The sheer number of retirees and seniors who move to Florida are driving a booming independent living facility industry. Where nursing homes and assisted living facilities are also in demand, those facilities that allow for a more “independent” style of living are becoming increasingly popular, according to Krone Weidler, senior housing specialist at Marcus & Millichap in Tampa.

“Twenty years ago, people were retiring and going to nursing homes because that’s what was available,” says Weidler. “Senior housing — and society in general — has evolved to a point where nursing homes have become more medically intense, while assisted living facilities have begun providing medical care, as opposed to being a social model with care.”

To fill the gap for people who don’t need all of that medical care, but who do need the social aspect of group living and some oversight, ILFs began cropping up around the nation.

“The ILF has become a model for individuals who can live on their own but may need to be reminded to take their medication, may get housekeeping service once a week,” says Weidler, “depending on the type of community that they’re in.”

Often called “communities,” the ILFs comprise apartments, townhomes or condos, complemented by the types of services found in assisted living facilities. In Florida, Michael Hargrave, sales and marketing director at the National Investment Center for the Seniors Housing and Care Industry in Annapolis, Md., says Tampa, Orlando and Miami currently have very little in the way of ILFs, compared to other major metros.

“In Orlando, we’ve yet to find any ‘service enriched’ senior housing under construction,” says Hargrave, whose group tracks those facilities with 25 or more units. “There’s a little bit in Miami, and some in Tampa.”

The dearth in Orlando leaves the door open for developers looking to build ILFs in the market. “There’s definitely some opportunity there,” says Hargrave, who expects demand for senior housing of all types to grow over the next few years, putting upward pressure on sales prices and driving down cap rates.

“While returns have decreased, they remain attractive when compared to core property sectors, such as apartments or retail, which has drawn more attention to the market,” Hargrave says. “In addition to relatively high cap rates, investors are taking note of demographic shifts, such as the growing retiree population, that will support a positive outlook for seniors housing well into the future.”

According to Marcus & Millichap’s June Senior Housing Report, among the four seniors housing property sectors (assisted living, nursing home, IL and continuing care), IL facilities continue to record the highest occupancy rates. The median occupancy rate of stabilized IL properties in the top 30 metro areas is slightly below 97%, up approximately 100 basis points over the past year.

Marcus & Millichap reports that approximately 25% of stabilized IL properties are fully occupied. At 98%, occupancy remains highest in facilities offering a mix of IL units along with units serving higher-acuity care, compared to 95.9% for freestanding facilities. Properties in Boston, Baltimore, Washington, D.C., and Philadelphia are posting the highest occupancy rates, all at 98.7% or higher. Developers have taken note, that approximately one-third of the 8,100 IL units underway in the top 30 metros are located in these four markets.

At the same time, sales prices for IL properties have reached record-high levels, with the median nearly doubling last year to $130,000 per unit. Marcus & Millichap attributes the gain to various factors, including the influx of crossover buyers from the traditional apartment sector seeking higher yields in seniors housing. In addition, a few high-quality portfolio transactions closed last year, which provided an extra boost to the marketwide median.

“We expect crossover buyers to remain active through 2006, but cap rates are expected to hold stable in the mid-8% range,” says Weidler, pointing out that most properties are already being priced on pro forma, and rising interest rates will offset near-term improvements in operations.

Changes are also taking place within the facilities themselves, where residents are demanding more amenities and luxuries. “We’re seeing some ILFs offering gourmet restaurant meals,” says Weidler, who sees a time when golf courses, ice cream parlors and even Starbucks become commonplace in such communities.

John Cobb, senior managing director at GE Healthcare Financial Services in Chicago, concurs, and says senior housing facilities being built today are much different than their older counterparts. Developers are paying much more attention to how much activity space to include, whether to build therapy rooms and exactly how to break up (or merge into one) the facility’s dining rooms.

“Right now, you can walk around some of the various facilities and really discern the new from the old,” says Cobb. “Higher-end communities, in particular, have better amenities that range from ample activity rooms to attractive dining rooms to walk-in showers with grab-bars.”

And people are paying for those amenities, according to Hargrave, who says that rents in privately-paid properties range from $1,700 a month to $5,000 a month, with properties like Classic Residence by Hyatt sitting at the higher end of the scale. The high rents have caught the attention of banks and financing firms, both of which are willing to lend on the high-potential properties.

“Project financing hasn’t been an issue in recent years, in terms of the lenders and financers funding projects,” says Hargrave. “On the equity side you’re starting to see pension funds, institutional investors and hedge funds get into the business by providing equity to these companies.”

Bullish on the IL industry’s future in Florida, Weidler says that there are about 54 lenders in the Southeastern U.S. that are actively looking to invest in the market.

“That’s pretty good,” says Weidler, who sees investors moving over from the apartment sector and into senior housing. “Their cap rates (8 or 9 range) tend to be better then what you could get with apartments (5 or 6 range) right now.”