Live Case Study on Active Adult

The Real Estate Espresso Podcast

Live Case Study on Active Adult

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An Overview of The ‘Live Case Study on Active Adult’

Welcome to my ‘Live Case Study on Active Adult.’ I am Victor Menasce, a principal at Y Street Capital and the host of the Real Estate Espresso podcast. In today’s episode, I will share with you a live talk that I delivered recently at a conference, focusing on how to pivot a project in today’s challenging real estate environment.

The Journey Of Y Street Capital

Firstly, allow me to introduce Y Street Capital – our company based in Ottawa, Canada, with a significant presence in the U.S, particularly Salt Lake City. We are actively involved in land development, self-storage, development of senior housing, multi-family apartments, and flex multi-tenant industrial fields. We venture across nine states in the U.S. Today, I’ll highlight a land development project in Colorado Springs, a large master plan community of 1783 acres next to Schriever Air Force Base.

Case Study on Active Adult Project in Spokane, Washington

Our case study today revolves around a 257 unit new construction apartment complex in Spokane, Washington. Initially, this project was set to be a market rate apartment, which would have delivered an okay 17% internal rate of return to investors on an annualized basis. However, ‘okay’ is not good enough in today’s environment. So, we decided to pivot our project and reposition our product.

When reviewing a project, it’s essential to consider three significant variables – cost of capital, cost of construction, and income. We believe the only variable you really control is your income, which can be influenced based on product positioning. Hence, the pivot is to differentiate our product and avoid being a market-rate commodity, thus commanding a better rental income.

If we consider senior housing, there’s a wide gap in the rental between market-rate apartments ($1,600-$1,800 a month) and independent living apartments (north of $4,000 a month). To bridge this gap, an emerging segment referred to as ‘active adult’ or ‘concierge’ has been introduced.

Unveiling the ‘Active Adult’ Concept

Active adult buildings in the United States account for only 73,000 units across the nation, but residents tend to stay longer. The concept is amenities-rich, catering to social and community aspects rather than offering meal plans or transportation to medical appointments like independent living apartments do. It’s a level up from market-rate apartments but less demanding than independent living.

The Active Adult Pivot for our Spokane Project

Analyzing the competing product in the market, we found that we could deliver superior value with our active adult concept at equivalent market-rate prices. Adding elevators to our mid-rise structures and a shift in the staffing profile, coupled with an array of amenities, our venture proves promising from a business standpoint.

We’ve taken measures to authenticate our hypothesis by bringing on board a national leader in the active adult segment, Graystar. They are currently providing us with consultancy services and helping us validate our business plan.

Conclusion

By focusing on the active adult concept, we have been able to transform an ‘okay’ project into a highly promising venture. The lesson here is the importance of differentiation and understanding market gaps in real estate. We are optimistic that this active adult project will be a success, serving as a testament to the power of a well-planned pivot. I hope that our case study has provided you with valuable insights you can apply in your real estate endeavours. Thank you for joining us.

Pivoting your real estate project – Checklist
1. Thoroughly understand the market and sub-market dynamics
2. Identify market-rate gaps in housing segments
3. Consider the impact of a pivot on project costs and potential income
4. Align the pivot with the needs and desires of the intended market
5. Collaborate with industry experts to validate the business concept