BOTTOM LINE: MARKET OPPORTUNITIES

APARTMENT FINANCE TODAY • FEBRUARY 2008

Managing Seniors Housing—By Accident

When the Bozzuto Group took over Excalibur Apartments, nearly all the occupied units in the family project were rented to seniors.

By Bendix Anderson

Pikesville, Md.—Every other week, a resident lounge at Excalibur Apartments here fills with dozens of seniors. They break into groups of four for an evening of mahjongg, a Chinese strategy game popular with seniors.

“The older folks are really interested in social events,” said Melissa Gage, a property manager for Bozzuto Management, based in Greenbelt, Md.

Bozzuto spends about $100 per event to provide wine and cheese for the seniors’ game nights. The cost is well worth it, said Gage. Excalibur Apartments wasn’t specifically built as a seniors property, but it’s filling with senior residents anyway, and Bozzuto Management is scrambling to keep them happy.

Excalibur Apartments is just one of the thousands of family apartment buildings across the country with a disproportionate number of residents who are 55 and older, according to seniors experts, who have created a name and an acronym—NORCs—for the phenomenon.

“We call them Naturally Occurring Retirement Communities,” said David Schless, president of the American Seniors Housing Association (ASHA).

Scott Morrison, a regional vice president for Legacy Partners, a Foster City, Calif.-based apartment developer, estimates that one out every five tenants at Legacy’s properties are 55 and older.

The seniors are coming

The nation’s 55-plus population is expected to reach 85 million by 2014, and within five years more than half of all U.S. households will be headed by someone aged 55 or older, according to the National Association of Home Builders.

U.S. residents in this age category often resist moving into age-restricted housing until health reasons force them to, according to seniors experts. The average age of the tenants in many “active adult” projects built for tenants 55 and older is more than 70, according to Evelyn Howard, a market analyst specializing in seniors housing and president of Bethesda, Md.-based Howard & Associates.

For now, most seniors aged between 55 and 65 are choosing to live in housing without age restrictions. Many still live in single-family homes or apartments.

Tenants to keep

Managers want to help seniors stay in their apartments for as long as possible. Senior tenants save managers money because they are much less likely than young tenants to move out. It’s not uncommon for half of the ten-ants at family projects to move out of their apartments in a year. The average turnover rate for senior tenants is a fraction of that, said Morrison.

A lower turnover rate saves managers a lot of money. It costs an average of $1,500 to get an apartment ready to lease again after a tenant leaves, said Morrison. That includes the cost of repainting and replacing cabinets, carpets, and countertops as needed, but not the cost of the management team’s time.

“These are renters that you want to keep,” said ASHA’s Schless, referring to older tenants. He says seniors are less likely to damage an apartment than college students or families with children.

To help keep older tenants, Legacy Partners offers to install seniors-friendly features like grab bars in bathrooms and roll-in showers for seniors with wheelchairs.

Don’t miss seniors

Fair housing law makes it illegal to market apartments as seniors housing if the units don’t have formal restrictions on the age of the tenants who can live there.

However, seniors are unlikely to respond to traditional marketing like print advertisements, said Howard. Instead, they typically rely on recommendations from friends. For example, at Excalibur Apartments, residents are encouraged to invite friends to events like mah-jongg night. Several of the guests to these events have returned to tour the property as potential tenants, said Gage.

Once seniors become interested in an apartment community, they often take months to make the decision to sign a lease. In many cases, they are moving for the first time in decades and may have to sell a home first, said Howard.

For example, one senior who first visited Excalibur Apartments in April signed a lease in December after six or seven visits to the property, Gage recalled. In contrast, younger tenants often visit the property and sign a lease in the same day, she said.

Excalibur Apartments needs all the residents it can get. The property was emptied to make way for a condominium conversion that failed in the spring of 2007 after only 15 units at the 147-unit property found interested buyers.

When Bozzuto began to manage the property in March 2007, Excalibur Apartments had just returned to the market as a rental property and 30 apartments had rented, nearly all of them to residents older than 55, according to the company.

The apartments are now leasing at a rate of about eight per month to a mix of families and seniors. Senior tenants are attracted to the fact that the apartment community is one of few in the area served by an elevator, and that it includes a liberal amount of common space, including a rooftop terrace with a swimming pool, a tennis court, a putting green, and a shuffleboard court.