January 1, 1900

by Stephen M. Eisdorfer

For the past decade, perceived market demand and the preference of local elected officials have made active adult housing an attractive development option. For many areas of New Jersey, however, demand for this type of housing has been satiated. Builders have delayed or halted construction of approved projects. They have cut prices of already constructed units. Over the short run, builders are unavoidably seeking alternatives to active adult development. Pending legislation may make conversion of such communities more achievable, and there are other options as well.

Removing the Active Adult Designation

One option is to change projects from age-restricted to non-age-restricted. As of this writing, legislation allowing for the conversion of such communities has passed both houses of the New Jersey Legislature and is awaiting the Governor’s signature. If the Governor signs the bill into law, developers of age-restricted communities will have the option of asking planning boards to convert the community to “family” housing pursuant to criteria that are set forth in the bill. The bill is limited to projects that have not been constructed and in which no units have been sold. The bill also provides that those seeking to convert age-restricted developments to family housing must agree to provide up to 20% of the total units as low and moderate income homes.

If that legislation does not become law, conversion of such developments will still be feasible, although more cumbersome. Where no units have been constructed or sold, conversion would require amendment of the local development approvals and any offering statement filed with the Department of Community Affairs. Where the local zoning requires that the projects be age-restricted, it may also require zoning amendments or variances. Some municipalities, including Bound Brook, Hackettstown, Maplewood, Fort Lee and Morris Township, have approved the necessary amendments to permit the lifting of restrictions on previously approved plans. In the absence of a state-wide legislative authorization for the lifting of local restrictions, these issues must be resolved locally for each age-restricted project.

For projects in which units have actually been sold or occupied, the process is much more complex. Not only must the local land use issues be resolved, but the rights of purchasers and occupants must be respected. This may, for example, require a vote by the homeowners association to amend the association bylaws, or consent by individual homeowners or purchasers to an amendment of the master deed. Lifting restrictions may also require resolution of issues under the Federal Fair Housing Act and the New Jersey Law Against Discrimination. These laws, which require that at least 80 percent of the units in age-restricted projects be restricted to senior citizens, create significant obstacles to a partial lifting of restrictions.

Multi-Tiered Communities

A different option, especially for projects that have not yet secured approvals, is to move toward a portion of the senior citizen market that is less fully saturated. One example is so-called multi-tiered communities. Multi-tiered communities offer ordinary residential units, commonly referred to as independent living units; additional fee-based services, such as congregate dining, housecleaning services; and assisted living facilities— all on one site. The distinguishing feature of the multi-tiered community is that, although all these options are on one site, residents of independent living units are not guaranteed places in the assisted living facility if they can no longer function in their independent living units.

Multi-tiered communities target a much older population than active adult communities, one that is less well-served in the existing market. Such facilities have been deemed by the New Jersey courts to be “inherently beneficial uses.” Under New Jersey land use law, application for a variance for an “inherently beneficial use” is governed by much more favorable legal standards than other variances. As a result, it is often practical to get use variances to permit the construction of these facilities, even where the municipality is unwilling to rezone for such a use.

Continuing Care Retirement Communities

New Jersey law especially favors one particular type of multi-tiered community, so-called “continuing care retirement communities.” CCRCs typically include independent living units, congregate dining and for-fee services, an assisted living facility, and skilled nursing beds. The distinguishing feature of a CCRC is that the resident enters into a contract, which may be for a period of years or for life, that guarantees that he or she can move from the independent living unit to the assisted living facility or a skilled nursing bed, as required. Because of this contractual element, CCRCs are closely regulated by the State under the Continuing Care Retirement Community Regulation and Financial Disclosure Act.

Like other multi-tiered communities, CCRCs are inherently beneficial uses under New Jersey zoning law. They may also be protected uses under the Federal Fair Housing Act. Under the recently adopted Statewide Non- Residential Development Fee Act (which may or may not survive legislative efforts to delay or repeal the fee), CCRCs are not required to pay the 2.5 percent affordable housing fee required of other non-residential developments. In addition, the portion of the CCRC devoted to health care, such as the skilled nursing beds, is exempt from local property taxes. For some types of CCRCs, including those operated for profit, state and federal construction subsidies are available.

Multi-tiered communities, including CCRCs, are more complex than active adult communities because they involve the ongoing provision of services. Their profitability depends critically upon maintaining consumer satisfaction with these services. Typically, a developer partners with an experienced facility operator to construct and operate this type of development.

Conclusion

None of these options is simple or automatic. Market conditions that make active adult development unattractive inevitably require builders to pursue options that are more complex and call for greater sophistication. The pending legislation allowing for conversion of age-restricted communities will, if signed into law, certainly make conversion a more straightforward matter. But whether or not that bill becomes law, there are a number of options available for builders willing to provide housing and other services for the ever-increasing aged sector of our population. O

Stephen M. Eisdorfer is also a partner of the firm in the Land Use Division. A past-Member of the Board of Directors of the New Jersey State Bar Association’s Land Use Law Section, he concentrates his practice in land use litigation, including Mount Laurel litigation and litigation involving the civil rights statutes.