As part of the fastest-growing segment of the U.S. population, females age 80 and older are one of the driving forces behind the recent surge in seniors housing construction.

In fact, it's just this type of demographic data that has been attracting players to this specialized niche of the real estate industry for almost two decades. And, at least in terms of numbers, the future appears to hold incredible promise. That is to say, the future includes the baby boom generation -- 77 million people in all -- the first wave of whom will begin to reach retirement age by the year 2010.

But even with these impressive statistics on its side, the seniors housing industry has experienced its share of growing pains in the past. In fact, the industry's earliest years were little more than a lesson learned: That it takes more than a nicely built community with a few activities to persuade seniors to give up their current homes.

What the industry has discovered since then is that seniors are interested in more than just housing; they are interested in services, particularly those services that allow them to "age in place."

As a result, assisted living communities have become one of the hottest segments in the industry, with capital readily available and a variety of major players concentrating on that side of the market. Most of these players among the ASHA 25 Owners have plans for expansion, both through new development and acquisition. So does that mean that the hottest segment of seniors housing is about to become overheated?

Several in the industry say yes -- but not for many years down the road.

"I think assisted living is going to be overbuilt -- right now, there's extensive building going on and everyone is jumping onto the assisted living bandwagon," says Frank A. Ruffo, executive vice president of the Emeritus Corporation, a Seattle-based firm specializing in residential-style assisted living communities. "That being said, however," adds Ruffo, "I think the market will continue to evolve over the next five years, and the demographics should support an expanding market at least through the year 2030."

In the three years since it was formed, the Emeritus Corp. has been expanding its operations aggressively through acquisitions, converting the independent retirement communities that it has acquired to assisted living.

"We own and operate 49 facilities in 18 states, the bulk of those acquired over the last three years," says Ruffo, "and we currently have 10 under construction that should open before the end of this year." Ruffo notes that the company's expectation is that by 1999, it will average approximately 20 new developments and 20 acquisitions a year.

Grand Court Lifestyles, Inc. (formerly Leisure Centers, Inc.), which has announced its intention to go public and has issued a preliminary prospectus, also has ambitious expansion plans. According to its prospectus, the company's development plan calls for the construction of between 18 and 24 communities during the next two years, containing between 2,268 and 3,458 apartment units. All of these new developments will be based upon Grand Court's "prototype" design of an adult living community that offers residents a choice between independent living and assisted living services. The prospectus notes that this prototype is designed to allow, at any time, for the conversion of units for use as either independent-living or assisted living, in response to market demand. Grand Court currently owns 33 and manages 32 such communities in 11 states.

Deborah Luciani, vice president of new business development and acquisition for the Florida-based firm, says she isn't worried about saturated markets, mostly because the demographics for this type of housing are so compelling.

"We made a turning point in U.S. history in 1983, when for the first time ever there were more senior citizens living in America than teenagers," she says, adding that "165,000 people turn 65 every month."

Gary Davidson, chairman of ARV Assisted Living, Inc., likes this statistic: "The number of seniors coming into the market every year is over 250,000," he says, adding, "you really can't build enough communities to house these people."

Although he admits that the current interest in assisted living -- as well as the number of new players getting involved in the industry -- could conceivably lead to some overheated markets, he believes this will occur only in selected areas. "The market won't be overbuilt on a nationwide basis," he says, predicting that "most of these people will have to be taken care of in their homes with home health care."

ARV, which has been in the seniors housing business since 1980, currently owns 44 and manages 45 facilities comprising some 5,775 units in 11 states.

"We were doing assisted living before it was called assisted living," says Davidson. "In those days, if someone needed help getting dressed, we helped them -- it just didn't have a name."

The company, which went public last year, is aggressively pursuing growth through both acquisition and development. Since 1995, ARV has acquired 20 facilities and currently has four projects under construction. There are 13 more communities in the development stage and another 20 in the pipeline.

For Marriott's Senior Living Services, the recent acquisition of the Forum Group (which in 1995 ranked #2 on the ASHA survey) substantially beefed up its portfolio. These properties usually comprise between 200 to 300 apartments, as well as a health center with 40 assisted living beds and another 60 beds devoted to skilled nursing.

However, according to Phil Downey, Marriott's vice president of development, planning, and regulatory affairs, the company's focus for new development right now is primarily on the "Brighton Gardens" side of the business, which is, for the most part, assisted living facilities that may or may not have a licensed nursing component.

Life Care Services Corp., which has been involved in seniors housing for almost 35 years, has found its niche in continuing care communities that provide a full continuum of services, including licensed nursing capacity on site.

"The hot thing in seniors housing today -- what's getting the attention in financial markets -- is assisted living," notes Stan Thurston, CEO of Life Care Services. "We already have assisted living components within our continuing care communities," he says. "The fact that our communities include their own licensed nursing facilities is a key reason why seniors are interested in making a move from their own homes," he says. "They know they'll never have to move again, and that's what differentiates us."

