CREJ - Multifamily Properties Quarterly - May 2016
For generations, the idea of owning your own spot on this great continent was an integral part of the American Dream. Yet, for the first time in over a century, homeownership nationwide has started to decline, with major cities experiencing more pronounced changes in the owner versus-renter landscape. Primary culprits generally are identified as more stringent lending requirements and a younger generation that is more mobile. While numerous studies are commissioned to try to visualize the future housing needs of the younger generations, some savvy investors are looking toward the changing desires of the older, but not yet elderly, generations. Approximately 20 percent of the national population over the next 20 years will be made up of baby boomers (people born between 1946 and 1964) as Americans are living longer, healthier lives, according to the U.S. Census Bureau. Between 2010 and 2013, about 800,000 new renter households were made up of baby boomers, and an additional 2.2 million renters over the age of 65 are projected by 2023, according to Axiometrics, Joint Center for Housing Studies of Harvard University. In Colorado, the over-55 population is estimated at slightly more than 1 million people and is projected to grow 12 percent over the next 10 years, according to the Bureau. This is due in large part to the solid economy of Colorado and the Denver metro area, and statistics show that over 15 percent of relocating older adults are choosing to move to Colorado, The Highland Group reports. Approximately 29 percent of relocating boomers are moving to be closer to family, and 26 percent are moving to reduce home costs. According to a study by Epcon Franchising, Denver ranks sixth among metro areas expected to experience a significant housing gap for baby boomers in the next five years. Until recently, senior rental units consisted primarily of subsidized housing and restricted-rent developments where residency qualification is based on income need. Market-rate senior housing consisted of managed-care campuses that start with independent living, which generally includes, at a minimum, some sort of meal plan and the option to move into higher-care levels as the need arises. For many active adults, age qualified apartments are filling in the gap between homeownership and retirement-campus living. Age-qualified, market-rate apartments are popping up in desirable neighborhoods across the country, offering active, mature adults the opportunity to live without the hassle of home maintenance in a community of people more likely to have similar interests. They typically are restricted to residents 55 years and older (62-plus if Department of Housing and Urban Development). Property managers report that the average age for renters in market-rate, age-qualified housing typically is in the lower 70s, indicating that a portion of residents are still employed. Top priorities for residents at age-qualified housing are location, storage and security. Senior apartments tend to be located in vibrant neighborhoods with superior access to community services and transportation. The residents are mobile and want to stay connected with the outside community. Project amenities are designed to bring residents together since activities generally are resident-driven as opposed to scheduled programming prepared by the property. High demand project amenities include swimming pools, fitness centers, game rooms, theaters, business centers and barbeque patios. Some properties take it to the next level with British-style pub rooms, putting greens, workshops complete with a range of power tools and community gardens. Much like typical multifamily units, the finish level of the units reflects the requirements of the target income bracket for the project. Developers take care to provide multiple storage options with bookshelves, built-in desks and closet organization systems in the units, and offer oversize secure storage closets throughout the property. Residents enjoy entertaining and want the kitchen, living room and dining room to reflect a high-quality finish. Washers and dryers in the units and private outdoor space on a balcony or patio are typical. Rental rates at age-restricted senior properties often are higher than those found at traditional apartment complexes. In exchange for higher rents, residents expect a level of service higher than standard apartment complexes and want to get to know the administrative and maintenance staff. Once in place, these residents move less often, and managers are finding a willingness to sign leases in excess of the standard 12 months. Prospective residents have more time to make a decision between competing properties. Inherent in the higher rents are higher expenses for personnel and administration, security and common area maintenance. Many properties include some or all utilities, allowing the rent to be set at a premium for this convenience. From the owner’s perspective, residents of this type of property generally are gentler on wear-and-tear overall, and there is a lower rate of turnover. While there have been few transactions of age-qualified developments, capitalization rates are likely to be marginally higher than all-age projects due to being more management intensive. For the first time in generations, demographics are shifting for younger and older generations with an increase in renting versus owning. With home prices continuing to rise, more baby boomers are looking at downsizing now when they can get the most money for their home. While many will purchase a smaller home and some will choose to move to a retirement campus, market-rate, age-qualified apartments are filling in the gap, though how much the market can handle remains to be seen.