Active Adult Apartments - Thoughts?

From what I have seen these projects are pretty much just age restricted (55+) apartments with weekly events, continental style breakfast (similar to hotel), and concierge service. The rents some of these properties receive blows my mind. I have seen some of these apartments get 30-40% rent premiums above conventional market rate projects. I can see developers trying to underwrite more of these projects to make numbers work and get crushed on the exit. Anyone familiar with these projects? Does the increase in operating expenses net out the rent premium? Are these projects trading at higher cap rates than conventional multifamily? Any insight would be helpful.

 

I have seen some of this stuff come across my desk. Wolff Companies and Inland Group are two large operators. Most of this stuff operates like IL (independent living) at a 65% expense margin. The rent premium is totally dependent on the amenity offerings. Wolff Companies, through their Revel brand loads up their projects with restaurants and spas so their 40%+ premium is justified. They also give credits to all residents for meals, spa, etc. The issue on these projects is the breakeven occupancy is near 70-80%.

In terms of cap rates I would be adding anywhere from 50-100 bps to multifamily product depending on the market and asset quality.

Hope this helps.

 
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This is a new concept that I've been hearing a lot about lately. The investment thesis is basically that retirees will pay 20-30% more to live in a building in which young people who party can't live and because they get continental breakfast (like a 3-star hotel). I know that inland and a couple others have been successful but I'm personally skeptical of model, particularly in down times and in the long term. There just doesn't seem to be any major barriers/differentiators when compared to luxury MF -- it's basically just a new approach to marketing a MF project.

In our market, there is almost no programmatic/functional/design difference between the IL-light/age restricted projects and luxury MF. Much of the latest MF projects in our market are filling with retirees--many of whom want to be by the young and beautiful people! Most of the luxury MF projects have a similar level of community programming; i.e. wine tastings, fitness classes, concierge, community outings/events, etc. The occasional continental breakfast too.

In slow economic times, retirees tend to hold onto their homes, but for medical related issues. There just isn't an impetus to sell a paid-off home at a cheap price to move into an overpriced apartment. From the various people I've discussed the concept with, none of the operator/developers have lived through a downturn yet and none have exited.

Long-term, I see any pricing premium between Luxury MF and IL-Light converging. There's currently a little bit of a boon as developers/equity rush to this new sexy concept. As competition increases there will be compression in rents/spreads.

From an exit strategy standpoint, the first portfolio is out for sale right now. I can't confirm the operator/developer, but seeing how institutional equity reacts will be interesting. What are your comps? Is it luxury MF + a $3/day continental breakfast? A $3/per day continental breakfast doesn't warrant a 20% price premium. Granted, there is so much equity that needs to be placed right now--irrational exuberance--who knows?

Just my $.02.

 

Greystar just finished building a 62+ age-restricted suburban garden-style apartment that is literally a football toss from a Whole Foods type anchored center near a site we just acquired and the rent premiums they have are averaging like $3.75/SF. It's Greystar so the amenity package consists of a full-service salon, concierge breakfast, elevators(3 story buildings), a library, community garden, pool & spa, clubhouse with restaurant, shuttle to the metro/golf courses, etc.

I'm super bullish on active adult SF & MF products that are walk-able to high-end retail. It's not a secret anymore that 65 is the new 35 and this specific group would rather live in an age-restricted community with state of the art amenities. The fact this specific site is close in proximity to high-end retail is just icing on the cake.

 

Carlyle and Greystar have a JV on these. During an equity raise on a senior deal, our broker eluded that Carlyle's long term plan was to integrate healthcare services to end up with an assisted living facility, but without all the regulations on the frontend. Might work, but its really a bet on the silver tsunami coming sooner than later.

“Capitalism: God’s way of determining who is smart and who is poor.” Ron Swanson
 

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