Two of the hottest niches in real estate are at opposite ends of the housing spectrum — senior and student housing.
According to NCREIF annualized data ending Sept. 30, 2019, senior housing performed better than all other sectors except industrial. The total annual return for senior housing through third-quarter 2019 was 7.8 percent, which compares favorably to the overall NCREIF Property Index’s (NPI) 6.24 percent return, as well as the 5.39 percent return posted for the apartment sector.
Annualized returns for student housing are harder to nail down because the sector is so fragmented, but the growth in investor demand — investment volume more than tripled between 2014 and the end of 2018, reaching $11 billion, according to Real Capital Analytics — indicates investors are finding attractive opportunities.
Senior and student housing also come out on top when looking at cap rates. In 2019, senior housing (excluding nursing care) and student housing had average cap rates of 6.3 percent and 6.1 percent, respectively, compared with the overall multifamily sector’s 5.5 percent, according to Real Capital Analytics.
As the two subsectors rise in prominence, a few investors and developers are looking at them and wondering if it would make sense to combine the two into one building or complex and, thus, one investment. This isn’t as farfetched as it might seem on the surface. Whether you call it New Urbanism (i.e., everything old is new again) or intergenerational living, demographers are discovering that humans of yore might have been on to something. Turns out segregating generations by age isn’t good for anyone.
The social justification for creating intergenerational housing that includes both young and old adults is pretty compelling. Interacting with college students on a regular basis — as opposed to a one-and-done interaction when students visit a senior facility — has been shown to improve overall health for seniors, provide cognitive stimulation and encourage social connectivity. Quality of life is greatly improved.
From the student perspective, the benefits are primarily financial. The few existing models of true intergenerational living tend to provide students with housing at low to no cost in exchange for specific interactions with their elderly neighbors. These can cover a range of contracted activities, such as music performances to transportation to movie excursions to cooking dinners. Students might also be required to engage in social interaction, such as spending a specific number of hours hanging out in the activity room.
When looking at investment benefits, combining the subsectors into one development could help smooth the demand cycle and make full occupancy more likely. Demand for senior housing is flat at the moment but is expected to increase dramatically over the next two decades as the boomer generation reaches and travels through their 80s.
At the same time, student housing is on the opposite track, with demand growing right now, but expected to slow as the college-age demographic shrinks and as the need to update existing facilities — a key driver in current investment opportunities — diminishes.
THEORY MEETS REALITY
While the merging of two generations — and two housing subsectors — looks interesting on paper, it has found less acceptance in practice. A few nonprofits and European housing authorities have taken the plunge, but investors and developers have, so far, been less enthusiastic. The investment characteristics of the two subsectors, as well as property management needs, are just too different.
The fact that true intergenerational living examples are rare, however, doesn’t mean there are none. Judson Manor in Cleveland, for example, began partnering with the Cleveland Institute of Music in 2010 to offer an Artist in Residence program. As part of the partnership, students receive free housing in the group’s University Circle retirement home in exchange for providing cultural programing and performances at all three of Judson’s Cleveland-area retirement communities. According to the Judson Manor website, the program has been a huge success, with both generations benefiting from the interactions. Based on this success, the program has been expanded to include students from the Cleveland Institute of Art and Case Western Reserve University.
While the nonprofit Judson Manor program is often used as an example of a working intergenerational model, it doesn’t speak to the hurdles private developers and investors can face in getting an intergenerational project off the ground. Building and managing a true intergenerational complex presents challenges for a private developer, who needs to answer to investors. If the university is an equal partner because it is supplying the land or management, the developer is likely to find itself mired in a multi-year process involving multiple committees, task forces and layers of approval. A typical multifamily development is up and running in 18 to 24 months. A building on a college campus, however, typically takes several years from concept to reality. And if it is a public university that needs state legislative approval, you could be looking at a decade. Mainstream developers with investors don’t have that long, not to mention the uncertainty of trying to underwrite the timing of legislative action.
ASU Mirabella is a case in point. The two-tower high-rise is being built on the Arizona State University campus as a joint venture between Pacific Retirement Services and University Realty LLC, a subsidiary of the nonprofit ASU Enterprise Partners. An agreement between ASU and Mirabella calls for the parties to enter a 99-year ground lease with Mirabella paying an upfront rent payment of $7 million to ASU, according to Tempe’s East Valley Tribune. Students will not live in the complex, but they will have lots of interaction with residents, who will have access to many of the university’s facilities, including classes and sporting, cultural and entertainment events. The project, which contains 304 apartments ranging in price from $378,500 up to $810,200 along with monthly fees between $4,195 and $5,570, is expected to be completed in 2020 and is already sold out.
