Two developers share lessons learned.
As the active adult rental segment attracts more investors amid a quickly growing pool of potential customers, a highly interactive session at the 2024 NIC Spring Conference took a deep dive into the product type. Two broad-reaching case studies of successful strategies were highlighted. The audience was also polled throughout the discussion for their input.
The session was led by NIC Senior Principal Caroline Clapp, NIC’s subject matter expert on the active adult rental sector. It is one of the key focus areas of NIC’s strategic plan to increase data and transparency in the segment.
Joining Clapp on stage were two veteran active adult developers: Jane Arthur Roslovic, CEO and co-founder of Treplus Communities; and Robert May, managing director of Avenida Partners.
Putting the discussion in context, Clapp noted that NIC MAP Vision tracks 540 active adult properties with 80,000 units nationwide. The penetration rate among potential residents is less than 1%.
Clapp identified four key factors in a successful active adult strategy:
- Understanding the consumer;
- Choosing a product type, design, and location conducive to downsizing;
- Selecting amenities and activities distinct from traditional multifamily products; and
- Implementing and maintaining a strong sense of hospitality and brand.
Understanding the consumer comes first. “We can’t do enough research,” said May, whose company has been building active adult communities for 14 years. When choosing a location, he focuses first on the demographics, mostly baby boomers.
About 60% of residents come from a seven-mile radius. In his experience, baby boomers have high expectations but need to be educated about the product and lifestyle.
In audience polls, attendees indicated that demographics and opportunities for product diversification were most appealing in the space and that multifamily expertise would best transition to active adult, followed by senior housing. Both Roslovic and May cautioned that neither multifamily nor senior housing expertise were a simple transition into active adult. “Our customer is very discerning,” added Roslovic, whose company has five projects in Ohio. “They are usually coming from a home and think hard about where to spend their money.” The Treplus strategy is to select three sites in a metro area. The company builds communities with roughly 120 single-story cottages. “Municipalities are getting more difficult to deal with,” noted Roslovic.
Both developers emphasized the importance of working with a local team of attorneys, engineers, and construction crews. Another key is understanding the area’s culture and consumer preferences.
Active adult communities should be located near retail shops and service providers. “I like in-fill locations,” said May. “It’s all about activity, connectivity, and accessibility.”
Rental rates are market dependent. But generally, Treplus apartments are priced 20% over multifamily products and 40% under independent living products.
May looks at the same data but generally uses other active adult project pricing as a reference point. “It’s all about selling the value proposition,” said May. Active adult is not a need-based product, he added, but the consumer wants to feel like they will be happier and have more fun at the community.
Desirable Tenants
The active adult tenant profile is attractive to potential investors. Residents typically rent for a period of 5-10 years, lengthier than both traditional multifamily and independent living residents. Compared to traditional multifamily, active adult residents generally are quieter; timelier with payments; and less destructive of property due to lower turnover. “They’re not as sensitive to rent increases either,” said May.
Most renters are downsizing from bigger homes, and designs should take that into account. Communities feature large apartments or attached cottages or villas. Units have lots of storage but no stairs.
A hospitality approach is key. Both developers agreed that successful lease-up and operations largely depend upon the on-site lifestyle coordinator. “You can’t sell the lifestyle without a lifestyle coordinator,” said May. “They are a critical part of the value proposition.” The lifestyle coordinator also provides a tenant feedback loop to the leasing office and property manager, further bolstering residents’ hospitality experience.
Treplus has a resident activity committee that works with the lifestyle coordinator to put programs together. The company has one lifestyle coordinator that serves the organization’s four communities in Columbus, Ohio, and its newly opened community in Dayton. A sixth community is planned for Columbus.
The final audience poll asked attendees for their largest barrier to entry or expansion in the active adult rental space, and access to capital was the first choice, followed by consumer education.
Both developers agreed that pre-leasing is important and begins well before construction. “Education is key the minute you pick the site,” said Roslovic. Both developers build the community clubhouse first, which operates initially as a space for leasing and events. Stabilization at Treplus properties takes 24-36 months from groundbreaking.
Avenida has an informal partnership with Greystar to handle property management. Treplus takes a different approach and self manages its properties.
Both developers believe the active adult rental segment will become institutionalized as the capital markets improve and more investors recognize the opportunity. “There is demand out there,” said May.