When Pulte held the first open house for its active adult brand’s Del Webb Bexley community in Tampa, Fla., more than 800 prospective home buyers showed up in a development slated to have just 850 homes. The velocity of demand was so strong, the “open” house reached capacity in just a few hours, and spurred Del Webb to break ground on building six new model homes to showcase—and sell—the various options in its newest 55-plus, age-restricted community.
“The response was overwhelming, quite frankly. It definitely feels like the market is there. The demand certainly is,” says Sean Strickler, West Florida division president for Pulte, which is No. 3 on this year’s Builder 100 list (see page 83) of the country’s top builders ranked by closings.
Located just a half hour from downtown Tampa, Del Webb Bexley will be centered around the Meridian, a 17,000-square-foot, resort-style clubhouse that will be home to the Crow’s Nest beverage bar and café and will feature a large social room; a game and cards room; a fitness center; lockers and showers; a heated community pool; pickleball, tennis, and bocce courts; and a full-time on-site recreation and activity lifestyle director. Scenic trails will wind through a 10-acre expanse, which will also feature a dog park, community garden, a wetland preserve with lakes, and an event lawn.
The first Del Webb community to open in the Tampa market since the 1960s, Bexley will offer 18 new energy-efficient home designs, from two to five bedrooms and 1,372 square feet to 3,950 square feet. Prices will start at $239,990. “The community has a lot going for it,” Strickler says. “It’s still very, very affordable relative to some of the other Sunbelt retirement destinations.”
The development is part of a new generation of active adult communities recently launched by Builder 100 firms to cater to the 76 million baby boomers born from 1946 to 1964. For the first time in U.S. history, those older Americans will outnumber children by 2035, according to the U.S. Census Bureau, and already hold nearly two-thirds of the home equity in the U.S., which amounts to $8 trillion.
But Del Webb Bexley represents just one tier of a growing array of products and community types targeting this group that is looking for anything but a typical retirement community. While large, multi-thousand unit tracts are still part of the 55-plus new-home building equation, many of today’s developments are smaller in scale, and offer more inclusive social activity options—think pickleball and bocce instead of golf, and restaurants and cafes instead of a full-blown country club. Still others are eschewing true age-restricted development and the “active adult” moniker altogether for more inclusive “age targeted” tracts, where grandparents, parents, and grandchildren can live together. In other words, much like the cohort they’re targeting, these new communities are not all the same.
“When it comes to serving the boomers, one size does not fit all,” says Char Kurihara, vice president of sales and branding at Elevate Homes, the new age-targeted brand of Rockville, Md.–based Dan Ryan Builders (No. 25 on this year's Builder 100). Elevate is currently selling in two communities in the Raleigh-Durham, N.C., area. “Builders should recognize the need to offer multiple products and communities for these buyers.”
New Outlook
For years, the active adult new-home market has been the domain of lifestyle brands such as Del Webb; Arizona-based Robson Communities (No. 61 on the Builder 100); California-based Shea Homes’ (No. 21) Trilogy brand; and Florida-based Minto Communities (No. 55), which has recently expanded—along with singer Jimmy Buffett’s Margaritaville Holdings—into its escapism-focused Margaritaville brand.
But while those firms, and others, still offer the destination-oriented, large-scale lifestyle amenities traditional active adult communities are known for, other home builders—such as Richmond, Va.–based HHHunt Homes (No. 72); Columbus, Ohio–based public builder M/I Homes (No. 12); Orlando-based Mattamy Homes (No. 22); and Irvine, Calif.–based TRI Pointe Group (No. 15); as well as Dan Ryan Builders’ Elevate brand—have launched into the market to cater to the broader population of active adults who are looking for lifestyle and community options without having to move halfway across the country. Forty-four Builder 100 firms now derive at least some of their revenue from an active adult product line, and 13 attribute 25% or more of their annual sales to the segment. Together these aspects represent a fundamental sea change in the broader new-home buying marketplace, and the underlying characteristics of its customers.
“There’s a real blurring of the lines today between age-restricted versus the broader concept of serving baby boomer home buyers,” says Linda Mamet, vice president of corporate marketing at TRI Pointe Group, which is targeting older buyers with its Life360 initiative. “We really have a lot more flexibility as builders in serving this housing market.”
With boomers making up such a large portion of the population, it only makes sense that home builders are expanding the definition of what targeting this demographic means.
