The active adult boom is underway – and what occurs in the coming months and years will help shape the product type’s next chapter.

A third of all current active adult inventory has opened in the last four years, with the largest markets including Dallas, Texas, Los Angeles, and New York City.

Succeeding in active adult development is no easy feat and requires operators to have lean operational models, often with few staff on-site at the community.

“They tend to need to be more of a jack-of-all-trades because you can’t turn a margin with eight full-time employees in the building,” said Sparrow Partners CEO Jeff Patterson during a panel at the 2024 NIC Fall Conference.

‘That’s the differentiator’

It’s a common refrain that active adult is not multifamily and has crucial differences. Although that is true, what multifamily firms do – or don’t do – continue to shape and inform active adult’s next steps.

For one, over the coming years, active adult growth could hinge on whether or not multifamily developers enter the space and grow their own platforms.

“Those are the groups that control the size and the ability to bring scale, and they have the pieces of dirt already that we can’t get our hands on,” said Clover Group President Michael Joseph.

Greystar, the largest active adult company currently with 130 properties – not to mention the largest apartment owner in the U.S. – balances its scale and the culture needed to operate active adult communities through a model of having three key full-time positions at each property dealing with sales, operations, and marketing, according to Greystar Senior Managing Director Michael Levine.

Spanning 35,000 residents in Greystar properties, the organization “fed off of” resident ideas and data to craft a new lifestyle program that was revamped five times “because the residents keep changing,” Levine added.

Levine said Greystar is working to bring influences and practices from the hospitality industry to attract new residents and resonate in local markets. The company outsourced accounting services and automated reports to allow staff to interact with residents rather than pouring over metrics in an office. At the same time, Greystar emphasizes preventative maintenance across its portfolio.

“That’s the differentiator between what we’ve learned in the past and what we’re doing right now,” Levine added.

Another problem for active adult developers is reaching the right prospect, with prospective residents often searching for senior housing or senior living, according to Patterson.

Sometimes, even innovative ideas at the start of an active adult project can sour, with Patterson noting how one of the company’s first active adult communities launched a “founder’s club” initiative to boost lease-up, only for the community now to deal with low rent growth.

But raising awareness of exactly what active adult is could be the sector’s “largest hurdle” developers in the space have had to overcome, according to Walker and Dunlop Managing Director Matt Wallach.

“I don’t think any of us realized that what was really required was to become this manic salesperson screaming from the rooftops that active adult is much closer to conventional multifamily than any seniors housing,” Wallach said during the panel.

Those calls have been heard by the broader finance and lending sector, partially due to the sector’s strong performance in census and rate growth during the start of the Covid-19 pandemic four years ago.

“Largely, the lending community does recognize that active adult has probably a better risk-adjusted return, and so we’re seeing better debt terms for active adult [developments], and we’re seeing a much smoother process through the underwriting,” Wallach added.

In order for active adult projects to “break even,” Wallach said operators need upwards of 70 active adult communities to see a return on their investment—something that’s out of the ordinary for a typical senior housing operator not accustomed to scaling quickly.

“You have to run it like multifamily [with] extremely thin margins,” Wallach said.

Greystar has a regional support team of 60 staff that help troubleshoot issues that arise at the community level with the few on-site staff across its communities, Levine said.

This unique nature of the space requires a new type of staff. While a staffing title might be property manager on paper, they could, in reality, be serving as a social director or leasing agent within an active adult community, Joseph said.

But once properties stabilize, there’s potential for them to become “cash cows” in an operator’s portfolio, with stabilization allowing properties to “become a lot easier to manage,” Levine said. Greystar is operating active adult communities with unit retention rates between 76% and 80%, he noted.

“Our best managers spend half their time just meeting people, developing a relationship with them, and organically managing this retention process through relationships,” Levine said.