The best way to bring some of the approximately 77 million baby boomers into your multifamily project may be to sell them condominiums to use as second homes.
Baby boomers already account for about a third of all second-home owners, according to Gregg Logan, managing director for Robert Charles Lesser & Co. “Demand for second-home purchases by baby boomers will continue to grow for at least the next eight to 10 years,” Logan said.
For the next decade, most baby boomers will be in the prime time of life for buying a second home: People who buy second homes are typically between 45 and 64 years old, Logan said.
Anyone born between 1946 and 1964 falls into the baby boom generation – so that the oldest boomers have only just turned 60, while the youngest are 41. With this in mind, in four years, all of the baby boomers will be in the age group most likely to buy a second home.
Demand for second homes
The baby boom generation is significantly bigger than the age groups just before and after it, so that when boomers get old enough to need a certain product, they tend to swell demand.
Certainly not all boomers are likely to buy condominiums as second homes. In one poll, more than half of the boomers surveyed said they would not consider living in a condominium or townhome even if it were less expensive than a single-family home.
But that leaves 38% of boomers who said they would consider a townhouse or condominium. A little more than 5% of the baby boomers strongly preferred a townhouse or condominium, according to Margaret A. Wylde, president and CEO of ProMatura Group, LLC.
“A condominium really is a very acceptable lifestyle alternative for the active adult,” said Bill Slenker, president of Slenker Land Corp.
That’s especially important considering that condominiums account for significantly less than 5% of the nation’s 120 million housing units. Even with the boom in condominium construction, the 116,000 condos started in the first three quarters of 2005 is only slightly more than 5% of the total housing starts for that period, according to the National Association of Home Builders.
To assess the demand for second homes in your market, check the local statistics on tourism. People tend to buy second homes in locations where they have had several happy vacations. The next important question to ask is whether “there is a segment of the tourism market that has the wherewithal to buy,” Logan said.
A good project for second-home buyers should also have a good location in its strong tourist market, within walking distance of restaurants and other amenities.
Views are also important, Wylde said. In a survey of potential homebuyers older than 45, 16% said they were likely to move to a place with a view of fresh water even if they had to pay for the privilege, and 10% wanted a view of the ocean. Green space and mountains also are valued vistas. Actually living on the beach or in the mountains was significantly less important to those polled.
Only 4% said they wanted a view of the city; however 7%, a significant percentage, said they wanted to live in a city.
Less than 2% said that wanted to live on or within sight of a golf course.
Also, second-home buyers will pay more per square foot to live in a smaller space, but typically with nicer finishes, than a typical family project, according to Logan.
“The meat of the market is more in the 1,300- to 1,800-square-foot range,” Logan said. “Two bedrooms/two baths with a den seems optimal.”
Larger condominium units have also sold well in what Logan calls “200%” locations, on the waterfront in prime markets.
Security is also important. “Second-home people definitely want to know that when they leave their home that it will be secure,” Slenker said.
Unfortunately, in a few markets developers are very aware of the growing demand from boomers and may have already overbuilt.
“It’s as if the developers thought that every baby boomer is going to buy a second home in Miami Beach in Florida,” quipped Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies.
The markets with the strongest demand for condominiums for retirement or second homes include South Florida, Las Vegas, Seattle and San Diego, according to Condo-Mania, a report by Wachovia Securities.
Several of these markets are facing a flood of new condominium product. For example, in Las Vegas nearly 8,000 condos have recently been finished or are in the pipeline, according to Wachovia. (For more information on potentially overbuilt markets, see Apartment Finance Today, January/February 2006, page 52.)