“There are really two groups of people to focus on right now when it comes to building new homes: millennials and baby boomers,” says Jeff McQueen, division president at Shea Homes, who co-founded the Trilogy brand. “But millennial household formation has been delayed, so, the other option is boomers. There’s been a huge pivot in the last five years, post recession, where builders are now offering a single-level plan in almost all communities that caters to an empty nest buyer. Whether they call it active adult housing or not, they’re selling to more and more active adult customers.”
The demand for the active adult market is as diverse as the country’s senior population, says Mamet. “In the past, active adult communities came in one flavor: large scale, in destination locations. But today, there’s just much more of a variety. It’s up to home builders to look at the opportunity in a particular location, and determine how best to serve it.” An example: TRI Pointe’s Pardee Homes, Maracay Homes, and Winchester Homes brands are engaged in six age-restricted and age-targeted communities across California, Arizona, Virginia, and Maryland.
And because the boomer market itself is so vast, builders see ample opportunity in all the various segments. “We’re confident that there’s plenty to go around,” says Pulte’s Strickler.
Age-Restricted Advantages
For firms that are targeting more traditional age-restricted communities, there can be benefits beyond just tapping into the bulging boomer generation with its outsized share of America’s home equity. Since age-restricted active adult communities don’t typically put the same burdens on local schools and roadways—guidelines of the Housing for Older Persons Act prohibit anyone under 19 from living in the house, and retirees don’t usually add more cars to the road during rush hour—municipalities are often more welcoming to them than typical developments.
“The 55-plus, age-restricted communities can definitely get an easier pass,” says Mamet. “There’s more willingness to allow that development to go through the entitlement process because it won’t have the same impact on schools and roads as other types of home buyers.”
Not only is that a stark contrast to the entitlement battles builders have bemoaned in recent years, but it also can have meaningful impact on the price of a house at the lower end of the market. In Florida, for instance, it can be the difference of $30,000, all in, a facet that’s particularly important to retirees on a fixed income, regardless of whether they have equity from another home.
“If you know you’re going to get relief on traffic, and you know you’re going to get the relief on not having to pay school concurrency fees, it allows you to target a price point which is much more attractive to a retiree,” says Bill Bullock, division president of Minto’s Latitude Margaritaville, which was named 2018’s most popular active adult community in the U.S. by 55Places.com. “If you’ve got a $225,000 house, $30,000 in savings is a significant swing.”
And in larger communities—Latitude Margaritaville in Daytona Beach is slated for 3,400 units in its first phase—economies of scale help keep prices down as subcontractors can stay in one place longer, find opportunities to manufacture off-site components, and build velocity.
“A lot of builders will come into a market and build 30 different communities, but that forces vendors to constantly move around to service them all,” says Bullock. “But when we’re doing 500 homes out of one community, vendors can put two crews in that community, six days a week, 52 weeks a year. They never leave, so they start to see the efficiency, too.”
Demographic Challenges
But just because the entitlement process and trade coordination can go more smoothly and for less cost in an age-restricted community, it doesn’t mean that building for this market is any easier. “The boomers are a demographic that has been very successful, and generally speaking, they’ve come to expect great things in life,” says Shea’s McQueen. “Servicing this demographic can be a humbling business.”
Or as Robson Communities’ executive vice president Steve Soriano puts it: “That customer’s home all day. They’re happy to show you nail pops or corners that aren’t perfectly rounded. You’ve got to build to a higher standard.”
You’ve also got to warranty your homes longer. While a one-year warranty may suffice for conventional new homes, Robson warranties its homes for nine. “You’ve got to stand behind your product a lot longer, because you’re in the community a lot longer,” Soriano says. “This isn’t a move in, hit it, get your IRR, and get out play. If all you’re looking at is IRR, don’t bother looking at active adult.”
There is also a larger increased upfront investment because builders and developers need to put amenities in place from day one. “Everyone’s chasing margin, and yes, if you do it right, the margins on active adult are greater,” says Soriano, who estimates margins on active adult can be double those of a conventional neighborhood over time. “But at the start, your margins are awful. You’re feeding it subsidy for the first five to seven years.”
For example, Soriano estimates that since Robson builds out its own water and sewer infrastructure in Arizona, upfront costs on a conventional community might be $15 million, depending on size, but for a true age-restricted active adult community with full-scale amenities, that amount could be closer to $100 million. “It just takes a lot more patience,” he says.
In addition, it’s an increasingly competitive segment of the home building industry. “There’s no question that there are more significant, capable builders who are standing on the pier with their hooks in the water,” says Soriano. “But the supply of what the ocean can offer up is still the same.”