Although Life Care spent its initial years in the industry strictly as a developer, 15 years ago the firm started building a management group. "We've grown to the extent that more than half of the communities we manage are communities that we did not develop," notes Thurston. He adds that most of the time Life Care manages properties for others because those properties are distressed.

"We try to reposition these communities, and we have had good success in doing that, but it takes time," says Thurston, adding that overall occupancy rates for seniors housing have marginally increased during the last 12 to 18 months.

Most of the firms interviewed for this article noted that occupancies at their communities were running between 94 percent and 98 percent.

The largest owner and manager of seniors housing continues to be Colson & Colson/Holiday Retirement Corporation, which interestingly has shied away from assisted living.

"I am positioning Holiday to acquire all of the bankrupt assisted living communities in the future, just like we did in congregate care communities in the past," says William E. Colson, the firm's president.

"We've developed 115 of these seniors properties, and we acquired a lot -- about 50 properties. Some of them have continuing care. We have about 1,000 beds of assisted living, but that's really not our forte," says Colson, who adds that across the board his communities have an occupancy rate of 96 percent.

Colson says that one reason he shies away from assisted living and the "medical model" of seniors housing is because he feels that at some point in the future, the government will ultimately become involved in the industry.

"The whole assisted living business is going to end up being under government control and will become semi-skilled nursing care," says Colson. "We're 100 percent private pay -- we don't get one federal buck -- and I don't want anything to do with the government." Colson does, however, serve on the Board of Emeritus Corp., and the two companies have a symbiotic relationship. Although no formal ties exist, Emeritus claims its relationship with Holiday Retirement Corp. as a major advantage over its competitors in the assisted living market. In fact, several of Emeritus' existing properties are located within close proximity to a Holiday Retirement residence, and according to Ruffo, that same strategy will be used for new developments in the future, so Emeritus' properties will have a steady stream of referrals who may require more services than a congregate operator such as Holiday Retirement Corp. can provide.

Emeritus also plans to focus on private-pay residents.

Currently, the vast majority of all seniors housing is private pay, although some states have allowed Medicaid waivers for some assisted living.

"I see a push happening in many states right now, because of the budgetary constraints and the cost that is incurred by providing reimbursement to nursing homes, to push more dollars into the [assisted living] segment," notes Ruffo. "But I hope, in the interest of all parties, that overregulation doesn't happen, because we're providing a unique experience for the elderly. It's market-driven." Ruffo speaks from experience. He and the other founding partners at Emeritus worked together at Hillhaven Corp., once the second-largest nursing home operator in the United States.

Davidson, too, believes that government involvement could lead to overregulation of the seniors housing industry.

"Regulations drive up costs, and nobody wants to see that happen in assisted living," he says, noting that currently 93 percent of ARV's residents are private payers. "We have not had a problem as far as people being able to afford the facilities," he says.

As Marriott's Phil Downey sees it, government reimbursement could positively affect the industry if it means "more people would be able to afford assisted living as an alternative to nursing homes." But, he does acknowledge that "it's inevitable if direct government reimbursement increases, so will regulation -- and that's potentially a negative."

Grand Court Lifestyles has decided it will focus exclusively on private-pay residents, rather than relying on the few states that have enacted legislation which enables assisted living facilities to receive Medicaid funding. This objective was spelled out in the company's preliminary prospectus, issued in June, which stated that "this 'private-pay' focus will allow the company to increase rental revenues as demographic pressures increase demand for adult living facilities, and to avoid the potential financial difficulties it might encounter if it were dependent on Medicaid or other reimbursement programs that may be scaled back as a result of health care reform, budget deficit reduction or other pending or future government initiatives." Deborah Luciani noted that most of Grand Court's current residents are in the middle- to higher-income brackets.

According to Downey, Marriott is currently attracting the upper-third of the market in terms of income. "Our price position is competitive with private pay players right now," he says. "In general, most companies have had a hard time targeting the lower half of the income scale and making a profit."

Despite that, Downey believes there are ways to deliver more affordable types of seniors housing and says that "Marriott is actively pursuing those strategies."

Colson believes that affordability has been a critical element in Holiday Retirement's success -- attracting a mix of both high- and low-income Americans, with the biggest majority (60 percent) being those with middle incomes.

"Our rents start at $895 a month. That's for food and everything. I don't do any nickel-and-aiming," says Colson. "Ever since we got into this business in the early-1970s, our issue has been cost control, because we're interested in providing service to people, many of whom are on a set income, for as long as they want to live in our communities," says Colson. He also points out that, in order to provide quality service -- and still have cash flow -- you have to control your everyday costs.

Interestingly, both the chairman of Holiday Retirement Corp. and ARV Assisted Living describe their companies with the same catch-phrase: As the "Oldsmobile" of the seniors housing marketplace.

ARV ASSISTED LIVING, INC.

