When Tim McCarthy launched Radnor, Pa.–based Traditions of America, he relied on personal experience to formulate a business strategy. "When I started, I was seeing my parents' age," says the managing director of Traditions, a company that focuses on building senior housing. "The thing that was overwhelmingly obvious is that no one was catering to their needs. No one was building new, modern homes with nice community amenities.
So when McCarthy started the company in 1997 (after he began as multifamily developer in 1985), he built a business based on simple, immutable concepts. He mainly stays in Pennsylvania (he says the tax climate benefits retirees), looks for sizable pieces of land that can yield 250 homes at 4 homes per acre, and builds communities with a lot of amenities. He also wants to be in markets with at least 10,000 customers that are age and income qualified because—as McCarthy learned with his own parents—most people want to age in their hometown.
"The major premise of our business plan was that most people want to stay close to home," McCarthy says. "They like where they live. They're going to stay pretty close to where their children and grandchildren live."
That's why it's more than a little ironic that one of McCarthy's best-selling communities relies on transplants from around the country. But, despite the amount of miles these baby boomers are traveling, many of those customers probably would say they're returning home.
A Risky Bet
After a decade in business, McCarthy wanted to expand his business into Western Pennsylvania. He bought some dirt in Harrisburg and another big parcel in Pittsburgh. After that, there was only one market that had the size to accommodate his type of development. But even then, going into State College to buy an 84-acre site for 282 homes 2 miles from Penn State's campus was a bit of a leap of faith.
"Penn State is probably the smallest market we've gone into," McCarthy says. "It has a big university population, but it's still relatively small. We took the risk because of the alumni base."
Traditions' State College Liberty Hill, which has single family detached and some townhomes, provides residents with more to do than just wait for football season to start. The community, which has 13 floor plans, offers many of Traditions' usual amenities such as walking trails, a state-of-the-art fitness center, a heated outdoor pool, a two-story, 10,000-square-foot clubhouse, and a full-time lifestyle director to coordinate activities.
"We get really focused on creating an experience and a lifestyle that's aspirational and better than what customers are living in today [in their current house]," says Nathan Jameson, partner and director of operations at Traditions.
But at Penn State, Traditions also was able to provide a new amenity. "What's really special is that we're a satellite campus for Penn State's Institute for Lifelong Learning," McCarthy says. "Its great program that Penn State has where they take a substantial amount of the university curriculum and they offer it to retirees at really nominal costs. Having that accessible to where you can walk out the door and take a course is certainly a neat opportunity—and you can't fail."
In most of Tradition's communities about one-third of the buyers come from outside of the immediate area. To succeed at Liberty Hill, Traditions would need more than one-third of its buyers to come from outside State College. Basically, the community's success required Nittany Lions to come home.
But when the economy tanked in 2008, McCarthy saw a significant reduction in the number of customers who moved to his communities from other areas. That was especially true at State College.
"I think during a recession people are less likely to move and make a major change," McCarthy says, adding that this affected Traditions' State College community more than the others.
As the economy turned, things changed. Now, Traditions is selling five homes a month at State College. "As the economy started gathering steam a few years ago, our sales took off again," McCarthy says. "The amount of people moving back to State College really picked up. People are able to sell their home. They put major decisions on ice for a few years, and now they're making moves."
In fact, sales are so good, Jameson says, you'd think Traditions was selling in Florida, not Pennsylvania. "State College sales look like resort-style sales on the coast," he says. "Most customers are moving in from out of town because they have an affinity for the university. To be able to perform at that level tells me the university is a substantial driver of traffic and sales."
McCarthy says 99 percent of the residents view Liberty Hill as their primary residence, which he found surprising. "I expected that some people might buy a house at State College to be there during football season," he says, but many live there year-round, give or take a few months. "Plenty of them won't spend the winter there," he notes. "They may own a place somewhere else or go to the Bahamas or somewhere for two or three months and come back by spring."
Staying the Course
Despite the success of Liberty Hill, McCarthy, who has five projects in his pipeline, doesn't expect to start specializing in building active adult communities in areas near colleges and universities.
"We will do it again, but I will not build a business plan around it," McCarthy says. "I don't think it's true that all Americans want to move back to where they went to college. If someone lives in Philadelphia and their kids and grandkids are in Philadelphia, I don't know if they want to pick up and move and move to Penn State or Duke."
Instead, McCarthy will continue to follow the template he began with—build retirement communities near where people live. "For us the priority will be talking to customers, seeing how they're behaving, seeing what they're interested in, and seeing where they want to live," he says. "I don't want to be playing a game of forcing a product on the customer."