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The active adult boom is continuing in 2024 – and recent trends and data show it is likely to keep booming, as the property type is outperforming other types of senior housing on some key metrics. But that doesn’t mean active adult is easy to develop or operate, and a keener understanding of the active adult consumer will be especially important for success.
According to the latest NIC MAP Vision tally, there are about 800 active adult properties that total more than 116,000 units across the U.S. On average, these communities carry an occupancy rate of about 93%, which is significantly higher than the current senior living industry average. They are also relatively new communities, with a median age of nine years and an average of about 138 units per project.
Looking ahead, the demographics support continued census growth, with 2.2 million adults 65 and older expected to hit the rental market for senior housing in the next decade, according to NIC MAP Vision. Furthermore, active adult penetration rates are still relatively low nationwide, which shows more room to grow.
As it has been stated before, active adult has significant nuances that could trip up new entrants into the space if they are not careful. I recently spoke with a handful of leaders at companies undertaking big active adult plans, and came away with the notion that they are focusing much of their efforts on delivering what customers will want in the years ahead.
That might sound like a logical and perhaps even an easy effort, but the nuanced and varied expectations of the boomers make it an endeavor that is not always straightforward. In the opinion of Headwaters Group Managing Partner Ben Burke, that is why active adult companies in 2024 need to be “highly focused on the customer.”
“Understand why they are making the move, what their other options are,” he told me.
In this members-only SHN+ Update, I analyze recent interviews and trends to offer the following takeaways regarding active adult:
- Current market fundamentals reflect the strength of the product types
- How companies in active adult are focusing on their prospective residents
- Promising concepts to meet the preferences of the boomers
‘Active adult is attractive as it’s ever been’
Multiple companies have spent the last few years readying and deploying plans to grow in active adult. For all their progress, recent NIC MAP Vision data shows there is still far more room to grow.
Although nearly a third of the current number of active adult communities have opened in the past four years, the penetration rate for the product type is still low at only 0.5% among households age 65 to 84, according to NIC MAP Vision. That reflects how new this type of active adult rental product is, compared with traditional senior living, which has a penetration rate of about 11%.
“Active adult is as attractive as it’s ever been,” Burke told me. “The fundamentals related to demand, supply, absorption, and rent growth continue to be strong.”
Markets with the highest penetration rates for active adult include Buffalo, New York; Dover, Delaware; and Austin, Texas – but even these markets’ penetration rates lie between 2% and 2.5%.
According to a recent Green Street report on the active adult sector, “times are still relatively good” for operators and companies in the space, and the firm noted that investors should “overweight” those kinds of holdings. But it’s “not all roses,” either. Like other real estate sectors, active adult companies face some near- and long-term challenges.
Two currently high risks are the time it takes to properly lease up an active adult community and the fact that such projects require careful underwriting as “properties that are treated exactly like multifamily have a high probability of failing,” according to Green Street.
A relatively easy entitlement process means there are fewer barriers to new supply than traditional senior living – a “medium” risk to keep an eye on, Green Street noted. Two other low but current risks noted by Green Street included older adults aging in place at home, and the phenomenon known as “acuity creep,” which would transform today’s active adult community into tomorrow’s independent living or assisted living community.
Despite those challenges, “the sector will likely see outsized rent growth in the near-term as the industry continues to grow and the demand/supply imbalance remains intact,” wrote the authors of the Green Street report.
All about the residents
Among the biggest mistakes that companies chasing active adult make is gearing the apartments to the wrong audience.
“Active adult residents do not wish to live in traditional multifamily, surrounded by younger age cohorts, and are generally more independent, active, and lifestyle-focused relative to residents in traditional senior housing facilities,” the Green Street report reads.
Between 60% and 70% of active adult renters are single women, between 80% and 90% are retired and the sector’s average age lies in the low-70s, according to Green Street. Residents of active adult communities often desire “socialization and connection with peers.”