According to Soriano, while there may be upward of 76 million baby boomers in the U.S., that’s not the size of the market for true destination-based, age-restricted, 55-plus home builders. “Only 5% say they’ll move, and then just 3% say they’ll move to a true, age restricted community,” says Soriano of boomers, pointing to the results of a Robson internal survey. “So all the new entrants who are coming into this space are competing for that 3% slice.”
Active adult builders also need to be up to speed with the social programming and resort-style living that true age-restricted communities demand.
“We’ve watched a lot of big, capable production builders try to enter the market and ultimately be unsuccessful because they misunderstand what the product is,” Soriano says, pointing to WCI’s struggle through bankruptcy before ultimately being acquired by Lennar. “The lesson learned is that the house itself is less important than in conventional building. What’s more important is the community—the clubs, the activities, the social aspects. It’s about the RV club that travels together, and the theatre club that puts on a show every week.”
For those reasons, Soriano anticipates the current heightened interest in active adult communities to play out as it has in past cycles. “When times are good, new entrants come to the market, but then the pendulum swings and opportunities are created for those with staying power,” Soriano says. “So, right now there’s expansion, which will inevitably be followed by a perfectly normal cycle of consolidation.”
Wall Street Worries
That being the case, pros say it can be challenging, as a publicly traded builder, to do active adult right and please Wall Street at the same time. Eleven of the country’s 18 public home building firms were involved in the active adult market in 2018.
“As a public builder, you’re watched by Wall Street and there’s a return you have to hit every quarter,” notes Bullock, who formerly worked for Centex. “But doing a meaningful active adult community of any scale that offers real amenities takes incredible upfront capital. And as a public builder, to do that numerous times, it skews quarterly returns.”
From Bullock’s perspective, the upfront costs for active adult can be as much as 10 times more than those for a conventional community, because buyers want amenities in place the day they move in, not at some point down the road. “If you’re trying to launch a new community, they’re not going to be satisfied with the amenities coming in three or four years,” Bullock says. “They want to feel and touch it now. So, for folks who want to enter this market, I’m sure this isn’t a surprise, but there are barriers to entry.”
At Latitude Margaritaville Daytona Beach, those amenities include a town center with a fitness center; a bandshell and concert area; a movie theater; a clubhouse; a business center; a “Barkaritaville” pet spa; the Latitude Bar & Chill Restaurant; and a pool with a beach entry, tiki huts, and lawn games.
None of that comes cheap. For example, concerns over costs raising the price of its homes recently forced Latitude Margaritaville Daytona Beach to put phase 2 of the project on hold when Minto balked at paying $26.5 million for an additional 1,614 acres of land at the site, which would have allowed construction of another 3,000 homes, according to the Daytona Beach News-Journal.
Market Segments
Many of M/I Homes’ Carolina buyers fall into the category of “half backers,” or older boomers who may have initially retired further south, but have now decided to come back up the coast to be closer to family. For that demographic, as well as working-class retirees, the price points M/I Homes focuses on in its age-targeted communities make a new home attainable in the area they want to be. And because older buyers often have home equity already, many can pay cash for a home at the right price. “With our price point, it affords them the opportunity to do just that,” says Beulah.
That approach toward attainability can also work when targeting the younger end of the boomer generation, who will presumably need to make their savings stretch further in a longer retirement.
“Younger boomers need an alternative that helps them make their nest eggs go further,” says Kurihara at Dan Ryan Builders’ Elevate Homes, which is currently building in two communities in the Raleigh-Durham, N.C., area. Kurihara says the company launched Elevate specifically to woo boomers who weren’t interested in the large amenity, high programming flavor of traditional active adult communities. The age-targeted offering packages moderate amenities, a set of distinctive floor plans at the base level, and a range of optionality that allows buyers flexibility in personalizing their home. “The Elevate Homes lifestyle is resonating with them as it allows them to have the active adult lifestyle at a more moderate price,” Kurihara says.
Given the various segmentation within the market, the active adult label sticks to a lot more today than it ever did before. In fact, the trend has become so prevalent that Shea Homes, which to this point has been the sole builder of its Trilogy communities, is now considering opening its brand up to other builders, too.
“We know that a bunch of our home builder brethren are looking to do this,” says Shea’s McQueen. “And we’ve developed a lot of expertise in designing really great communities and clubs, and delivering an amazing lifestyle through the Trilogy brand. So now, we’re exploring how we can open Trilogy’s doors and invite other builders in, too, to create even more product differentiation and deliver more value to that Trilogy customer.”
Now that’s a true expansion of the active adult market.
