Why Investing in 55-Plus Communities Makes Sense

This segment of senior housing is primed for growth, but it is not without risks.

What makes the 55-plus market one of the most intriguing in the multifamily sector? The reasons abound as do the number of prospective residents. First, the market is large—valued at $565 billion—and projected to grow at compound annual growth rates of a bit more than 4 percent over the next eight years, according to Grand View Research Inc.

The current 55-plus generation is living longer, healthier lives, with many Baby Boomers preferring to residing alongside people who share active lifestyle interests. Image courtesy of Tellico Village

Second, the 55-plus generation is living longer, healthier lives and many Baby Boomers prefer residing in settings alongside those who share active lifestyle interests, according to a recent NIC white paper on these communities. Younger boomers, 58 to 64, who indicate they will be likely to move in and stay put at 55-plus communities once retired, show a clear preference for maintenance-free active living, as opposed to independent or assisted living communities.

Third, rents in 55-plus adult communities, while not as high as those in independent-living settings, tend to be significantly higher than in typical apartment communities. According to NIC, rent rates at 55-plus properties typically are 10 percent to 30 percent higher than comparable multifamily, and 20 percent to 50 percent lower than independent living properties in the same area.

Fourth, costs are lower. While some communities offer a limited breakfast menu, most do not provide lunch or dinner service, meaning fewer operating costs and less need to surmount the hurdles of today’s labor shortages. In addition, because the communities serve healthier senior citizens, health-care licensure is not required.

Finally, older Americans appear to increasingly desire an intermediate step between leaving their long-time homes and entering continuing-care communities, and see the 55-plus setting as just such a stepping stone, according to NIC’s white paper.

Active upsides

Tellico Village, a 4,800-acre “active retirement community” near Knoxville, Tenn. Image courtesy of Tellico Village

Investment in 55-plus communities makes sense given the vast numbers of Boomers reaching retirement and seeking housing options tailored to active lifestyles, said Boris Dorfman, founder & manager of LBC Capital Income Fund.

They’re lured by the mix of features: Low-maintenance living, safety, security and access to social activities, including those that take place and build into relationships on golf courses and tennis and pickleball courts.

“Since active adult communities often provide a variety of amenities, such as health clubs and recreational facilities, they can attract younger buyers who may not be considering traditional senior living, but still desire a lifestyle focused on health and wellness,” Dorfman said.

Investors shouldn’t fear that 55-plus projects need to be more complex than conventional apartment communities, particularly since lifestyle rather than fancy design tends to be the selling point. An exception might be greater emphasis on design geared toward older adults, said Eugene Colberg, principal of Colberg Architecture.

“You want to have ample lighting, the right materials like nonslip surfaces, and keep in mind technology is best when it is easy,” he observed, adding that in a kitchen layout, “Everything such as cabinetry should be accessible, with soft-close hinges.”

Another advantage is the 55-plus building product offers low barriers to entry in terms of project and operating costs, said Rockland “Rocky” Berg, a writer and speaker on design and development of senior and adult housing communities.

Those low barriers are likely to appeal to developers from a more diverse set of backgrounds than typically enter senior housing. They view the product as an entry point into the rivalrous and lucrative senior market. “The typical active adult solution is an apartment complex with scalable amenities,” Berg said.

Noting negatives

Tellico Village, a 4,800-acre active retirement community near Knoxville, Tenn. Such amenity-rich properties are increasingly sought-out by retired Baby Boomers. Image courtesy of Tellico Village

While there are many selling points, concerns ranging from overbuilding to aging-out of residents must also be considered.

The surging interest in the segment, owing to the many advantages it delivers, carries the risk of too-rapid a pace of development and overbuilding, Berg said. The result could be oversaturation of some markets, particularly in the Sun Belt. That concern was addressed by Beth Mace, chief economist of the National Investment Center for Seniors Housing & Care, who at a 2022 NIC conference urged developers to ensure that land near proposed sites did not have entitlements allowing senior housing in the near term.

Because 55-plus communities generally require one of a household’s residents to be 55-, 62- or 65-plus, based on local government regulations, the size of the potential market is limited. Also, investors must consider need for ongoing upgrades to continue competing with newer properties, said Glenn Brill, managing director at FTI Consulting.

The challenge presented by the 55-plus segment, as for the majority of independent living solutions, is the inevitable aging of the residents. Fifty-five-plus communities, after all, are not continuing care communities where residents can move from independent to assisted living to memory care as mobility declines and needs grow more acute.

“Active-aging buildings are not typically designed and built to the licensing requirements for assisted living or memory care,” Berg said. “But at some point, the residents will require those services. Home health care could provide the required services.”

But that would alter the constituency served, he added.

Finally, incorporating activity may mean tacking on expenses. “Some of these investments may have greater upfront costs compared to more traditional real estate investments due to the additional infrastructure necessary for active-adult communities, such as golf courses,” Dorfman said.

Looking ahead

Reasons exist for optimism regarding 55-plus sector investment over the coming years, Dorfman said. Among them are virtual tours and other tech conveniences making it easier for prospective residents to explore their favored communities’ offerings from the comfort of their current homes. Another: advancements in health care destined to expand the population of healthy prospects seeking activity-filled living.

Berg believes that, for at least the next 10 years, 55-plus communities will lure interested residents to its moderate-cost senior housing as long as communities are positioned correctly in their larger markets.

Successful investment will depend on selection of sites leveraging adjacent and nearby amenities and, he said, “in constructing cost-effective operations in buildings tailored for the target market demographic.”

Read the February 2023 issue of MHN.

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