8 years

Length of stay in active adult is around four to six years, Farr and DiGiacomo said. This means that a building usually goes through another lease-up cycle roughly every eight to 10 years.

“You have to prepare for that as a buyer, as a developer,” DiGiacomo said.

The relatively long length of stay in active adult is an attractive feature, particularly when compared with traditional senior living. However, acuity creep is a phenomenon to monitor. But, Farr pointed out that the nature of aging in place is evolving, which will affect how active adult communities function in the future.

Some projects, for example, are being built with commercial kitchens and beauty shops, meaning that they could potentially be converted into more traditional independent living as the resident population ages, she noted.

But technology and a proliferation of on-demand services also could enable people to live more active lives for longer periods of time.

For instance, everything from grocery delivery to virtual health care is evolving, and there is an opportunity for active adult communities to partner with these service providers to support residents’ wellness for the long-term sustainability of the active adult value proposition, DiGiacomo said.

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