The last few years have been tough sledding for many commercial real estate developers, but one asset class bucking the trend appears to be entering a new golden age.
Buoyed by the silver tsunami of 70 million Baby Boomers unshackling themselves from the burdens of homeownership, the 55+ “active adult” category is seeing a surge in activity and investment dollars from coast to coast. According to the National Association of Home Builders, people in the 65-74 age bracket are the fastest growing renter cohort in the U.S., with an additional 2.2 million renters expected to enter the market annually over the next decade. Communities for 55+ generate higher rents and longer tenures compared to traditional multifamily properties, yielding healthy margins for stabilized assets.
While optimism is at an all-time high, there are legal considerations and practical issues in planning age-qualified communities every developer must know inside and out before embarking on the next project.
Many of my clients are surprised by my feedback when reviewing websites, flyers and other marketing materials promoting the latest and greatest 55+ community. They often have no idea the innocent, tranquil image of a smiling group of retirees enjoying drinks around the fire pit can open the door to a federal lawsuit bringing the threat of injunctive action and monetary damages. That’s why it is imperative to understand the do’s and don’ts, particularly for younger developers with limited to no experience in senior housing.
Understanding Federal Guidelines
Restrictions in housing are governed by the Fair Housing Amendments Act (FHAA) of 1988 (42 U.S.C. Section 3601), which prohibits discrimination based on race, religion, sex, handicap, and familial status in the sale or rental of housing and real estate related transactions. Discrimination on the basis of “familial status” includes identifying a community as intended for a particular age group (such as 55+) as well as showing a preference for adults only. Congress later evolved the law by passing the Housing for Older Persons Act (HOPA) of 1995 (42 U.S.C. 3607), which created a limited exception to the general prohibition of discrimination based on familial status, permitting restrictions on children and other age preferences in communities where at least one person 55 years of age or older lives in at least 80% of the occupied units.
HOPA now serves as the legal North Star for age-qualified communities, and all of its requirements must be met before any marketing or advertising is disseminated.
Essentials to Know
So what are some of the key points developers need to know if they want to compete in the 55+ housing arena? While this is not an exhaustive list, covering the below bases will ensure your team is in compliance and ahead of the game while also avoiding costly legal landmines.
- Tailor Your Marketing: Advertising or marketing predicated on an age-restricted message or sales pitch (e.g., “great for retirement”, “perfect for empty nesters”) without fully complying with HOPA regulations makes developers and sales agents immediately vulnerable to individual lawsuits, as well as a potential investigation by HUD. At the outset, a decision must be made on whether it makes sense to make the project HOPA compliant. Before adopting a marketing strategy, developers should also determine whether the community will be open to children and younger adults in order to manage resident expectations and act as a safeguard against potential legal action in the future. If a decision is made to be HOPA compliant, then the community must be promoted with language demonstrating an intent to comply with HOPA such as the 55+ occupant rule.
- Ensure at Least One Occupant Per Unit is 55 or Older: To qualify for a HOPA exemption, a minimum of 80% of units must have at least one resident 55 years or older. The occupant does not have to be the owner, and unoccupied units are not counted when determining compliance. For new developments, the 80% mandate does not kick in until at least 25% of all units are occupied. However, many developers choose to require that all units have at least one resident 55 years or older.
- Consistent Age Verification: Going hand in hand with the first point, HOPA requires regular age verification at least once every two years to ensure compliance. This is typically completed in the form of a resident survey which requires submission of a document such as a driver’s license or birth certificate. Consistent and accurate record-keeping is essential so management can quickly respond to any resident complaints or requests from housing authorities. Issuing a community identification document or card for each occupant provides an effective method of capturing age data for the community.
- State & Local Laws: Developers must also be aware that some state and local laws can be more stringent than HOPA. Investigating local laws right off the bat will provide clarity, and can also save countless hours and dollars lost down the road.
Developers planning age-qualified communities have to clear a higher bar compared to other CRE projects, but those who are conscientious of the requirements and committed to working with experienced legal counsel from the get-go are in prime position to reap the benefits. To learn more about how we can help keep you on the right path for your next senior housing project, click here.
