There is a disconnect in the housing market between what many older adults want and what developers have historically built. Older Americans are aging into retirement with sharp preferences, varying budgets and an aversion to what is perceived as institutional care.
They don’t want to be responsible for homeownership or the costs of care-based housing. Nearly two-thirds of people 50 or older believe a place where they can be independent, enjoy amenities and feel connected is appealing.
That growing part of the population has led to the emergence of an active adult product. Defined in 2022 by the National Investment Center for Seniors Housing and Care (NIC), the term active adult refers to age- restricted, market-rate multifamily rental properties that don’t include meals or health care services. These are not for-sale age-restricted condominiums nor independent living facilities.
Instead, this type of property is filling a different need. Most consist of one- or two-bedroom apartments or cottage-style units with lifestyle programming and community amenities, typically offered to adults 55 or older.
There are several factors that make this property type an attractive investment to owners and developers, including higher occupancy, lower turnover and higher renewal rates. Once stabilized, these properties hold steady with consistent demand from a growing society of aging renters.
A demographic wave
The 65 to 74 age cohort is the fastest-growing renter group in the United States and among the most underserved. More than 2.2 million adults aged 65 and older are projected to enter the rental market over the next decade, with the share of renters in that bracket having risen from roughly 6% to nearly 10% over the past decade.
“The 65 to 74 age cohort is the fastest-growing renter group in the United States and among the most underserved.”
Active adult properties are appealing because they’re affordable. Independent and assisted living communities often go for $6,000 or more a month, putting them out of reach for a wide number of people. Active adult property rents are typically 20% to 35% above a standard multifamily property but well below the cost of care-based senior housing. That pricing model hits a demographic sweet spot as renters typically have annual incomes of between $50,000 and $150,000. Many are downsizing solo agers or widowed homeowners converting assets into cash flow.
Equally important to cost is the lifestyle. Prospective residents consistently reject the label of “senior housing.” The resident culture prioritizes fun, fitness and freedom, and properties that offer amenities such as pickleball courts and social events deliver on that expectation. In doing so, they attract and retain a highly stable tenant base.
The sector’s appeal
Investors and lenders have started to pay attention — and for good reason. The average capitalization rate for stabilized active adult properties is around 4.8%, according to the NIC map. That is lower than any other senior-oriented housing type and even competitive with single-family rentals. This rate reflects investor confidence in long-term demand and less operational complexity compared to other senior living segments.
Strong occupancy, long stays and steady renewals make active adult communities a compelling investment. There are only about 800 active adult properties totaling 105,000 units nationwide, with the highest concentrations in the Northeast, Southwest and Pacific regions. Average occupancy rates are between 94% and 96%, and for properties open for more than five years, the occupancy rate climbs to 98%.
Turnover is just 20% to 25% — about half the rate of conventional apartments — while renewals are above 80%, with residents staying for four to five years. However, lease-ups are slower but improving, historically around five to eight units per month, because residents usually downsize from longtime homes.
Lower expenses
The expense profile adds to the appeal. Unlike assisted or independent living facilities, active adult properties carry no clinical staffing costs and no food service operations. Operating expense ratios average about 41%, compared to 66% for independent living and 71% for assisted living. With tenants staying longer and turning over less, the segment offers steady and forecastable cash flows — a combination well-suited for real estate investment trusts (REITs), pension funds and long-term institutional capital.
There is also room to grow. Penetration remains low, with just 0.5% of U.S. households aged 65 to 84 served by active adult rental communities. Supply is constrained, particularly in high-barrier markets where land and capital remain scarce. That translates to limited competition and significant upside for lenders and investors willing to underwrite the model.
Yet while the market is catching on, the fine details still trip up lenders. Many don’t appreciate the nuances of active adult communities and the unique profile of the segment compared to seniors or multifamily housing. That’s where lenders who grasp the mechanics of absorption, tenancy and underwriting can help translate interest into a closed financing.
Applying capital
Although an active adult development doesn’t fit squarely into multifamily or senior housing, it draws on financing tools familiar to both. The product exists, but the active adult sector remains underserved from a capital perspective. Many lenders require education on the segment, struggle with limited available rent and sale comparables, and overlook segment-specific factors. Those who have experience lending to active adult projects are moving deals forward, especially now that the market is beginning to better define what the asset class looks like.
Most projects start with conventional construction debt, followed by a permanent takeout through agency lenders. Fannie Mae and Freddie Mac allow active adult properties to qualify under standard multifamily programs, provided there are no health care services or meal plans.
For sponsors still leasing up when construction debt matures, bridge loans can provide temporary financing underwritten to stabilized value. These are especially useful in the current rate environment, as borrowers are deferring permanent financing until conditions improve.
Equity often comes through joint ventures with private equity funds, REITs, or institutional partners. Portfolios may recycle capital through dispositions or refinancing. A commercial mortgage-backed security or collateralized loan obligation may now include active adult assets.
If the project’s local zoning complies with HUD’s requirements, Federal Housing Administration loans are also an option, particularly HUD 221(d)(4) and 223(f), which provide high leverage and long amortizations. They favor developers with the capacity to manage longer timelines and meet documentation requirements.
Active adult rental housing is now backed by consistent demand and repeatable development strategies. Underwriting is becoming more reliable, and recent trades are giving lenders clearer benchmarks. Cap rates are compressed, reflecting significant investor interest and long-term tenancy holding strong across markets. The segment is starting to perform in ways investors can predict and build around.
Developers are refining site plans, amenity packages and tenant engagement strategies while lenders are becoming more comfortable with lease-up timelines and expense profiles. At the same time, data firms are building more accurate benchmarks, and financing institutions are offering product-specific executions.
Capital providers already working in this space are helping define a housing type that speaks to a generation overlooked by traditional models. Adults entering their 60s aren’t asking for care. They’re asking for control, simplicity and connection. Active adult properties provide them with that. And for capital markets, the case is getting clearer every quarter: This is a segment with room to build.
