A.CRE

Age-restricted Community

In commercial real estate, this typically refers to a restriction on residential communities, where residents must be a certain age or older, often 55+. Investors often see these communities to have an advantage based on residents having surpassed periods in life with conflict (such as divorce or income difficulties), where residents may have also downsized from traditional housing and have more steady income (either from fixed pensions or social security payments) than demographics of all-age communities.

Putting ‘Age-Restricted Community’ in Context

Scenario Overview:

Evergreen Capital, a real estate investment firm, is considering the acquisition of Sunridge Senior Living Community, an age-restricted community located in Scottsdale, Arizona. The Senior Acquisitions Analyst, Sarah Thompson, has been tasked with analyzing this core acquisition investment.

Property Details:

  • Property Type: Multifamily – Senior Housing
  • Location: Scottsdale, Arizona
  • Total Units: 150 units
  • Resident Age Requirement: 55+
  • Average Monthly Rent: $2,500
  • Occupancy Rate: 95%
  • Net Operating Income (NOI): $3,562,500 per year
  • Purchase Price: $50 million
  • Cap Rate: 7.125%

Contextual Analysis:

Sunridge Senior Living Community is a well-established age-restricted community designed for residents aged 55 and older. The property features amenities tailored to senior living, including a clubhouse, fitness center, swimming pool, and various social activities that cater to the lifestyle preferences of its residents. The community’s location in Scottsdale, a city known for its warm climate and high quality of life, makes it particularly attractive to retirees.

Investment Rationale:

Sarah identifies several advantages to investing in an age-restricted community like Sunridge:

  • Stable Income Stream: The residents, primarily retirees, often have steady income sources such as pensions, social security, and retirement savings, reducing the risk of rent defaults.
  • Low Turnover Rate: Age-restricted communities typically experience lower turnover rates compared to all-age communities, as residents tend to stay longer once they move in.
  • Market Demand: With the aging baby boomer population, there is increasing demand for senior housing, making this a growth area within the multifamily sector.

Financial Analysis:

Sarah conducts a financial analysis to determine the potential returns on investment:

NOI Calculation:

Given the high occupancy rate of 95%, the total annual rent is:

  • Total Annual Rent: 150 units × $2,500 monthly rent × 12 months × 0.95 = $4,275,000
  • Assuming operating expenses are $712,500 per year, the NOI is: $4,275,000 – $712,500 = $3,562,500

Cap Rate Calculation:

  • Cap Rate = (NOI / Purchase Price) = ($3,562,500 / $50,000,000) = 7.125%

Conclusion:

The acquisition of Sunridge Senior Living Community aligns with Evergreen Capital’s core investment strategy, providing a stable and attractive return on investment. Sarah’s analysis highlights the advantages of investing in age-restricted communities, particularly their ability to generate steady income and cater to the growing demand for senior housing. Given the strong financial metrics and market demand, Sarah recommends proceeding with the acquisition.

Frequently Asked Questions about Age-Restricted Communities

An age-restricted community is a residential development where residents must meet a minimum age requirement, typically 55 years or older. These communities are designed to cater to the lifestyle needs of older adults.

Investors view these communities as stable due to residents often having steady income (e.g., pensions or social security) and lower turnover, as residents tend to stay long-term after downsizing from traditional housing.

Residents at Sunridge Senior Living Community must be 55 years of age or older.

Amenities typically include a clubhouse, fitness center, swimming pool, and social activities tailored to senior lifestyles.

She calculates total rent using 150 units × $2,500 × 12 months × 95% occupancy = $4,275,000, then subtracts $712,500 in expenses, resulting in an NOI of $3,562,500.

The cap rate is 7.125%, calculated as NOI ($3,562,500) divided by the purchase price ($50,000,000).

The aging baby boomer population is increasing demand for senior housing, making age-restricted communities a growing segment in the multifamily market.

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