This story was first published in Multifamily Executive.
Jimmy Buffett is wasting away again in Margaritaville. On Feb. 16, the 70-year-old singer of calypso tunes about flip-flops, boozy cocktails, and cheeseburgers in paradise announced a partnership with Orlando, Fla.–based Minto Communities to bring Latitude Margaritaville—a tropics-themed, “no worries” active-adult community—to a development parcel fronting Daytona Beach.
Complete with a fitness center, aerobics studio, spa, and indoor and outdoor dining with “signature” Margaritaville food and beverage concepts, Latitude Margaritaville is only the first of several destination retirement communities planned by Buffett and Minto as they eye a surging baby boomer demographic now settling into prime empty nest and retirement years.
While millennials continue to enjoy selfie-level attention from multifamily (and, indeed, surpassed boomers in 2016 as the largest living generation, according to Pew Research), baby boomers are still in the driver’s seat when it comes to purchasing power, household creation, and demand generation for apartments across the country, with population experts and developers in the know pegging the demographic as a primary market force over the next decade.
Dan Garibaldi is the managing partner for construction and development at San Francisco–based Carmel Partners, which closed on a $1.025 billion multifamily development and acquisition fund in January 2016. As Carmel looks to deploy that fund into ground-up construction of Class A urban infill, boomers are top of mind as a target customer demographic for luxury core product.
“Every time we open a new community in supply-constrained markets, we have people across the spectrum in terms of age, but our two prime groups are millennials and boomers, and, in some markets, the boomer customer demographic is bigger than millennials,” Garibaldi says. “They’re certainly equal in importance.”
In all, 76 million Americans were born in the post–World War II years between 1946 and 1964, and while some 11 million have died, immigrants continue to swell the ranks of the demographic, which Pew Research pegs at 74.9 million strong (compared with 75.4 million for millennials). As boomers downsize from homeownership and enter market-rate, active-adult, senior, and assisted-living communities, their impact will undeniably be felt the strongest in multifamily.
“We’re forecasting an increase in 55-plus households from 30 million currently to 50 million in 2035,” says Jonathan Spader, senior research associate for the Joint Center for Housing Studies at Harvard University. “That means one in three households will be headed by a boomer, a 67% increase and almost twice the size of the silent generation cohort that preceded them. At every age they hit, they will dramatically increase demand for rental product milestones.”
Indeed, while Spader says market-rate multifamily will continue to see strong demand from boomers as long as the economy supports strong pricing for existing-home sales (allowing empty nesters to liquidate equity and access a more service-driven, multifamily lifestyle), statistically there’s no magic bullet as to where, when, and why boomers will elect to rent versus own. “If you look at the number of boomer households renting, it is jumping dramatically, but it’s not so much because of cultural change; it’s just because they’re so much larger than the group in front of them,” Spader says. “It’s simple demographics.”
So while the investment of Buffett and others in purpose-built boomer communities is sure to attract a fair share of customers, all sectors of multifamily need to prepare for the benefits and challenges of a continued surge in older renters.
“Not only is this massive baby boomer generation now moving into their retirement years, but increased longevity is leading to longer retirements,” says Ken Dychtwald, CEO of Emeryville, Calif.–based Age Wave, a research consultancy focused on population aging and its impact on business and culture. “How and where older adults choose to live will have widespread implications for the different ways homes might be designed, what resources will be needed, and how communities nationwide should prepare for an aging population.”
Dychtwald, who presented at the 2017 National Multifamily Housing Council annual meeting in San Diego, says boomers, more than any other age demographic, are affected by crossing a “freedom threshold” as it relates to housing, resulting in a wide range of options, product types, and amenities that resonate with the demographic.
Jay Hiemenz is the president and COO of Phoenix-based multifamily owner–operator Alliance Residential, the largest developer of rental apartment communities in the U.S., according to the 2016 NMHC 50. Hiemenz says the boomer demographic has been growing in numbers across his company’s conventional rental product, particularly with the recovery in single-family housing prices.
“If you look at our average renter age, it’s been rising as a result,” Hiemenz says. “Boomers’ ability to sell their homes and move into rental housing as a lifestyle choice is a source of demand we underestimated early in this cycle. During the downturn, though there may have been a desire to pursue the more turnkey, maintenance-free lifestyle that renting provides, there was insufficient liquidity in the single-family market to make the move.”
Although Hiemenz doesn’t think boomers will eclipse millennials in terms of demand in absolute numbers, he does expect the customer demographic to continue to grow more quickly, from a renter perspective, over the next several years. “I also think we’re getting better at anticipating that demand by designing product and programming services that cater to the boomers, and, in some cases, Alliance projects will be exclusively baby boomer–focused,” Hiemenz says.
Floor Planning for the Future
Highly amenitized, socially active communities are resonating with boomers and millennials alike, and, as a result, developers are benefiting from the broad-based appeal of these types of communities, offering a one-two demographic punch that has accelerated absorption of newly constructed units. Technology, too, is resonating with older renters, offering developers another way to differentiate new communities from submarket competition (see “Geezer Tech,” below).
Floor plans are one area where developers and leasing managers could have issues in catering to millennials and boomers simultaneously. At Alliance, boomer-centric developments tend to have larger units with few (if any) studios and a larger proportional mix of two-bedrooms as the company continues to get anecdotal comments that residents seek an extra room for guests.
The same is true at Carmel properties where boomers are the dominant customer demographic. “Floor plans tend to be larger and more generous in dimensions, and the bedrooms themselves tend to be larger, with walk-in closets,” Garibaldi says. “Boomers have spent a good portion of their lives collecting belongings, and so the importance of additional storage space is huge.”
The boomer wave isn’t all urban infill and luxury amenities, though. Particularly for single renters, smaller floor plans and less-extravagant communities are currying favor with those who don’t self-define as active adult.
“We sometimes miss the fact that older singles already live in conventional market-rate apartments in significant numbers,” says Greg Willett, chief economist for RealPage, which just completed an analysis of 4 million recent new-lease transactions across the country revealing that 10% of current multifamily households are headed by adults age 65, on average, living alone.
“Rather than opting for new urban properties, these households tend to live in Class B units in all types of settings,” Willett says. “Because these renters are single, they choose the smallest units rather than the bigger plans preferred by downsizing boomer couples.”
As boomers age, however, accessibility will likely become an issue that gradually puts the lower classes of apartment stock out of reach of older renters—an inevitability as the demographic ultimately transitions out of market-rate rentals and into retirement communities and, finally, assisted-living facilities.
“In Class B and Class C, the amount of money needed to retrofit properties for accessibility, or even to just resonate with renters, will be substantial,” Spader says. “If you’re thinking about boomers and renting, there’s clearly a target for an early transition out of their [single-family] homes. That’s the opportunity, and producing the rental product to meet them is the larger challenge, because getting the prices to entice them to sell their homes and move is already here.”