While the project appears to be a success, it was not easy getting to this point. After years of committee and task force meetings, the ASU Board of Regents approved the development in 2016. The city of Tempe’s Industrial Development Authority agreed to issue up to $260 million of revenue bonds and lend the proceeds to Mirabella. The project also needed legislative approval, which can only occur when the legislature is in session. Some legislators were unhappy the project was being built on public land and, therefore, would not generate tax revenue for the local and regional areas, but in the end, it was approved.
ASU Mirabella is unusual in that it was built on a large public university campus. Nearly all other on-campus examples are part of small, private educational institutions. For example, one of the oldest of these symbiotic relationships is Lasell Village at Lasell University in Newton, Mass. The college built the retirement community on campus to facilitate lifelong and intergenerational learning. Residents of the village are able to take any course offered by the university. In fact, they are required to commit to 450 hours of learning per year. This learning can take several forms from actual classes to tutoring to traveling to participating in fitness activities. Students and village residents benefit from interacting through shared courses, class modules, research projects, internships and mentoring, as well as providing students with job and intern opportunities. Being able to build the development on its own land certainly helped Lasell make the project a reality, but it still took more years than many developers are willing to put into it. The college approved the plans for the complex in 1992 and began city approval processes that same year. The Village was finally opened in 2000.
WHEN CLOSE ENOUGH IS GOOD ENOUGH
Many of the more successful intergenerational situations have evolved to avoid the university and legislative slow-downs by locating senior housing developments adjacent to or very close to universities, rather than on the campus itself. Residents within these communities usually still have access to university events, while students have access to internship and job opportunities, but the development is more closely aligned to standard senior housing guidelines.
Oak Hammock at the University of Florida, for example, was built on 136 acres adjacent to the university's campus in Gainesville. The development, which is managed by Praxeis, has a master affiliation agreement with the university that provides residents with a Florida Gator ID card and access to most of the university’s education, cultural and sporting offerings. In addition, the retirement provides practicum opportunities for students, as the community’s Wellness Center is run by the university’s College of Medicine; the 22,000-square-foot fitness center is staffed by UF’s College of Health and Human Performance; the College of Dentistry operates an onsite dental suite; and the College of Veterinary Medicine runs an onsite veterinary clinic, whose services include pet-sitting. Transportation is provided at no cost to campus, shopping, cultural and sporting events, as well as to any medical appointment.
Another example of using a close-by location for its development is The Village at Penn State, which is located about a mile from the university. Residents get a Penn State ID card that provides access to the library, tennis courts, a swimming venue and discounted membership to fitness facilities. Tickets are set aside for sports events, and special passes to golf courses are available. Penn State’s Go 60 Program offers free for-credit courses, subject to availability, and residents may also audit classes. Free lectures and courses are offered at the Penn State Center for Healthy Aging.
Other major universities have taken note of the benefits of having seniors and students interacting on a regular basis and have entered into agreements with senior housing managers across the country. Some of the most popular housing units include the Forest at Duke (which was launched by faculty and alumni), Holy Cross Village at Notre Dame, Longhorn Village (which was developed by the University of Texas’ alumni association), Rivers Run (which is affiliated with the Rochester Institute of Technology), College Square at University of Central Arkansas and Vi at Palo Alto at Stanford.
The Kendal Corp., a nonprofit senior housing corporation that promotes lifelong learning, has taken the close-to-campus one step further and developed a franchise-like or federation model. While not involved in the ownership or actual management of its branded retirement homes, it provides a system of care and university interaction that is used by each affiliate. The system has proved so successful, that there are now Kendal senior villages affiliated with and adjacent to or near Dartmouth, Oberlin, Cornell, Denison, the University of Chicago, Amherst, Smith, LaSalle, the University of Delaware, Virginia Military Institute and Washington & Lee University, with more in the works.
MAKING THE GRADE
University-based retirement communities are an increasingly popular form of independent- and assisted-living that puts seniors back on campus and immerses them in the college community while still offering a continuum of care for residents as they age. Although a few models place students and seniors alongside each other in the same building, most take a more symbiotic approach, where the senior complex is either on or near enough to campus that both seniors and students can reap the benefits of intergenerational interaction. Investors have spent decades looking for a successful senior housing model that will attract a well-financed boomer generation. The lifelong learning model that promotes intergenerational interaction and activities might just be the answer.
Sheila Hopkins is a freelance writer in Auburn, Ala.