Sparrow Partners will continue to expand its active adult portfolio in 2025 and beyond, with new construction poised to start again after a pause this year. But there are challenges in expanding after a torrid period of growth for the asset class.
That’s according to Sparrow CEO Jeff Patterson, who spoke with Senior Housing News about plans to expand the organization’s 28 communities under management. Those plans include growth in Florida with three projects under construction, and construction also expected by year’s end in Atlanta.
“Atlanta is our next market and final market for now, and that was always the plan,” Patterson told SHN. “We see demand remaining strong.”
Yet despite that strong demand, consumer awareness remains relatively low, presenting marketing challenges. And active adult communities also must compete against multifamily apartments in some tough markets. The investment and development landscape has been tough in terms of securing both debt and equity, but the tide might be turning on that front.
Challenges on active adult growth
Active adult growth in senior living has occurred rapidly in the last four years, with operators pursuing the age-restricted and lighter-acuity offering to connect with independent, active older adults.
But even with demand remaining strong, challenges to active adult development remain, as Patterson noted Sparrow and other active adult providers’ ability to push rental rates due to high supply of traditional multifamily housing in saturated markets, including Austin and Dallas, Texas and Phoenix, Arizona.
With those markets peaking in terms of available supply, and a 50-year high for conventional multifamily housing, being able to distinguish a brand and stand out remains a challenge.
With developments underway and new units getting absorbed next year and in 2026, Patterson sees a clear path to push on rental rates once the supply comes back down in key Texas and Arizona markets.
“I think fundamentals will continue to improve. I think they can get better, not worse,” Patterson said. “To some degree, you have to find the ceiling and in Dallas, we’re there.”
Development, marketing key to future stabilization
A developer at heart, Patterson said today’s tough climate continues to hinder short-term growth, albeit as optimism abounds following the U.S. Federal Reserve’s action to lower interest rates last month, the first decrease since 2020.
Sparrow’s last new construction start came in March of 2023. Thanks to a “small pipeline of deals” coming down the pike, Patterson sees 2025 as a year to potentially begin building once again.
“Hopefully we’ll start five projects in 2025, but it’s been really slow and that’s been typical of the tough environment,” Patterson said.
In reacting to the Fed action to cut rates, Patterson said developers and operators are struggling to secure equity capital, not just debt for financing construction.
But there’s a fine line between developers wanting to see more interest rate cuts and the threat of a potential recession, he said.
“I think you see the light being in the tunnel,” he said. “We feel that in conversations with equity and debt and so it feels better, but the activity is still not where it’s been in the past.”
While traditional senior housing has a penetration rate of between 11% and 12%, Patterson said the active adult sector is still too new to have any data on penetration rates, leaving it up to developers and operators to start projects and pursue deals on unfamiliar footing within a primary or secondary market.
Sparrow has calculated a 1% penetration rate of active adult within Dallas, Texas, while the nature of how older adults find active adult communities remains somewhat mysterious. Sparrow is marketing toward an online search of “apartments near me.”
Active adult rental communities remain an unfamiliar option for many older adults, yet consumers are attracted to the product. For example, Sparrow recently opened a new active adult community in McKinney, Texas that is already at 45% pre-leased, a sign of market strength and the willingness of older adults to consider active adult communities over traditional multifamily living.
Raising active adult brand awareness, improving staffing
Raising the visibility of an active adult brand is key to attracting new residents.
“It’s really hard to create that awareness outside of the typical marketing channels,” Patterson said. “We’re out fishing and we’ve got lures in the water with digital marketing.”
A proven example of elevating the prospects of active adult, Patterson said, is in Dallas, where active adult communities are well-occupied across various brands and operators.
With traditional multifamily developers and operators like Alliance Residential and Greystar having already moved into the active adult space, Patterson said the fundamentals of an active adult project appear similar to a multifamily project but with a longer lease-up period and additional operating challenges.
In order to secure an operating margin within an active adult community, operators must employ “jack of all trades” staff on-site and keep a small roster in order to make a project’s fundamentals work.
Finding talent is another challenge, Patterson said, with the organization working to recruit former multifamily executives to serve in regional management roles given their breadth of experience in real estate.
Another differentiating factor about active adult development, Patterson said, is the relationship management and social skills needed by regional leaders to be able to interact with residents. That is in contrast to multifamily real estate, where prospective renters can fill out applications and request maintenance without connecting with a person, whereas active adult residents want that personal touch point, Patterson stressed.
“I think active adult in perpetuity is going to always have that human element of relationship management,” Patterson said. “When that’s all working, you have higher retention, lower turnover and can get properties to a stabilized basis and have strong rent growth.”
Looking ahead to 2025, Patterson said the company would continue on its ongoing construction projects while potentially listing some communities for sale while retaining management.
“[If] we could sell a handful of deals and develop and start construction, I’d be happy with that,” Patterson said.