Demand for active adult is often driven by older adults downsizing and seeking out congregate living arrangements, or by older adults moving back closer to their children and grandchildren, according to the report.
I can see how it’s tempting to jump into the space. But I think companies – senior living or otherwise – should be careful to understand why a prospect would want to live in an active adult community as opposed to a multifamily or senior living property.
“To succeed as a developer in active adult, you need to focus on the tenants and how they are different from typical multifamily,” Clover President Michael Joseph told me recently. “We all know that most areas do not have active adult projects at all, that is clear when you see how large the demand is versus the supply. So, the most likely groups to develop active adult projects around the country would be existing multifamily developers.”
Joseph believes that multifamily companies don’t always understand the residents they are trying to attract – or what they can reasonably pay. That results in projects that are created with the wrong cost basis.
“We are approached a lot by multifamily developers who will show my team a deal and ask why their numbers don’t work,” he said. “The most common problem is they way overbuild the projects, they don’t understand they need to make them much simpler and less expensive unless they are shooting for the highest end of active adult, where price no longer is a determining factor.”
He added: “They also don’t understand how much less turnover they will see, how much less delinquent/uncollectible rents they will experience and; how this, over a holding period, adds to the ultimate returns they will realize, which overcomes the typically slightly lower initial return active adult generates.”
New active adult evolution underway
Certainly, many active adult developers and operators are well aware of the profile of an active adult resident and are creating models accordingly – but it’s also true that while there might be a typical active adult resident, the baby boomer generation as a whole is a diverse group, and therefore the most successful active adult communities may be those that are geared toward a specific subset of that demographic.
Headwaters believes that active adult residents will want “a social community that is clean, safe, active, located near their adult children and well priced.”
In an effort to reach a new group of older adults, some operators have begun to branch out into specific kinds of active adult communities geared toward resident needs. For example, Greystar is slated to manage communities for Avenue Development under the Viva Bene name that marry middle-market rates with resident access to onsite preventative care.
Indeed, the “segmentation” of active adult was a big topic during a recent NIC MAP active adult webinar.
According to NIC MAP Vision data, wellness is also a big trend in new projects. Many new active adult communities are arriving with amenities geared toward wellness, such as fitness centers and pools; along with personal storage, parking garages, libraries and dog parks. Many of these amenities are driven by residents who desire more wellness-forward services and features, according to Caroline Clapp, senior principal at the National Investment Center for Seniors Housing & Care (NIC).
“We expect variation and new product types to continue to evolve,” Clapp said during a recent webinar. “And we expect developers and operators to also continue to evolve and to customize active adult communities to meet changing lifestyle preferences.”
In some cases, senior living companies are seeking to build units and floor plans that make for easier transitions for the incoming senior living generation.
Two companies that the NIC webinar panelists highlighted as doing so are Treplus Communities, which has built five such communities that have units with dedicated entrances; and Avenida Partners, which has developed 12 active adult communities in as many states.
Other models mentioned during the webinar are True Connection Communities’ “IL-light” model of active adult, and communities with active adult cottages in addition to other kinds of units.
I believe that these and other examples show that active adult companies are deploying interesting and unique models that are aimed at meeting the preferences of future residents. And given how diverse the baby boomer generation is, the market no doubt will support a variety of models. The key to success will likely come down to understanding the particular desires of the aging population in a particular market or submarket, as well as humility and nimbleness on the part of owners and operators to learn lessons and adjust to what the market is telling them.
In other words, while it might seem that active adult cannot be built fast enough to meet burgeoning demand, taking a cookie-cutter approach in order to achieve rapid development is likely a foolhardy approach. As in higher-acuity senior living, I anticipate that companies putting the consumer at the center of strategic planning today will be those that achieve the greatest success in the long term.
Companies featured in this article:
Avenue Development, Clover Group, Greystar, Headwaters Group, National Investment Center for Senior Housing & Care, Treplus Communities, True Connection Communities