Economic, Operational Trends Add More Fuel to Active Adult Boom

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All signs point to 2024 being another banner year for the growth in the active adult sector, judging by recent news.

Among the active adult-related headlines and storylines from the last few weeks, a few featured Greystar. Thanks to its sizable active adult portfolio, the company — which is the largest operator of multifamily apartments in the United States — ranked No. 7 on the newly released ASHA Top 50 operators list, up from No. 9 in 2022. On ASHA’s Top 50 owners list, Greystar ranked No. 9 this year, compared to No. 15 in 2022.

And the growth is set to continue for Greystar. “Significant expansion” is planned for 2024, and the active adult rental market in general is “is about to explode,” Senior Managing Director of Real Estate, Active Adult Michael Levine told SHN.

Another recent story focused on a well-established senior living owner and operator entering the active adult space, as Grace Management President Guy Geller spoke about the company’s first active adult project and desire to “have many more.”

Meanwhile, Cain Bros. called out active adult growth in an Industry Insights report focused on challenges facing the senior living sector.

In this week’s exclusive, members-only SHN+ Update, I analyze this recent news and offer key takeaways, including:

• Active adult growth is being driven by dovetailing economic trends affecting consumers and operators

• “Cottages or congregate” is emerging as an intriguing question related to active adult projects and strategies

• Expect more active adult specialists to join Greystar among the largest senior housing owners and operators

Dovetailing trends

The last 12 months have been financially tough for senior living providers as well as consumers, making active adult communities an increasingly appealing option for operators to offer and for consumers to consider.

Operators have seen their margins eroded by rising interest rates and inflation, with wages increasing even as overall labor pressures have somewhat eased.

Consumers also have been stung by inflation. In fact, consumers expect the inflation rate will be up 3.6% one year from now and will cool only slightly over the next five years, according to NY Federal Reserve survey findings released this week.

“Perceptions about households’ current financial situations compared to a year ago deteriorated slightly in August, with the share of households reporting a worse situation compared to a year ago rising,” the NY Fed stated in a press release.

Against this backdrop, consider that monthly rates for active adult are usually 30% to 50% more affordable than for traditional independent living, according to NIC’s 2022 report defining the sector.

“We do feel that as the economy starts to tighten, those folks that could have potentially gone independent living … will begin to choose the active adult path more so than the IL path,” Geller said on the SHN Transform podcast. “And so we want to be poised to capture that market as it develops and grows over the next several years.”

Greystar certainly wants to capture this consumer segment as well, and created its more affordable “Album” brand in 2020 to reach the middle market. And further innovations — such as Greystar’s efforts at modular construction — could further support the company’s ability to serve the middle market active adult consumer in the years ahead.

I also find it telling that over the last six years, the average age of Greystar’s active adult residents has gone down from 74 years to about 72 years, according to Levine. Meanwhile, over the last five years, the percentage of independent living residents who are moving in within 30 days of their initial inquiry has steadily risen, according to data from Aline, shared in a recent Ziegler Z-News report.

And the increase since 2019 is more dramatic for IL than assisted living or memory care, with regard to move-ins within 30 days of inquiry:

These data points suggest to me that active adult communities are succeeding in drawing more lifestyle-driven (and perhaps cost-conscious) consumers, while independent living is increasingly drawing from the pool of “urgent need” consumers — that is, those with a quick sales cycle that is often driven by some sort of health event.

While tighter finances may be driving consumers toward active adult, providers that are scrambling to control expenses also are drawn more toward active adult. An increasing number of senior living organizations have been repositioning to reduce higher-acuity units with lower-acuity units as a cost-saving strategy and to alleviate labor challenges, as noted by Cain Bros. Managing Director Kathy Kirchoff in her Industry Insights piece.

“This strategic response not only reduces the number and type of licensed healthcare workers needed, but also reduces some regulatory requirements and liability risks,” she wrote.

And active adult is certainly part of this equation:

“Finally, active adult (rental apartments with no dining, and very minimal support) is a senior living option that is becoming more popular and requires very minimal staffing, and therefore, less workforce concerns. A typical active adult building may have just a few FTEs for an 80-unit apartment building; maintenance, sales/marketing,” Kirchoff wrote.

Greystar usually employs six or seven staff members for a community of about 165 units, Levine said.

And Geller was blunt about how “this economic environment” adds to the appeal of buildings with “a much lower exposure to labor costs and other other expenses, frankly, than you see on the independent living and in the traditional senior housing products.”

