By Matt Valley
DALLAS — The success or failure of an active adult community hinges on whether the operator can deliver on its valuation proposition, and tenants are willing to pay a premium if their lifestyle expectations are met. That’s one of the key takeaways from an active adult panel discussion that took place March 6 during the 2024 NIC Spring Conference at the Omni Dallas Hotel.
Prospective tenants in this real estate niche are experienced, sophisticated consumers who know when they are being sold a bill of goods. They know if leasing people aren’t being sincere, said Robert May, managing director of Avenida Partners, a national real estate development firm with offices in Newport Beach, California, and Nashville, Tennessee.
“They come to our communities for the first time knowing a whole lot more about us than we do about them because of the internet, because of social media, because of that senior network that’s out there,” explained May. “The brand is everything. It’s what they see, it’s what they hear, and they’ve got to feel it. They’ve got to feel that you’re really there to deliver that value proposition, that lifestyle that they are looking for.”
For traditional multifamily developers weighing the idea of entering the active adult arena, May sounded this note of caution: “It’s a far more complicated demographic than you may have been led to believe. As I’ve said, it’s provincial, it’s demanding. It’s part of the baby boom generation that really has moved our economy, and their expectations are high. You’ve just got to understand it and address it. It’s not a commodity yet.”
Jane Arthur Roslovic, CEO and co-founder of Columbus, Ohio-based Treplus Communities, said the company self-manages its properties because the company is adept at it. “We feel that managing the properties is part of our brand, and we understand the level of customer service and want to be in control of that level of customer service.”
A Fledging Segment of Multifamily
Joining May and Roslovic on stage in Dallas was Caroline Clapp, senior principal at NIC, who served as panel moderator and began with an overview of the sector. NIC MAP Vision is currently tracking about 540 active adult rental properties with over 80,000 units. The penetration rate among households ages 65 to 84 is still less than 1 percent. That is far below the penetration rate of 10 to 12 percent for the average seniors housing market (independent living and assisted living).
The Dallas market boasts the largest number of active adult units at 6,500. Even so, the penetration rate locally is still only 1.2 percent, said Clapp.
NIC defines active adult as rental properties that age-eligible, market rate, multifamily communities that are lifestyle focused; general operations do not provide meals. The property must restrict residents based on age. This typically means at least one “qualifying” resident in the household must be 55+, 62+, or 65+, depending on the local governing jurisdiction.
The average age of active adult residents ranges from 72 to 74, which skewers lower than independent living. The average annual turnover is 20 percent versus 50 percent for traditional multifamily properties.
Treplus, which currently operates four communities in the Columbus and Dayton areas with a fifth one set to open soon, builds single-story, ranch-style apartments for the active adult. The units range from 1,000 to 1,500 square feet. Each project is typically 100 to 120 units.
Avenida features two brands. “The value product is kind of a Toyota, our upscale product is a Lexus,” said May. More specifically, Avatar is a lower-cost brand with units ranging in size from 650 to 1,050 square feet. The unit sizes of the upscale Avenida brand range from 750 to 1,350 square feet. “We have historically built in the 140- to 160-unit range. We’ve done as small as 140 and as large as 230,” said May.
The incoming residents at both Avenida and Treplus properties primarily come from the local community. “It’s still a very provincial product,” said May, emphasizing that 60 to 70 percent of residents are going to come from within say a seven-mile radius or a 15-minute drive. “They’re going to be local, and so to be a master of that market is just a really smart way to go.”
Treplus opened its first active adult project in 2017. The company’s strategy is to select three different sites within a particular metropolitan statistical area (MSA), so that the projects can be somewhat clustered. The company gives a lot of weight to the entitlement process during site selection. “As we all know as developers, municipalities are getting more and more challenging to deal with and educate,” said Roslovic. Consequently, working with engineers and attorneys who are knowledgeable of the local community is paramount, she said.
The rents at Treplus properties tend to be about 20 percent higher than rents in the multifamily segment and 40 percent below that of independent living, but various factors can skew that differential in any given market, said Roslovic.
Most Valuable Player?
Avenida employs one full-time coordinator per property. The lifestyle coordinator just might be the most important member of the team because he or she is a key part of the overall value proposition, said May. “I don’t know how you sell lifestyle without a lifestyle coordinator.”
May emphasized that lifestyle coordinators are not simply cheerleaders or gym rats. They act as the eyes and ears of the operator on a daily basis when it comes to assessing the vitality and well-being of the residents.
“They are able to see who is participating and who may be beginning to diminish. They’re also able to connect with the resident about what the resident really wants,” explained May. For example, does the resident have a fitness or nutritional goal? The lifestyle manager relays those observations to the manager of the community and the leasing office. “It’s just an important dynamic. It’s a very organic process.”
Treplus employs a lifestyle coordinator who serves the four properties that it operates in greater Columbus. A resident activity committee works with the lifestyle coordinator to identify the desired programming, and then the lifestyle coordinator makes it happen.
Roslovic said the management team at Treplus has been stunned by how many residents are involved in its community gardens. “It wasn’t an afterthought by any means. It was important, but it has turned into a very important [amenity].”
Capital Infusions, Challenges
May gave a “shout-out” to the capital providers who were early pioneers in the active adult space, including The Carlyle Group, which financially backed Avenida Partners’ Tapestry at Woodland Hills in Tulsa, Oklahoma. The 140-unit, 55-plus community, opened in 2015. “They saw the runway of this product type and the demographic coming through. They agreed to back me — and of all markets Tulsa, Oklahoma. And it turned out okay,” recalled May. Avenida Partners eventually sold Tapestry at Woodland Hills.
Since its inception, Avenida Partners has developed 10 active adult communities across six states, with one more slated to open later this year in Folsom, California and another under development in Colorado Springs, Colorado, according to the company’s website.
Treplus has also courted institutional capital. In May 2021, Treplus and Welltower, the largest healthcare REIT in the country, entered into a new investment relationship aimed at expanding “the best-in-class Treplus product offering into Welltower’s senior living portfolio,” according to a press release issued at the time.
“Welltower has been a really terrific partner with us on all of our projects and their understanding of the active adult space. And we’re thrilled to have them as partners,” said Roslovic during the panel discussion at NIC. She also gave a nod to friends and families on the investment front.
May also recognized the significance of Welltower’s immersion in the active adult space, even though it’s not a partner of Avenida. “Welltower is just a very important part of the ecosystem. As active adult becomes institutionalized and is an accepted investment product type, those with a longer-term perspective are what is really going to create a floor underneath what we’re trying to accomplish.”
May described Artemis Real Estate Partners and The Carlyle Group as investors on the merchant builder side of the business. In short, the capital they provide enables developers to build the product that Welltower and other institutions buy for the long term.
The rising cost of capital and the volatility in the debt financing market is the biggest barrier today for the commercial real estate industry, and the active adult segment is no exception, said May. The Secured Overnight Financing (SOFR) rate, used as a benchmark for commercial real estate lending, has risen from 0.05 percent in March 2022 to 5.3 percent today.
“We’ve all been living that [rising interest rate environment] for the last 18 months or two years. When that unfreezes, we’re all going to be able to take advantage of this opportunity of demand that’s out there. I do believe there’s going to be an extraordinary amount of pent-up demand,” said May.
Consumer Outreach Needed
One priority among leaders in the active adult sector is to educate consumers as well as investors about the strengths of this niche product. Roslovic said she’s had a conversation with NIC President and CEO Ray Braun about the possibility of rolling out an ad campaign touting the virtues of active adult, much like the “Got Milk” ad campaign launched in the early 1990s to encourage the consumption of milk and dairy products.