Last week, NIC released a report defining the active adult product type, answering a question hovering over the senior housing industry.
NIC defined active adult as: age-restricted, market-rate, multifamily housing properties that are lifestyle-focused and do not provide meals through general operations.
The report also included plenty of new information regarding the size and scope of the active adult market, the active adult resident profile and a host of other facts and figures.
You probably saw the story I wrote summarizing the findings. Now that I’ve had a few days to digest the report, I have some additional thoughts about what this means for the industry at large, and what I find most interesting about the data.
NIC leaders also addressed the report during the first day of the 2022 NIC Fall Conference in Washington, D.C., and offered tidbits about what comes next.
In this week’s exclusive, members-only SHN+ Update, I offer analysis on the new active adult report, including:
- Why the report is a milestone for the active adult sector
- Why NIC’s definition is just a starting point
- How the NIC report suggests active adult change in the future
A snapshot of today’s market
The active adult sector is an emerging one with sparse available data, and that makes a report like this all the more interesting and valuable.
In creating this report, NIC and its affiliate have created a blueprint of sorts that I believe will serve as a baseline for new projects and create even more momentum for these types of communities.
Already, active adult is one of the buzziest senior living concepts, routinely cited by investors as the hottest area for investment within the sector over the last several years. And the report highlights just why this has been the case.
For one, these communities are succeeding in capturing the leading edge of the baby boomer generation. The average resident living in an active adult community is in their upper 60s or low 70s, with an annual income of $50,000 and a minimum of $150,000 in non-housing related assets. Usually, they choose to be renters, and they already have an understanding on what communal living entails.
And the potential financial performance of these communities also is alluring. Active adult communities can carry margins of 55% to 65% — an eye-popping number when you consider that average margins in the senior living industry have fallen well below pre-pandemic norms.
Although I suspected active adult communities had greater margins than their senior housing counterparts, that number was surprisingly high in light of my expectations. But it is that way thanks to higher rents than multifamily but lower expenses and longer lengths of stay than typical senior living communities.
Even as it showcased why active adult is so hot, one aspect of the NIC report that I find striking is that it shows how small this market segment still is.
According to the report, researchers with NIC MAP Vision have tracked about 33,000 active adult units at 234 communities located in 84 markets in 34 states. By comparison, there were more than 15,000 senior housing and care properties providing data for the Q2 2022 NIC MAP Vision Market Fundamentals report.
NIC expects that the property count for active adult will “increase dramatically” as data collection efforts continue. Indeed, the report compares active adult today with assisted living in the mid- to late-1990s, when AL communities exploded onto the scene.
So while the report is a landmark in defining what active adult is, this definition really is just a starting point. There is experimentation going on across the product type, with examples including the health care integration being pursued by Avenue Development and the “hybrid” model conceived by Maxwell Group.
I’m interested in how some of these experiments in active adult might shift the definition of the product type, particularly if these creative approaches can address some of the pain points and concerns related to these types of assets. The NIC report highlighted one challenge in particular: the potential for acuity creep.
A roadmap for the future
One concern I have about the active adult sector — and one that I have heard from many other senior living professionals — is that these communities are essentially independent living properties in waiting. Even if residents move in when they are in their upper 60s and mid-70s, at least some will choose to age in place. And I wonder whether the product type will see a similar age and acuity creep as independent living did years ago.
The report confirmed my hypothesis that age creep is a likely problem for active communities in the future. But I was also somewhat surprised to read that the researchers think it’s an issue that often “solves itself.”
“Because multifamily residents must be ambulatory without assistance, once a resident is considered at risk of not being able to get out of a building in an emergency, there is often a protocol to guide the individual to a higher level of care outside of the property in ways not dissimilar to transitions from independent living to assisted living in seniors housing properties,” the reports authors wrote. “Management must have the sensitivity to have honest conversations about safety and the setting in the resident’s best interest.”
I do see active adult projects that are gearing their communities explicitly toward lifestyle offerings and hospitality with the hopes that older residents will indeed “self-select” when their health needs get too great. But I think that this expectation might seem naive in a few years’ time.
Technology, health insurance products and community-based care options all are converging to support older adults’ ability to age in place more easily and for longer periods of time than ever before, and this includes people moving into active adult communities today.
And even as there is a broad expectation that active adult residents eventually will opt to move out — or management will shepherd them to the next level of care — the NIC report also notes that some active adult developers are actually planning for acuity creep to occur, even creating the option for commercial kitchens to enable an eventual conversion to independent living.
I foresee more active adult companies making changes to accommodate aging in place, adding in telehealth services or clinic spaces or forging partnerships with assisted living and skilled nursing providers in the years ahead.
As such shifts occur, another point raised in the NIC report might become more complicated — namely, the competition between active adult and independent living properties.
I had previously wondered whether active adult properties competed with independent living communities. My thinking was that some security-minded residents in their late 70s would choose IL or a CCRC over active adult in order to forestall having to move a few years down the road.
But according to the report, the current active adult demographic is much younger, and these residents aren’t choosing active adult over IL or a CCRC, but rather active adult over living at home or in another multifamily community.
However, the independent living product is also evolving, at least in part in response to what active adult has brought to the market.
The NIC report states that active adult amenities tend to be communal in nature and include outdoor spaces, salons, bars or pubs with liquor lockers, clubhouses, full gyms that may offer fitness classes, dog parks, pools and spaces for sharing meals. This sounds a lot like what independent living communities are offering, particularly newer projects or progressive brands such as Revel.
I could see a future in which an IL provider manages to make care less obtrusive through the use of passive monitoring technology, telehealth, smart building design, and Medicare Advantage-supported a la carte services provided by visiting clinicians. At the same time, imagine that active adult communities begin to introduce more of these same options and services in response to an aging resident population. The result would be that two distinct product types begin to blur.
And that might not be too problematic, if this occurs organically to meet the rising demand presented by an aging population. But I think today’s active adult players need to be realistic about the potential for acuity creep and be strategic — not just assume that today’s resident turnover pattern of 20% to 25% per month will continue into the future, given how health care is evolving.
Looking ahead, there is more information I would like to see in a future report. One is the size and scope of the 55+ for-sale senior housing market, which is composed of for-sale freestanding dwellings, and which I think also are part of this competitive set. Indeed, while the NIC report states that renting has lost much of its stigma among the older adult population, I think that the United States could learn from other countries and incorporate more ownership options. As just one example, Le Groupe Maurice offers some units for sale in its large retirement communities in Canada.
As one reader pointed out to me last week, some research on this market segment is available. But I would love for NIC to help further quantify this aspect of senior housing.
I am also hopeful that this report means active adult will find a new spot on the quarterly occupancy report from NIC and NIC MAP Vision. And NIC MAP Vision CEO Arick Morton confirmed Wednesday that is the goal in the future.
For now, NIC’s researchers are still collecting information and building out the new database with property-level data on financing, construction, owner transaction history and other data. NIC MAP Vision’s subsequent findings are set to be published as soon as next year.
“We’re initiating coverage of active adult to bring transparency to this burgeoning sector of senior housing,” said Morton. “We look forward to continuing to uncover more about the sector and really bring the specific dynamics into into focus.”
The bottom line is that this report represents a new milestone for the active adult sector, and I think it represents an important step toward the product type’s maturity. And given what we learned in this report, I am excited to read what insights the researchers can glean from the industry next.
Companies featured in this article:
