Panelists for “Rational Exuberance: Investing in the Fast-Growing Active Adult Segment” included, from left, Senior Housing Consulting Principal Mitchell Brown (Moderator). Joe Fox, co-founder and co-CEO of Livingston Street Capital. Todd Goldberg, Managing Director of Transactions, PGIM Real Estate. Chad Lavender, Vice Chairman, Healthcare and Alternative Real Estate Assets, Newmark. U.S. Real Estate Services-Active Adult, Greystar Executive His Director Jackie Rhone. Kathleen Reiser is senior director of senior housing underwriting and credit at Freddie Mac.
WASHINGTON, DC — Jackie Rhone of Greystar, a 35-year veteran in the multi-family industry, takes the chase when explaining how the active adult niche differs from the traditional apartment sector for owners and operators. Cut to the right.
“This is the only lifestyle I’ve sold in my career. I’m not selling four walls. They don’t care what your backsplash looks like. We want it to be great, but that’s not what drives them,” says Rhone, referring to future residents of the active adult community. is the lifestyle you are creating, and you cannot create it without people living in the buildings that showcase that lifestyle.”
Rhone, who celebrated Greystar’s 21st anniversary earlier this month, is Executive Director of the company’s US Real Estate Services – Active Adult. Under her oversight, since mid-2019, Greystar’s active adult portfolio has grown from approximately 5,000 units and her 27 properties in 24 states to 17,000 and her 95 properties.
Her remarks were made Wednesday during a panel discussion titled “Rational Exuberance: Investing in the Rapidly Growing Active Adult Segment,” held on the first day of the 2022 NIC Fall Conference.
Approximately 2,800 professionals gathered at the Marriott Marquis in downtown Washington, DC for three days of networking, trading and educational sessions. According to the National Investment Center for Seniors Housing & Care (NIC), the number of attendees increased 15% from last year’s conference.
Senior Housing Consulting Principal Mitchell Brown moderated the active adult session. In addition to Rhone, other panelists included Joe Fox, co-founder and co-CEO of Livingston Street Capital. Todd Goldberg, Managing Director of Transactions, PGIM Real Estate. Chad Lavender, Vice Chairman, Healthcare and Alternative Real Estate Assets, Newmark. Kathleen Reiser is senior director of senior housing underwriting and credit at Freddie Mac.
According to Rhone, one of the keys to the success of Greystar’s expansion efforts has been a significant increase in pre-leasing activity for new zero-development projects. In 2019, on average about 9% of units were released at the time of project delivery, now that figure is his 35%.
Greystar’s 95 properties had a lease renewal rate of 79.2% in August. Meanwhile, the company is seeing double-digit rent growth with lease trade-outs of over 20% in some markets.
The question going forward, says Rhone, is whether the sector can avoid overbuilding. “Will there be an oversupply? [situation] Is it because there are so many markets flooded with active adult products?”
She cites Dallas/Fort Worth as a prime example. “There are over 20 assets in the DFW metroplex and there are many more. That’s why I truly believe in the universe. ”
Throughout the pandemic, active adults have stood out among Greystar’s various business lines, Rhone said. “We remained number one in customer satisfaction and number one in collections. We had zero write-offs/bad debts.
investors become clear
Hours before the panel discussion, the NIC released a white paper defining active adult rental property types. To date, potential investors have not had a common understanding of this segment. Here’s the official definition: General duties do not provide meals. ”
Age Eligibility means that at least one eligible resident in the household must be 55+, 62+, or 65+, depending on local jurisdiction.
According to the NIC, this definition would place a framework on the active adult category and pave the way for centralized data collection on the sector’s growth and performance.
Freddie Mac’s Unwavering Commitment
Since 1998, Freddie Mac has financed $28 billion in senior mortgages and supported more than 1,800 independent living and assisted living facilities nationwide. Historically, Freddie Mac’s age-gated segment was underwritten as part of the agency’s traditional multifamily business. However, this year the senior housing group took over the underwriting of this business segment.
Freddie Mac loans typically have ten-year terms. Ryser said agency lenders are primarily focused on a property’s overall cash flow. More specifically, Freddie Mac assesses what professional management is required to operate a property and whether there are refinancing risks.
Ryser pointed out that operating margins and cap rates for active adults are quite different from independent living or assisted living and can pose some challenges.
Freddie Mac is now looking at the potential for “sight creep” in its active adult properties as residents age.
Rhone sees no evidence of vision loss in Greystar’s portfolio. “What’s really interesting is that our average age is going backwards, not forwards,” she said. The average age of Greystar residents across the portfolio is now 71, down from her 76 six years ago.
“A lot of that is due to the pandemic. “They didn’t want to be alone. We’ve also seen many potential renters walk through our door. Fewer and fewer still have homes to sell.” But this is a big change from just a few years ago.”
unfazed by the pandemic
Living Street Capital’s Fox said his company has been an active buyer of more than 55 active adult communities since 2018, which is relatively early in the cycle.
“I come from the senior housing development side – independent living, assisted living and memory care communities. What we love is that today’s oldest baby boomer is 76. This segment of the population lives longer and lives healthier. .
Fox has observed a significant drop in cap rates in the active adult space. Perhaps it’s because the sector performed so well.
“During the pandemic, we had 99% collections across our portfolio and were doing business, which meant we weren’t closed like assisted living communities. and did many things to protect the community, but we were still involved and people were free to come and go.”
What does Fox believe is the biggest benefit of investing in the active adult space?
“Rent is significantly higher than apartments and at the end of the day significantly cheaper than independent living or assisted living. I think it’s also an asset class that should continue to perform well in 2020. Indeed, the evidence so far supports that. Rents have risen significantly. We have great occupancy. .”
Newmark’s Lavender noted that the average length of stay in an active adult community is almost five years. “Your building is only 20% he a year. Your apartment complex is closer to 60% him, and your senior housing is closer to 70-80% him. So you’re staying longer.” “
The elimination of oversupply in most markets provided additional tailwinds for the active adult sector. According to Lavender, the industry he is 97.5% occupied. “We have very sticky resident tenants with lots of cash in their pockets because most of them have sold their homes and are making big payments.”
— Matt Valley
