Market ripe for age-restricted apartments

Cody Temper Cody Temper

Resident, developer and investor interest make active adult communities attractive

By Cody Tremper

With the country’s 65-plus population forecasted to increase 3 percent per year through 2018, the seniors housing industry must look to the future to adapt to the changing desires of the aging seniors population.

While there are many choices in the for-sale market (single-family homes, townhouses, condos, mobile homes), on the rental side the options are few and far between. For many seniors, a traditional independent or assisted living model is the most appropriate, unless the need exists for a memory care unit or skilled nursing facility. 

However, a subset of seniors desires a different type of community. To meet the needs of this population, age-restricted apartments are a new approach. ASHA defines age-restricted apartments as “multifamily residential rental properties restricted to adults at least 55 years of age or older. These properties do not have central kitchen facilities and generally do not provide meals to residents, but may offer community rooms, social activities, and other amenities.”

The typical age-restricted resident profile tends to be younger than the average independent living resident, is price-sensitive, is generally already living locally and still leads a fairly active lifestyle — they do not require assistance with activities of daily living. In the United States today, there are a select group of real estate developers who have identified this market segment and have begun building properties catering to this exact type of senior resident.

What is the price point?

For the average middle-market senior who prefers a rental lifestyle, the options are generally either a full-service independent living facility (i.e. three meals per day, all-inclusive pricing, “cruise ship” model) or low-income tax-credit housing. The pricing for these two options can vary greatly — in some markets the delta could range by over $2,000 per month.

Monthly rents for independent living averages nearly $2,700, while low-income tax-credit housing can vary between $500 and $1,200 per month, depending on the county. If the average middle-market senior’s monthly income is greater than 50 percent of median county income, they will most likely not qualify for tax-credit housing, and on the flipside, their savings and/or monthly income may not be great enough to afford a full-service independent living facility.

For the seniors who can afford a full-service independent living property, they may not be ready for that type of lifestyle, either because they feel they are too young or they prefer to prepare their own meals or dine out more often. This type of senior is the perfect candidate for an age-restricted apartment.

Why are developers building these properties?

Real estate developers are entering into the age-restricted marketplace to meet the growing demand for this type of product due to the overwhelming growth in the seniors population, combined with the limited supply of this type of quality housing nationwide. While age-restricted apartments are by no means a new phenomenon in the senior living space and have been built in the past, the new wave of real estate developers have tweaked the model to cater toward the changing expectations of today’s senior.

The senior living experience today is vastly different from the institutional-type settings of the past. Developers and operators are drawn to this segment due to the lack of licensure needed, the limited number of employees needed to manage a facility, the limited supply of product, and the resident turnover tending to be lower than industry average.

Barry Metcalf, managing partner of Aspens Senior Living who developed The Aspens at Twin Creeks in Allen, Texas and The Aspens at Central Park in Grand Prairie, Texas, is bullish on age-restricted apartments.

“Through our research of trends within the senior [age 65-plus] demographic, and development of existing Aspens communities, we have identified a wide gap in affordability in the typical offerings in seniors housing,” says Metcalf. “The middle-class segment of the senior demographic is mostly neglected in that they do not qualify to live in low-income senior communities, but cannot afford independent living. Aspens Senior Living has developed a model that fills the gap in affordability, while simultaneously providing an A+ investment property.”

Where are developers building?

Age-restricted properties are typically being built in primary and secondary markets throughout the country. That being said, developers have realized that their average unit count and pricing model cannot typically compete with the unit counts and pricing models of the conventional multifamily developer for Class A infill sites in major metro markets.

This has forced the age-restricted developer to get more creative in searching for land sites. The developable sites tend to be just outside these major metro markets, in the surrounding suburbs, which tend to be less expensive and sometimes have more friendly planning and zoning departments that are eager for new development — especially seniors housing.

Luke Pickett of Wheatfield, N.Y.–based Calamar Capital is an active developer of age-restricted apartments and targets sites specifically in secondary markets. Calamar currently has eight active developments in New York, Nebraska and Missouri and has plans to develop 25 properties over the next three to five years.

“Calamar Senior Living has a ‘Main Street’ strategy,” says Calamar. “The vast majority of seniors today, and in the next 30 years, will be retiring with little to no income and limited balance sheets, as compared to the generation prior. These retiring seniors will need a community that is affordable, safe, enjoyable, and provides a social structure that prevents isolation.

“We recognize that the wealthiest 10 percent of seniors can choose any type of retirement living they want, and that the bottom 25 percent will qualify for some type of subsidized housing — this leaves 65 percent of the population that will need some sort of housing option,” explains Calamar. “We believe that the middle-market senior will want to retire where they currently live, will not want to burden their adult child by moving in with them, and cannot afford to retire to Scottsdale or South Florida.”

What do these apartments look like?

The recent wave of age-restricted apartments tends to model Class A independent living facilities, minus a commercial kitchen. New facilities are typically being built with similar specs to luxury garden-style apartments.

Amenities are designed around the active lifestyle of today’s senior — the customary coffee bars, lounge areas, workout facilities, and movie theaters, but also indoor swimming pools, wellness areas outfitted with massage equipment, studio space for painting and sculpting, woodworking rooms and lounge/bar areas for happy hour events and social gatherings.

Most, if not all of the facilities, are still designing a central gathering space in the main floor of the facility that can host meetings, dining areas for catered events, as well as facility functions including dances or speakers.

How do investors perceive this product?

Age-restricted or “55-plus” communities have been around for quite a while, but the product type has never really been fully adopted or claimed by either the multifamily or seniors housing industry. Typically viewed as “service-light” apartments by the seniors housing crowd and management-intensive headaches by multifamily developers and operators, the new “IL-Light” model is creating its own identity in the spectrum of seniors housing options.

And while the new concept targets the same active seniors demographic, the investors and developers that are focused on this space all agree that the demand for service-light seniors housing is growing exponentially and that the new target resident wants something different than has been available in the past. 

Seniors housing groups believe that they understand the 65-plus demographic best and therefore make up the majority of the new developers branching out into the age-restricted arena. However, multifamily developers see the age-restricted product as comparable to their higher-end products, as they offer significant additional services. These multifamily investors are also attracted to the higher yield associated with age-restricted properties.

The increasing appeal for this type of property lies in how quickly the senior demographic is growing, and how much new opportunity that growth creates in the market for this type of product.

How are these assets marketed?

The marketing and sale process for age-restricted apartments is managed in generally the same way as a seniors product, but differently in that we need to ensure we have both buyer types covered. In many cases, we’ve found that the interest has been evenly split between seniors and multifamily buyers.

ARA recently marketed an age-restricted property in the suburban Chicago neighborhood of Tinley Park. The property was built in 2004 and consisted of 150 units in one building with three levels. At the time of marketing and for at least the past 12 months, the property was close to 100 percent occupied and achieved average monthly rent of $1,260.

The property was pursued both by both seniors housing companies and multifamily firms, but the winning bidder was a Chicago-based seniors housing group. Meanwhile, a similar property in a Houston suburb owned by the same company was also marketed by ARA, and was pursued by both seniors housing companies and multifamily firms, and in this case, the winning bidder was a multifamily group.

The market for age-restricted assets is growing at a rapid pace, and investors are increasingly entering into the age-restricted marketplace to meet this growing demand. Age-restricted apartments have staked their claim as a viable member of the seniors housing spectrum, offering a comfortable, maintenance-free lifestyle for those independent seniors leading active lifestyles.

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