On June 23rd, 2022, Ben Swett, Editor of The SeniorCare Investor, spoke with two expert panelists on the active adult market, the opportunities within it and the risks. Ben was joined by Jane Arthur Roslovic, CEO and Co-Founder of Treplus Communities, and Leland Manning, Director of Newmark, to discuss what this new asset class even is, which markets are ripe for development and what the current state of the active adult M&A market looks like.
Mr. Swett kicked off the webinar by asking the panelists to define the active adult market, which has taken off over the past few years. Ms. Roslovic and Mr. Manning spoke about active adult as being a “state of mind” for people aged 55 and older. Those looking to enter the active adult space tend to be looking for the social aspect these communities can offer, wanting to form new relationships, do more with their free time and interact with more people.
According to Mr. Manning, the active adult market has taken off in popularity because it targets the front-end of the baby boomer demographic, which is not getting any smaller as people live longer and healthier lives. Additionally, after two years of being socially distanced, people are desperate for a sense of community, and these younger seniors have more flexibility to sell their homes when they want (or when it makes the most financial sense) and downsize before it becomes a needs-based issue.
Ms. Roslovic also spoke about the importance of educating the public on this new asset class. Like with any new asset, there will almost always be uncertainty accompanying it. Because of this, it’s important to market active adult with an educational approach, using digital marketing tactics such as online applications and reach-out programs.
When taking a look into the development market of the active adult sector, there is immense opportunity with low barriers of entry. “Competition is limited everywhere” said Ms. Roslovic, creating the same intensity of demand from the Sunbelt to the Midwest to the Northeast.
An interesting topic of discussion mentioned was the potential of residents renting at multiple active adult communities. This would ultimately allow a resident to spend half the year as an active adult in close proximity to family, and the other half of the year wherever they choose. This kind of “lock-and-leave” choice certainly won’t be widespread, but would be a bonus at communities across the country. And while active adult communities are designed similarly to multifamily, thus making for an easy transition to other housing if needed, strong demand and stickier residents (and some zoning requirements) may not necessitate this. The same goes for the adding of seniors housing services down the line as residents age, with those new
communities having a different risk profile (and higher exit cap rate) if such a conversion took place. Currently, cap rates in this market are roughly the same for market-rate apartments, whether “A” quality or “B,” cottage-style or apartments.
The M&A active adult market is in an interesting spotlight right now. When Mr. Swett asked whether it’s better to build or buy active adult communities right now, the answer was a resounding “Both!” It is an opportunity to both develop and acquire communities that are fit for this sector model. The number of buyers in the space have increased significantly in the last five years, and grown even faster in the past year as we emerge from the pandemic and investors look to take advantage of current demographics.
The panelists covered even more in the hour-long discussion, delving into such topics as whether active adult is a good or bad development for the other seniors housing sectors, what makes a market hot for development and which investors will capitalize on the rising market more: multifamily or traditional seniors housing?
To learn more about the active adult market, you can view the webinar here.
