The Active Adult Market: Senior Living, Multifamily, or Both?

While many had hoped that the senior housing rollercoaster would begin to level off in 2023, inflation and rising interest rates continue to create uncertainty for the year ahead. Nonetheless, industry members share one common belief: innovation will be key in moving the senior living industry forward.

Demographic patterns in the US leave little doubt that demand in the industry will remain strong. The US Census Bureau projects that the country’s population aged 65 and over will reach 83.9 million by 2050. An aging population ultimately means that the need for senior housing will continue to increase and a potential economic downturn will not have the same impact on the senior housing market as it may have on other real estate asset classes. Unfortunately, operational difficulties within the senior housing sector, including staffing shortages, supply chain issues, and rising expenses, will continue to burden the industry, even amid rising occupancy rates.

Notwithstanding these challenges, senior living providers are finding creative and innovative ideas to meet the evolving demands of the market, and one of the fastest-growing solutions is active adult living.

“Active adult rental properties” have quickly become one of the hottest markets in the industry. But until recently, what constituted an “active adult rental property” was ill-defined and poorly understood. 

Fortunately, the National Investment Center for Seniors Housing & Care (NIC) has established a definition that will aid in establishing a common understanding and give potential investors a better grasp on the market.

The NIC has defined active adult rental properties as market rate, age-eligible, multifamily properties that are lifestyle focused, with general operations and do not provide meals. These properties appeal to younger seniors (with an average move-in age of uppers 60s to mid-70s) with no (or minimal) acuity needs that are seeking to remain independent and maintain an active lifestyle.

In this sense, active adult rental properties resemble traditional multifamily properties, with the important caveat that active adult residents tend to have longer tenures (in the range of 6-9 years) in comparison to conventional multifamily properties, making them particularly attractive to more risk-averse investors. These individuals are looking for a sense of community while unburdening themselves from the responsibilities of homeownership. Maintaining their lifestyle and autonomy is paramount and, consequently, the location and surrounding amenities are extremely important, as residents want to be close to activities, retail, and dining options.

The active adult rental property market has enormous growth potential largely due to increasing demand, a longer length of stay, reduced operational requirements (compared to other senior housing options), potential rent premiums, and no required health care licensure.

Active adult is intriguing both to multifamily developers seeking to “dip their toe” in the proverbial senior living waters, as well as traditional senior living operators looking to capture a portion of the senior population at an earlier and more active age. In addition, at a time when staffing shortages plague the senior living sector, the reduced employee overhead serves to bolster the appeal. These communities have the flexibility to be developed as stand-alone properties or part of a continuum of care community.

As the segment becomes more defined and data becomes more readily available, it is expected that investors and lenders will gain a greater level of comfort with the active adult rental market which will serve to further drive growth and revenue across the sector.

ArentFox Schiff’s Robert Koonin and Cynthia Thomas are members of the firm’s Real Estate Practice