Engle Homes Arizona had the usual flourishes at its grand opening ceremonies early last month for Province, a new development in Maricopa, Ariz., outside Phoenix. For company officials, however, the new community debuted with perhaps as much symbolism as fanfare: Province marks the launch of Engle Homes Arizona's first active-adult community. When built out over the next five to seven years, Province will have some 2,100 homes. All of them will be designed to appeal to prospective customers whom Engle hopes would agree that, in the words beckoning from the builder's promotional brochures, “Your Time Has Come.” Builders around the country are likely to be thinking the same thing as they position their companies to capture 55- to 64-year-old home buyers whom many are convinced will be the industry's sweet spot for the next two decades.
That age group accounts for roughly one-fourth of all new homes purchased annually in the United States, and builders are salivating over the prospect of 76 million baby boomers flooding into that bracket over the next 15 years (the first wave turns 58 this year). A sizable number of those newly minted seniors are expected to retire well before they hit 65, and their home buying activity may build to a crescendo that industry observers contend could reach two-fifths of all new-home sales.
“I see this segment as having the same ascension that entry-level had over the last two housing cycles,” said Richard Gollis, founder and principal of The Concord Group, a Newport Beach, Calif.-based real estate advisory firm. Zudi Karagjozi, president and founder of East-Brunswick, N.J.-based Kara Homes, affirmed that impression when he told the Associated Press in February that “wherever the baby boomers went, whatever they wanted, they created a surge in the market. The future of the [housing] market lies in fulfilling their needs as they enter their golden years.”
Not everyone expects that this burst of baby boomers onto the retirement scene will set off an avalanche of new-home sales, particularly in age-qualified communities that seem to be sprouting everywhere (see “Generation on the Move,” page 58). But Bill Becker, a Teaneck, N.J.-based consultant who has watched the retirement market go through numerous transformations during most of his 77 years, says “the pioneering is over.” He says he's convinced the potential business to be garnered from this sector could be so prodigious that by year's end, “every division of the major builders must have active-adult [product] in their portfolios.”
As more builders imagine flecks of gold in boomers' graying temples, those already entrenched in this sector are plotting major expansion initiatives. Pulte Homes and Lennar Corp. each plan to open no fewer than 20 active-adult communities in 2004. Hovnanian Enterprises projects that home sales in age-qualified communities will account for 40 percent of its California division's total closings in 2004, versus 28 percent in 2003, and 13 percent of Hovnanian's total closings nationwide this year, according to spokesman Doug Fenichel. “Active adult will be a significant part of our internal growth,” confirmed George Seagraves, Northeast regional president for D.R. Horton, which is interested in building active-adult communities in all of its markets across the country. “We know we have to do it.”
POTENTIAL FOR MISSTEPS With competition for retirees intensifying, builders are tailoring their communities' homes, amenities, and services to specific buyer niches and income levels. “There are so many submarkets in active adult that you have to choose what you're good at,” noted Julie Knepp, vice president of marketing for Sunrise Colony, a Palm Desert, Calif.-based builder that targets affluent buyers. “We're saying we are exclusive, we are separate, we are private. Most of the people we sell to don't want kids around,” she said.
But consultants and developers worry that some builders are rushing headlong into this market wearing blindfolds, with only the faintest idea of what motivates someone in their late 50s who is about to retire to pull up stakes and purchase a new home. Margaret Wylde, president of Promatura Group, an Oxford, Miss.-based market research firm, pointed to one builder her company worked with recently that stumbled badly when it exported a successful community concept to eight other towns without making any adjustments to it. “You're going to see lots of builders stubbing their toes by mispositioning their product,” she predicted.
At the very least, builders recognize that aging baby boomers view their retirement from a very different vantage than their predecessors. John Burns, a real estate consultant based in Irvine, Calif., has studied both groups and said that boomers are in the market for a “lifestyle” rather than just a house, and many don't think the next house they buy will be their last purchase. Burns has broken down these buyers into 11 “psychographic” groups and has found that customers today are in many ways indistinguishable from previous buyers in terms of their activities, the types of communities they gravitate toward, and even the design of the homes they want. He pointed specifically to recent research he's done in Orange County, Calif., which found that active adults are looking for larger homes with lusher landscaping, and communities that are closer to towns and offer a wider range of social events.
