Active adult rental housing has been a hot asset class in recent years, but even as this type of senior living has grown quickly, there is still a lot of market share for investors and operators to battle over.
“This is a huge opportunity in our industry to fill a niche … quite honestly, in some markets active adult doesn’t even exist,” Avenue Development Co-Founder Laurie Schultz said during the recent Senior Housing News BUILD Conference in Orlando, Florida.
While industry groups like the National Investment Center for Seniors Housing and Care (NIC) took time last year to define just what active adult is, how active adult projects are carried out can vary by owner and operator.
From offering no care or programming to offering on-site clinics and weekly programming, just what active adult looks like in practice is still up for debate, as the asset class remains in its infancy, GSI Co-President Frankie Pane said at BUILD. As the sector takes its first steps, institutional investors keen on the relative safety of multi-family have made a pivot to considering senior housing investment by way of active adult.
With capital pouring into the active adult space, and providers racing to capture strong demand for senior housing, the active adult market could serve as a development stronghold due to low cost of operations. Some players in the space have noted that the market is “about to explode,” but that’s only if developers and stakeholders can pencil out financing in a challenging rate environment.
Some operators going big on active adult include Charleston, South Carolina-based Greystar, the country’s largest operator of multifamily properties, along with GSI and Avenue Development, with Avenue launching a new brand entirely devoted to active adult. Liv Communities also launched a dedicated active adult brand, Liv+, in 2022. Other organizations keen on entering the space include Chapters Living and Grace Management, with top executives forecasting future growth in the active adult arena.
That’s not to mention entertainment giant Disney (NYSE: DIS) unveiling this year its Storyliving by Disney residential development concept that includes a substantial active adult component.
It appears by all accounts that the race for active adult is well underway, with competition heating up rapidly in popular senior living markets as operators look to get residents into communities sooner than ever before.
Active adult as an antidote to ‘stale’ senior living
What active adult development looks like encompassesa lot of different concepts and property types. From townhomes and condominiums to age-restricted 55+ developments, active adult also border very closely along the independent living fault line in the industry.
From demographic targeting as done by Latitude Margaritaville to cater to lifestyle, to models that place a greater premium on care, just how active adult projects are executed encompasses a spectrum. And a project’s backing is also dependent on whether or not investors are seeking short-term returns or are willing to be a long-term holder, according to Pane.
In order to differentiate products from traditional senior living, operators must consider how to reach reluctant older adults and to demystify the senior living journey. In some markets, that could be as simple as standard marketing efforts to raise brand awareness and differentiate active adult from independent living.
Avenue Development plans to pursue development of active adult in markets where the product type is not heavily built up in order to gain a foothold on any future competition.
“We’ve allowed our industry to go stale, and we’ve allowed people to say they want to stay at home or hold off until moving in late,” Schultz said. “Active adult has come … to answer the consumer demand factor and hopefully the industry can get onboard.”
Through the launch of the Viva Bene active adult brand, Avenue Development wants to charge residents active adult-type rental rates while still offering a care component. That’s done by Avenue partnering with a primary care group to focus programming around wellness and fitness.
“We’re hoping to be different in the active adult space with a niche that does provide some health care services in an unlicensed environment,” Schultz said. “We’re hoping to enter a space where not a lot of people are right now.”
One of the most attractive factors of the active adult space is its wide margins compared to the traditional continuum, and those operators currently in the space should be able to weather the severe development challenges at hand, Pane said.
“They should get through things just fine,” Pane said during the BUILD panel. “Our average length of stay is 8.9 years for our residents and our occupancy in active adult went up during the pandemic.”
In the short-term, Pane said GSI would remain bearish on new starts, but bullish on the sector’s long-term health and opportunities. That means working on pre-development activities across multiple prospective projects to be prepared for groundbreakings on sites in 2025.
“Where interest rates and construction prices are currently at, a community developed two years ago will have significantly lower rents than a community developed now and there remains a decent chance communities developed two years from now could have lower rental rates than those that would be developed now,” Pane said.
Active adult properties are not often traded at the pace of traditional senior living communities, and the relatively strong performance of these communities over the last few years could be reducing pressure that an ownership group may be feeling if performance has dipped more recently. The relative lack of transaction activity also could be attributed to the sector still being “in its infancy,” Pane said.
“There hasn’t been a lot of time for those sales to occur and the first groups to sell will be distressed assets that are pre-marketing. As home values slow, they’ll be up for sale needing a capital infusion,” Pane added. “The other group that could strategically sell might be developers or operators who are having cash flow issues.”
Middle market active adult to capture demand
As demand for senior living grows, so too will the need for more middle market options for older adults unable to afford luxury senior living options. That’s where active adult can come in, Schultz said.
Avenue Development is focused on active adult development with middle market pricing to help capture demand.
That means monthly rents at $1,500 across Viva Bene-branded communities. That rate includes access to programming, and access to the primary care provider offering by billing resident insurance directly.
“We can keep those residents healthier longer to where they don’t have to spend more money to go into a higher setting,” Schultz said. “As an industry, we are not solving for that in any meaningful way.”
With active adult, Pane said operators have a unique opportunity to engage residents sooner and take cues from multifamily development while adding the compassion and care of traditional senior living customer service.
“We can serve more people because we are really the affordable product, because we can bring in the care providers into an economical and well-serviced environment,” Pane said. “We are the solution that just may not have been marketed that way, but that’s what we are at our core.”
Looking ahead, Avenue Development will remain bullish on active adult and the outlook for 2024, Schultz said.
“I think there’s opportunity in the markets that do not have active adult to compete with and some still coming at a lower price point,” Schultz said.
In 2024 and beyond, Pane said he expects to see consolidation of active adult properties into larger operators, with “plenty of opportunity ahead.”
“I think we’re in the crawl period as a sector and we’re going to see the market be a little terror and go all over the place with excitement and energy,” Pane said, harkening back to his infant analogy for active adult. “It’s just a matter of when that dam breaks from drip to full-on.”
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