Exploring the Unique Value of Independent Living Facilities

Written by: Thomas Mathew
Director of Finance and Accounting

Introduction

The age of 55 is when life begins!

As individuals grow older and get to the point where downsizing becomes the next natural progression, housing options are significantly limited. Do you move in with your kids? Buy a smaller home? Stay in the large home full of rooms and furniture you never use? Or rent an apartment next to some punk kids? After all, 55-years old is when life officially begins … the kids are done with college … you are no longer paying allowance as your children are now (hopefully) gainfully employed … your family is growing by marriage or though grandchildren … and the dog dies. Yes, that is when life truly begins!

In the past, these were the normal and customary housing options, but as the activity level grows and life expectancy of the older generation increase, the active-older adult community is are exploring living options that allow them to not only downsize, but also to live a more carefree life surrounded by people their age. This ever-growing need has given rise to an asset class of Independent Living that takes the community approach of senior housing, but eliminates the costly elements of nursing, food, beverage, and regulatory requirements of federal, state, and local authorities. 

Independent living can simply be any housing designed exclusively for older adults, generally those aged 55 and over, and the type of residence may vary from apartment-style living to freestanding homes. However, most will have the common theme of being more conducive to aging adults, with easier navigation, lower maintenance and enhanced activities to target the age group. These amenities and community activities vary between facilities, but generally offer arts and crafts, theater outings, holiday gatherings, continuing education classes, movie nights to connect with peers and to foster a community feel.

A common misconception is that independent living and other senior housing continuum of care such as assisted living, memory care, skilled nursing and hospice are all operated similarly. Though all of these asset classes are generally targeting the older demographics, the latter asset types are driven completely by different client needs. For the higher, more acute care level of facilities, the targeted clientele are dependent on care provided by the staff and are thus heavily regulated, with investment returns relying directly on the success of the operator. Independent living, on the other hand, functions very similar to traditional multi-family asset class, with full independent residents, and is not tied down by more rigid regulations.

Reasons for the Move

The motivations for individuals in the 55+ range to move into an Independent living community are primarily centered around opportunities for socialization, transportation, safety concerns, as well as the desire to not have any property maintenance, and the lack of financial security to fully retire.

Need for Socialization
For many in this age group, isolation tends to become a massive problem. As people live longer and are able to have active lives, it creates the desire to be in a setting that will cater to that need. However, even the most active seniors can find it difficult to remain social due to their living circumstances. Independent living communities naturally cause scenarios that promote new friendships and regular socialization.

Transportation
Whether it is declining eyesight or the simple desire to slow down in their driving, transportation by friends, fellow residents or more organized trips can assist those living in an Independent Living community. Having a sense of community with other residents that can assist, is one of the benefits of independent living.

Safety Concerns
Both public and personal safety is important to all residents, regardless of where an individual lives. As individuals age, their health becomes more and more suspect. A simple trip and fall could have long-term ramifications. Additionally, crime statistics are important to everyone within a community; by living in an independent living facility, the sense of community is ever-present and it creates a large universe of individuals to assist in providing real safety, but also a perception and feeling of “safety by numbers” for all residents.

Decrease Maintenance
Many seniors experience a noticeable sense of relief and relaxation when they move into an independent living situation. They no longer need to worry about the endless maintenance of their home and most of these facilities provide house cleaning, appliance maintenance and lawn care services. This allows residents to have more freedom to travel and move towards a more carefree lifestyle.

Delayed Retirement
Even if these active older adults are interested in moving into a house, many of them are faced with the inability to retire due to lack of funds. Although some may have accumulated wealth and savings for retirement, many started later under the assumption of getting ample amounts at the time of retirement through social security as per its design. However, that has not been the case. In 1930, when Social Security was designed to sustain retirees with necessary funds after the age of 65, the average life expectancy was only 61 years old. As seen in the graph below, with life expectancy now at 78 and forecasted to reach 83 by year 2050, it causes a colossal dilemma for Social Security. In addition, according to AARP, the full retirement age has already increased from 65 to 66 and will rise incrementally over the next several years to 67. This will drive traffic into more affordable housing options as part of their retirement solutions.

Baby Boomers for Independent Living

As the targeted demographics for independent living are individuals over 55, it will be the baby boomers who will primarily fill the market pool moving forward.  According to a 2019 report by Texas Demographic Center, there are 1.2 million Baby Boomers (Age 55-73) in Dallas, TX and 5 million in all of Texas. According to BisNow, this Baby Boomer Generation is becoming the largest population cohort in the United States, and it will be up to the developers to ensure that this age group will get what they’re looking for when considering options for residence.

However, just having residential options will not be enough. According to Bisnow, there will be 14.4 million middle-income seniors by 2029, and 56% of them will not be able to afford private-pay senior housing at today’s market rates. This causes a need for residential options that are affordable and can serve the needs of seniors.

