Adding Micros to the Mix: New Opportunities in Senior Housing Development
In late 2018, the Harvard Joint Center on Housing Studies (JCHS) published their annual “Housing America’s Older Adults” report in which they remind us that over half of our country’s households are headed by someone at least 50 years old – and that greater longevity means that the number of households headed by people in their 70s, 80s, and 90s is expected to increase exponentially in the coming decades. Thirty years ago, households headed by octogenarians numbered 4.4. million; by 2016 that figure had increased over 71% to 7.5 million. Within the next 20 years, the number of households headed by people in their 80s will more than double again, so designing and building affordable and accessible senior housing has become a critical national challenge.
The make-up of our senior population is changing, too, and while most baby boomers are still a decade or more away from making a move to a retirement community, developers are already scouting out and seizing on opportunities to attract and cater to those on the younger end of the senior spectrum. For people who can manage their daily care needs on their own (or with some assistance from a family member or caregiver) independent living is generally the preferred option, so it makes sense that market analysis by commercial real estate firm CBRE found the independent living segment of the senior housing market currently offers the greatest opportunity for real estate investors. In a similar survey conducted by global real estate firm Jones Lang LaSalle, 30% of respondents ranked independent and assisted living facilities extremely favorable investments.
While some investors point to historical difficulties attracting younger boomers to age-restricted communities, others are exploring options like the development of co-living and all-inclusive micro-apartments for young seniors. Co-living and micro-apartments have been gaining popularity among adults 55+ in recent years, offering an alternative for aging residents who either can’t or don’t want to continue managing and maintaining a property as they transition into retirement.
According to an analysis of recent U.S. Census data undertaken by RentCafe, a rental listing website, renter households headed by people age 60+ are up by 43%, outpacing owner households and growing faster than any other age group. With the number of renters over age 55 having increased 28% between 2009 and 2015, the time is right for developers to take another look at micro-apartments as they provide an ideal, market-rate, senior housing solution and an excellent return on investment.
Early investors in micro-unit development have been reaping the rewards for the last several years now, having discovered the formula for maximizing profits. Constructing smaller units means greater density, i.e., more apartments per building. With traditional apartments, more units necessitate additional high-ticket kitchen and bathroom spaces which increase overall construction costs, yet building smaller, more efficiently-designed units has proven to earn more revenue per square foot for investors than traditional layouts have — and the additional rental revenue easily offset the higher construction and maintenance costs.
The same features that are attracting millennials to furnished micro-apartment rentals appeal to young seniors: convenience, affordability, and quality. By including hotel type services (e.g., housekeeping, laundry, pet care), free wi-fi, shared amenities (e.g., gym and/or pool, beauty salon, concierge) and providing ample common areas, investors and developers have been cashing in on active adults’ desire to live a more stress-free lifestyle with fewer financial responsibilities.
“The main benefit of micro-apartments for seniors is reducing the amount of stuff you’re taking care of,” says Kevin Deck, AIA, of SFCS Architects, a firm that specializes in senior housing. Additional benefits include greater access to transportation, more opportunities for socializing, and lower overall housing costs — essential for the 70% of middle-income boomers who are not confident they have enough money to live comfortably in retirement.
Investors have found that the key to profitability for co-living and micro-apartment has been retaining the units’ full functionality while maintaining a high level of aesthetics; as space gets smaller, factors such as location, interior design, and amenities play a larger role in marketability. Resource Furniture became involved as a partner to a group of heads-up developers who recognized the opportunity to build furnished micro-apartments packaged at a price point that is exceptionally attractive to the resident — and also highly profitable.
Resource plays a larger role in these types of development projects than solely that of a supplier of multi-functional furniture. For the last decade, the company has been increasingly focused on designing modern, multifunctional environments that maximize space for a broad range of clients: commercial, residential and non-profit. With strong ties to New York City’s Citizens Housing Planning Council and a long-standing relationship with architect Pierluigi Colombo, CEO of Clei wall beds, Resource recently had an opportunity to showcase its expertise at Making Room: Housing for a Changing America exhibit at the National Building Museum, a project it co-sponsored together with CHPC and Clei. The exhibit featured “The Open House,” designed by Colombo to demonstrate how thoughtful and flexible design solutions can transform how people – including seniors – can live.
This short video from the exhibit by Builder Magazine highlights how multi-functional furniture and efficient design can address the housing needs of an aging population:
The functionality, quality, and aesthetics of the furniture installed in micro-apartments greatly impacts a project’s ROI. In 2013, Weissman Equities renovated a five-story walk-up in Harlem where the annual rental price in the immediate neighborhood averaged $35 per square foot. After renovating and installing the multi-functional furniture in their 150-225 square foot units, the micro units fetched over $70 per square foot—double the area’s average price and well above original projections.
While no U.S.-based senior housing developer has yet undertaken a dedicated micro-apartment project, they should all be taking a cue from Christopher Bledsoe, co-founder and CEO of Ollie. Ollie’s micro-rental platform was developed with millennials in mind, but Bledsoe and his partners noted that baby boomers are a steadily growing piece of Ollie’s consumer base. Approximately 20% of Ollie renters are 50 or older, Bledsoe told Senior Housing News, and one out of every four email inquiries that Ollie receives is from a boomer. In some Ollie buildings, boomers make up one-third of the residents.
For investors who are ready to take advantage there is every indication that demand for micro-apartments will only increase in the coming years — developers of senior housing should be focused on adding micros to their portfolios.
Sources and Resources:
- “Housing America’s Older Adults,” a supplement to the State of the Nation’s Housing 2018 report, Joint Center for Housing Studies of Harvard University.
- “Making Room: Housing for a Changing America,” by AARP and the National Building Museum (2018)
- “Seniors Housing & Care Investor Survey and Trends,” CBRE Group, Inc. (Summer 2018)
- “Seniors Housing: Investor Survey & Trends,” Jones Lang LaSalle IP, Inc. (Winter 2018)
- “Co-Living Startup Ollie Draws Aging Baby Boomers,” Senior Housing News (November 27, 2017)
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