Chairman of the Board: Gary L. Davidson

Corporate Office: Costa Mesa, California

History: Founded in 1980 by Gary Davidson and John Booty, ARV acquired and developed 26 assisted living facilities for affiliated entities between 1980 and 1992. The company began to acquire and operate facilities for its own account in 1994, and went public in October 1995. Currently, the company owns 44 assisted living facilities (5,644 units) and manages 45 (5,779 units). ARV operates 25 facilities either directly for its own account or under long-term operating leases and manages 13 facilities owned by affiliated limited partnerships. In addition, the company has 14 assisted living facilities expected to contain 1,899 units under development, including four facilities currently under construction that are expected to contain 515 units.

Fee Structure: Monthly rental leases, with fees based on the level of services provided in a three-tier bundled service system.

Revenues: For FY 1995, revenues were $33.1 million, an increase of 241 percent over Fiscal Year 1994.

EMERITUS CORPORATION

Chairman and Chief Executive Officer: Daniel R. Baty

Corporate Office: Seattle, Washington

History: Founded in 1993, Emeritus currently owns 49 facilities (4,150 units) and manages 49 facilities (4,150 units) in 18 states. Many of the properties acquired by Emeritus in 1995 -- previously operated as independent-living facilities -- are in the process of being repositioned to serve as assisted living communities. During this same period, the company has also purchased, leased or acquired an option to purchase development sites for 23 communities.

Fee Structure: Rental, with four levels of services available at graduated monthly fees.

Revenues: Total operating revenues for the year ended December 1995, were $21.3 million, representing a $16.9 million increase over revenues for 1994.

GRAND COURT LIFESTYLES, INC.

Chief Executive Officer and Chairman of the Board: John Luciani

Corporate Office: Boca Raton, Florida

History: The predecessors of Grand Court Lifestyles were J&B Management Company and Leisure Centers, Inc., and their affiliates. Through the 1970s and early1980s, the company's primary focus was on the acquisition, development, finance, and management of multifamily properties. Beginning in the mid-'80s, the company's sole focus became the acquisition, finance and management of adult living communities. It currently has one of the largest operating portfolios of adult communities in the nation, comprising the entire spectrum of the long-term care industry, from independent-living to assisted-living, with a limited involvement in nursing homes.

Portfolio: Grand Court currently owns 33 adult living communities (4,618 apartment units, including 70 skilled nursing beds) and manages 32 communities (4,416 units) in 11 states.

Fee Structure: Rental, with fees based on a four-tiered system of services.

Revenues: For FY 1995, revenues were $68.3 million, an increase of 47 percent over Fiscal Year 1994.

HOLIDAY RETIREMENT CORPORATION

President and Chief Operating Officer William E. Colson

Corporate Office: Salem, Oregon

History: Established in 1971, Holiday Retirement Corp. currently owns 157 (19,101 units) and manages 159 (19,300 units) congregate residences in 31 states and Canada, and has approximately 23,000 leaseholds in Europe. A typical facility has between 110 to 115 units.

Fee Structure: Month-to-month rentals.

Revenues: Not available.

LIFE CARE SERVICES CORP.

Chief Executive Officer: Stan G. Thurston

Corporate Office: Des Moines, Iowa

History: Life Care Services was established in 1961 as part of the Weitz Company, a general contractor specializing in retirement communities. In 1979, the company began offering fee management services to other developers and owners of retirement communities. It currently manages 50 facilities (15,268 units). Although national in scope, Life Care managed communities are heavily concentrated in Florida and the Eastern half of the United States.

Fee Structure: Entrance fee and monthly service fee.

Revenues: Not available.

MARRIOTT SENIOR LIVING SERVICES

President and General Manager: Paul E. Johnson, Jr.

Corporate Office: Washington, D.C.

History: Started in 1984, Marriott Senior Living Services substantially increased its portfolio in June 1996, with the acquisition of the Forum Group, Inc., the third-largest operator of retirement communities in the United States. Prior to that merger, Marriott Senior Living Services operated 26 senior living communities in nine states, with a total of 6,400 units. Marriott's facilities include assisted living communities under the Brighton Gardens name, as well as independent full-service communities. Eight new Brighton Gardens were opened in 1995, and that is the division where the company's primary growth will be in the future. According to its annual report for 1995, Marriott expects to have more than 100 Brighton Gardens communities by the year 2000.

Fee Structure: At Brighton Gardens, the fee structure is a month-to-month rental, with four levels of care available, and additional services priced incrementally. The vast majority of independent full service communities that Marriott operates are also rentals, and some are equity purchase condos or co-ops. In those facilities offering life care, residents pay an entrance fee as well as an ongoing monthly service fee under a continuing care contract.

Revenues: For FY 1995, revenues were $175.2 million, representing a $27-million increase over Fiscal Year 1994.

Laura Ochipinti Zaner, a freelance writer based in Laurel, Md., writes frequently about real estate.