“The group [of potential home buyers] coming to us is very large, very diverse, and defies categorization,” said David Schreiner, Pulte's corporate vice president of active-adult business development. “These customers are making a discretionary purchase, and if you don't have a system to move them through the purchasing process, you will lose 45 percent of your business.”
Pulte breaks down its entire customer base into 11 different subgroups and maintains a databank of 500,000 potential active-adult leads nationwide. To accommodate different buyers' tastes and needs, Pulte markets four active-adult models, including Del Webb's massive Sun City communities with extensive amenities out of which this builder might sell 1,000 homes per year: 500- to 2,500-unit Del Webb communities tailored to specific markets; and smaller age-restricted neighborhoods with abbreviated amenities packages that are marketed under the “Pulte” brand.
Schreiner and other builders noted, however, that all buyers are looking for a variety of experiences framed less by a buyer's age—which, given the propensity of boomers to deny they will ever get old, is relative—than by the breadth of home styles, amenities, services, and environments that a builder can create. “This gives us a chance to broaden our pallet,” suggested Michael Greenberg, senior vice president of home building for Bonita Springs, Fla.-based WCI Communities.
DIVERSIFIED PORTFOLIO Home builders continue to refine the amenities in their active-adult communities in ways that affirm retirees' sense of vigor, purpose, and independence (see “New-Age Lifestyle,” page 56). For example, as it builds out, Engle's 640-acre Province community will include 15 different home styles, a 12,500-square-foot health and fitness center complete with cardiovascular equipment and an indoor pool, five miles of walking trails, a 7,500-square-foot Town Hall for community gatherings and theatrical productions, and a 12,500-square-foot “Social and Activities Center” with a library, cyber café, and music studio. “Societal interaction is very important to younger retirees,” said Karen Murray, Engle's vice president of sales and marketing. “They want to age in place.”
Age-restricted communities won't disappear any time soon: The Villages, Sunrise Colony, Levitt & Sons, and Hovnanian Enterprises' active-adult division are among many companies that build nothing else. However, age-targeted enclaves embedded within communities for all age groups, like Del Webb's Anthem series, are expected to proliferate. “Our owners don't want to retreat from the world; they want to be involved in it,” said Ralph Spargo, general manager of Standard Pacific Gallery Communities, whose first venture into active adult was a 283-unit neighborhood called Talega Valley in San Clemente, Calif., that's part of a larger master planned community. WCI's 1,000-unit Evergreen community in Palm Beach Gardens, Fla., includes homes for first-time buyers, empty nesters, and retirees, and has a clubhouse that runs activities for kids, teens, and adults. “These [home] owners want a multigenerational experience,” said Greenberg.
He added that WCI's communities help retired owners who want to become local volunteers or mentors. Buyers' interest in “socialization” may also explain why college towns are attracting active-adult communities that appeal to better-educated boomers. Burns cited a billboard promoting an active-adult community near the Baton Rouge campus of Louisiana State University as a sign of the times in home building.
SITE SELECTION There is consensus among builders—if not all consultants—that most retirees don't relocate far from where they live. So some builders are placing their communities where large pockets of aging adults already live. Careful site selection has been paying dividends for Victoria Falls, a 609-unit active-adult community in Laurel, Md., located within a 15-mile radius of 140,000 households that have residents 55 years or older with incomes exceeding $50,000. On a single day, 85 of 325 people who toured models in that community committed to purchasing a home, according to Slenker, who developed and now markets Victoria Falls for four builders, including The Drees Co. of Fort Mitchell, Ky.
Land availability and buyer demand are also diverting builders toward smaller communities. Bill Parks, a consultant and demographer whose database tracks more than 1,000 builders, said that the number of active-adult communities with fewer than 300 units grew to 42 percent of the total in 2003, compared to 38 percent in 1999.