Cottages or congregate

The recent Greystar and Grace Management news highlights one common variation in active adult models being brought to market: cottages versus congregate living. Grace’s active adult project in Texas involves 115 cottage-style units. Greystar’s typical active adult offering involves a 100+ unit congregate living building.

Other companies in the space are specializing in cottage-style designs. Treplus Communities, for instance, offers single-story, detached dwelling units that are more reminiscent of freestanding homes than apartment buildings. But other players, including Sparrow Partners, are making big plays with the congregate living model.

Of course, some companies are offering both cottage-style and congregate options. Green Courte Partners last year acquired 315 cottages and one 35-unit apartment building in an active adult deal.

I’m curious to see whether one model gains favor over another in the coming years. It seems to me that cottage-style living could be an easier sell to baby boomers who are transitioning from their single-family homes. A cottage design allows them to maintain their privacy and likely affords them more room, meaning they do not have to downsize so radically. And small-home senior living has enjoyed escalating popularity in recent years for various reasons, including the balance of socialization and safety from an infection control standpoint that small homes demonstrated during the Covid-19 public health emergency.

On the other hand, one of the most common triggers for a move to active adult is the loss of a spouse, according to the 2022 NIC report. And while 60% of move-ins to active adult are people coming from a single-family home that they own, per the report, that still leaves 40% of move-ins coming from some other living situation, with many new residents already “familiar with [a] communal living setting.” It seems to me that congregate living may be a better fit for someone who has lost a spouse and is looking avidly for social connection.

And congregate buildings naturally open up the potential for more efficiencies of scale, as demonstrated dramatically by the approach of Canadian companies like Le Groupe Maurice and Cogir, whose communities feature hundreds of units and routinely boast very high occupancy. 

However, packing too many smaller units into a congregate style building is a common pitfall, Levine warned. Having plenty of spacious, multi-bedroom units is important for the same reason that cottage-style offerings hold appeal: “People are looking for larger units because they’re moving from a four- or five-bedroom house and they’re downsizing,” Levine said.

I imagine that both cottage and congregate active adult projects will proliferate and thrive in the years ahead, but the differences in the two approaches highlights another emerging trend: The need for “active adult specialists.” That is, operating companies or divisions that are solely focused on how to execute on a particular type of active adult model, versus operating teams that are also handling multifamily and/or higher-acuity senior living. 

More active adult specialists

The new class of active adult specialists includes companies that have completely exited their senior living portfolios to focus on active adult (providing particularly dramatic examples of the strategy that Cain Bros. highlighted, of pivoting away from higher-acuity in favor of lower-acuity offerings).

Liv Communities is one such company, with the $255 million sale of its entire senior living portfolio and the launch of its active adult Liv+ brand. Holbrook also disposed of nearly its entire IL and AL portfolio to focus on active adult, with a $1 billion development push.

Going all-in on active adult could be wise, because even though these communities may not be as operationally intensive as IL or AL, they demand a level of specialization. At least, that’s the perspective of Greystar’s Levine, who emphasized that active adult is a unique product with specific operational imperatives.

In particular, the operations need to be sensitive to the particularities of any given market.

“Our amenity packages vary quite differently based on different regions or states,” Levine noted.

There are also unique sales cycles in active adult, with a “high-touch sales process” involved, according to NIC’s 2022 report. A “significant digital presence” is typically needed on the marketing side, and leasing agents typically also engage with community organizations and financial planners to help engage with prospects and drive move-ins. 

Furthermore, balancing a light touch on staffing while still fostering a vibrant sense of community — meeting the socialization and wellness goals that many residents say they want to pursue — is not an easy proposition.

And while NIC put forward a particular definition of what constitutes an “active adult” community, Levine noted that “there will be different variations.” Cottages versus congregate living is one variation. Active adult projects also vary in their approach to dining. Some communities that are marketed as active adult or in a similar vein (such as “active living”) include a dining component, with Holbrook being one of these. Others do not, with Levine calling out in-house dining as essentially incompatible with keeping overhead costs — and consumer price points — low. 

Likewise, some active adult models include a health care element — for instance, through partnerships with home care or other providers — while other models steer clear.

I believe all this will result in an expanding number of operating companies that specialize in active adult, with particular expertise in their own specific approaches to running these types of communities. And as more investors flock to the space, they will partner with specialists that are having success and seek to supercharge their growth. Welltower (NYSE: WELL) is one big player in this regard, with Treplus and Sparrow already among its partners.

Today, I believe Greystar is the only company on the ASHA Top 50 operators list with a portfolio that is majority active adult. But that will not be true for long, with other specialists on the rise.