Trends

There is no asset class that was left unscathed by the COVID-19 Pandemic. However, product types such as hotels, retail centers and universities– which traditionally relied on tourism, foot traffic or experiential gathering to generate revenues– have been especially hit hard. Due to this, there are some interesting opportunities and innovations that have been presented to the marketplace.

Conversion of Hotel to Senior Housing

With hotels not being able to generate revenue and thus service the debt on their properties in these circumstances, mortgage payments are getting skipped. This creates growing concerns that defaults are on the horizon for many of these assets. Though COVID-19 will eventually come and go, it highlighted a major issue with this asset class to many investors. This has started conversations about the possibilities of converting defaulted hotels into senior housing. The repositioning of hotels into senior housing has merit, given the similarities the two asset classes share: private rooms, large communal spaces, limited food and beverage services, transportation vehicles, designated entrances and delivery areas for supplies and furniture, etc. In fact there are a number of examples of hotel-to-senior living conversions such as by CA Ventures who unveiled Travanse Living at Olathe, a $22 million redevelopment of an old Holiday Inn on the campus of the Olathe Medical Center.

Utilization of Empty Malls for Multi-Use

Even before the pandemic, retail as a whole has been struggling. COVID-19 unfortunately devastated the industry further, especially the bigger brick & mortar stores such as Neiman Marcus, J. Crew, and Tuesday Morning who all recently filed for Chapter 11 bankruptcy. Organizations such as these are planning to close the doors to many of their stores as part of their plan of reorganization.

According to a new report by Green Street Advisors, this will inevitably result in more malls with open spaces, at the risk of failing. Even with the disruption that e-retailers such as Amazon, Ali Baba and others have brought into the marketplace to change the way Americans shop, department stores still account for 60% of anchor space within these malls. This has caused Green Street to predict that “half of all U.S. malls will be shut by the end of 2021.”

For developers and investors, this unpleasant news raises the possibility for empty malls to be repositioned into vibrant, mixed-use developments with senior housing as a component. A prime example of such a use case can be seen through the development by Pathstone Corporation: Skyview on the Ridge. They were able to reposition a shopping center in Irondequoit, New York to include “a $43 million, 157-unit senior living as well as an adult day care center from St. Ann’s Community.”

Partnerships with Universities

For many Senior Housing developers, university partnerships were already a growing industry trend prior to COVID-19. This pandemic has accelerated toward pursuit of intergenerational housing opportunities on college campuses. With  decreasing enrollments, along with financial pressures related to recruiting and retaining faculty, more colleges are exploring co-locating senior housing on or near campus as a solution. This possibility helps schools that have declining dormitory occupancies for the upcoming school year, as a safety measure. Redeveloping these buildings into senior housing keeps them operational while allowing schools to generate revenues from ground and tenant leases. According to industry leaders, it also allows developers to cut costs by not having to put in additional amenities into the building itself. Residents will get access to the existing campus amenities as well as a wonderful environment to walk around. An example of a University making use of this opportunity can be seen by Mount Mary University, a small Catholic college in Milwaukee, who is developing “a $45 million development including independent and assisted living for seniors and nuns, along with single mothers pursuing degrees at the school.”

Final Thoughts

With the needs of the aging population changing, and COVID-19 unfortunately highlighting potential flaws of other previously highly invested asset classes, Independent Living Facilities look to be in an advantageous position. Harvard University’s Joint Center for Housing Studies (JCHS) published a 2018 report that found that 55% of American households (65 million) are headed by someone over the age of 50. This shows the massive economic possibilities that will come from an older national population, the so-called “Silver Tsunami” of the baby boomers. It will be up to the forward-thinking investors and developers to be prepared for this wave, as Baby Boomers absolve themselves of responsibilities and get ready start their new independent senior lives.

Sources

  1. https://www.helpguide.org/articles/senior-housing/independent-living-for-seniors.htm#:~:text=Independent%20living%20is%20simply%20any,style%20living%20to%20freestanding%20homes.&text=While%20residents%20live%20independently%2C%20most,amenities%2C%20activities%2C%20and%20services.
  2. https://www.equitymultiple.com/blog/real-estate-crowdfunding/investing-in-senior-living-facilities/
  3. https://www.bisnow.com/national/news/senior-housing/middle-income-seniors-facing-a-shortage-of-housing-options-99796
  4. https://web.stanford.edu/class/e297c/poverty_prejudice/soc_sec/hsocialsec.htm#:~:text=When%20the%20Social%20Security%20program,for%20a%20much%20shorter%20time.
  5. https://seniorhousingnews.com/2020/05/06/senior-housing-sales-inquiries-down-41-in-april-but-good-signs-for-independent-living/
  6. https://www.aarp.org/retirement/social-security/questions-answers/is-the-full-retirement-age-going-up.html#:~:text=The%20full%20retirement%20age%20(FRA,that%20strengthened%20Social%20Security’s%20finances.
  7. https://seniorhousingnews.com/2020/06/01/3-top-senior-living-redevelopment-opportunities-after-covid-19/

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