As the diversify of home buyers becomes clearer—for example, Slenker said 25 percent of his communities' customers are single—Wylde anticipates an “explosion” in multifamily units for active adults. That trend is revealing itself already in markets like the Baltimore-D.C. corridor where, in March 2003, Beazer Homes USA opened a condominium community called Cedar Ridge at Piney Orchard in Anne Arundel County, Md. This community is comprised of 11 four-level buildings with 297 units that range from 1,439 to 1,963 square feet, and from $209,990 to $275,990. Dan Gregory, general manager of Beazer's Maryland division, pointed to Cedar Ridge's “multi-family product” and “ease of livability” as its strongest marketing suits.
Low-maintenance condos and villas appeal to retirees who prefer what several builders refer to as the “lock-and-leave” lifestyle. And for reasons of convenience and economics, some retirees inevitably wind up renting instead of owning where they live. Most big builders show scant interest in developing rental properties. “It's not in our wheelhouse,” said Pulte's Schreiner. But Wylde suggested that this market segment might merit a second look and pointed to a University of Michigan study which found that 19 percent of 13,097 surveyed households with a resident age 50 or older indicated they would move into all-age apartments.
At least one company, Ellicott, Md.-based Orchard Development, has shifted its focus to age-qualified market-rate rentals. “We believe as many as 20 percent of seniors want to rent, but there hasn't been anything out there for them,” said Earl Armitage, Orchard's president. The company has opened one such age-qualified complex in Montgomery County, Md., and is developing another. Armitage expects these apartments to fetch $1.40 to $1.50 per square foot in rent each month.
Buyers must be 62 to rent these apartments (the threshold Orchard complies with for zoning purposes), but Armitage said he's gotten inquiries from couples in their late 50s. “We tell them you'll have to wait a few years,” he said.
While the rental approach remains an unlikely option for builders, one thing is clear: The amount of housing choices facing boomers in the coming decade is about to escalate dramatically. And so will the stakes for big builders.
New-Age Lifestyle “Healthy lifestyle” and “concierge service” are the operative words that perhaps best describe what the emerging generation of active adults is looking for in today's communities. Golf courses remain big attractions in luring retirees of all ages to resort communities, but builders are broadening their efforts to attract a younger, more health-conscious retiree with a fuller gamut of amenities to satisfy mental, physical, and social appetites.
One-third of homeowners Pulte has polled expect to live to 100 years old. So it's not surprising that active adults would favor communities whose environment helps sustain their longevity. “There is a tremendous emphasis on fitness,” observed Robert Strudler, vice chairman for Lennar, which has built fitness centers at all 28 of its age-restricted communities. “People are living longer so this is becoming a more important factor.” Bill Slenker, a Maryland developer whose company has worked with several big builders, said his communities have on-staff physical therapists and masseuses.
Increasingly, buyers are looking to active retirement communities to provide the kind of activities and personal services that they have become accustomed to while staying at vacation resorts. One of the clubhouses in Levitt & Sons' community in Lake Worth, Fla., includes a demonstration kitchen where cooking classes are conducted. WCI Communities offers Pilates and yoga classes, and Shea Homes' communities offer instruction in meditation and taichi, said that builder's vice president of sales and marketing, Eric Snider. Shea also offers educational classes provide information about far-off destinations where owners can book a trip through a travel agency with which Shea has a strategic alliance.
Some younger retirees, though, have less leisure time because they're still working. Nearly three-fifths of the buyers at Toll Brothers' recently opened Riviera community in East Windsor, N.J., are dual-income couples, said Rich Hartman, Toll's senior vice president. He added that 40 percent of Toll's customers for homes in all of its active-adult communities are employed. These owners are often technologically savvy and have less need for computer classes that once were popular in active-adult communities. What's more important to them is for their homes to be designed and wired for multiple uses.
“This is very much a marketing issue in the way the models are presented,” said Richard Gollis, a California-based real estate adviser.
Learn more about markets featured in this article: Los Angeles, CA.