Perspectives on senior co-housing projects in Denmark

The senior population in Denmark is a growing market. Professional property developers would be wise to consider the needs of this population group when constructing new buildings and investing in the Danish real estate market.

An ageing population

The senior market segment makes up an increasingly large percentage of the Danish population. The over-80 age group is expected to increase significantly – and the group of seniors aged 65-79 is expected to increase considerably as well.¹ The needs of the senior population will have an increasing influence on the types of residence that will be built in the future.

Seniors want community

There’s a general trend for seniors to seek community, including in their choice of residence. Around retirement age, a growing number of seniors are drawn to co-housing. Among other things, they want to build closer ties with their neighbors.

In recent years, the number of co-housing communities set up in Denmark has risen significantly. Nationwide around 15-20 new co-housing communities are set up every year. This rise is seen in both the number of mixed-age and senior co-housing communities – with the latter outweighing the former. Senior co-housing communities now account for more than half of all Danish co-housing communities.²

Agorahaverne is a good example of new Danish senior co-housing communities. They’re co-housing communities in various locations around Denmark built by a major Danish real estate developer.³ Agorahaverne are modern senior co-housing communities for adults without resident children, located in green surroundings close to urban and green areas. There’s a strong emphasis on community and communal spaces. And priority has been given to finding space for things like a communal kitchen, conservatory, communal terrace, vegetable garden, workshop, petanque court and similar activities that promote a sense of community.

General property development trends

We believe the actual number of co-housing communities is still a relatively small percentage of the total housing stock in Denmark, despite the significant increase in the number of co-housing communities in recent years. But the trend also seems to be reflected in the general development of the real estate market.

We see a general trend towards a demand – across age groups – for housing with a greater focus on the surrounding elements promoting a community feeling. We also see that developers are increasingly exploring the possibilities for development based on these market trends. Developers are allocating more space in the buildings for communal areas like community houses, playgrounds and fitness rooms. Even if it comes at the cost of fewer rentable square meters in the individual housing units.

A real estate investor would be wise to take this demand into account when developing housing projects for the Danish market, whether the intention is to develop actual co-housing projects or more traditional self-contained housing projects.

Co-housing communities as rental housing

Co-housing communities can be set up as rental housing, cooperative housing or owner-occupied housing.

Of course, if a developer chooses to build new co-housing communities as rental housing, it’s important to think about the real assumptions that form the basis for setting the rent for the housing unit – and the return.

In Denmark, it’s possible to agree on free rent determination for rental units in newly built properties, which is by far the most optimal basis under tenancy law. But the important point to note is that the concept of “newly built” includes only properties newly built in full on a land unit registered under its own separate title number. So, if a building is built on a land unit where there’s an existing building or if the developer reuses existing foundations, the property will not be considered a newly constructed property for the purposes of tenancy law. And the rent determination will be subject to the restrictions set out in the rules on cost-based rent.

It’s always advisable to take tenancy law aspects into consideration from the very beginning of a project. And it’s also advisable to seek legal advice from an attorney specializing in tenancy law in connection with planning the timing and sequence of parceling-out, starting construction and concluding tenancy agreements.

A new Rent Act came into force in Denmark on 1 July 2022. And a new version of the standard tenancy agreement authorized by the Danish Ministry of the Interior and Housing was published. After 1 January 2023, only the new form A10 standard tenancy agreement can be used for new tenancy agreements.

Contractors and developers should always seek legal advice before starting a build-to-rent property project to ensure that the basis for rent determination has been analyzed.

Forward purchase of co-housing projects in development

In the development of co-housing projects, transfer agreements are often concluded at a very early stage of the development phase. These agreements typically include an obligation for the seller – as the main contractor or developer – to complete the development of the property into a turnkey build-to-rent property that’s available for letting on or before the handing-over date (forward purchase development) so it generates a return for the end investor.

Recently, we’ve helped contractors and developers establish companies (SPVs) that will act as owners of the development property for a short period of time, and that will – once a planning permission for the project has been issued – transfer the property project yet to be completed to the end investor.

But the contractor is – under the transfer agreement – still obligated to complete the project in its capacity as the turnkey contractor.

The contractor will be authorized to act as the owner (on behalf of the SPV – and within a certain scope) for eg the regulatory process, since the general principle of this structure is that the position of the end investor at any time must be as if the end investor does not receive the property project until construction is completed and it’s handed over to the SPV.

In some cases, the end investor will also finance parts of the projects. This will be short-term construction financing – possibly in cooperation with a construction financing bank – against market-consistent interest payments (forward funding structure).

The advantage of this structure – from a contractor's perspective – is that the real estate project will be “taken out of the contractor's books” (ie the project does not form part of the contractor's assets in the financial balance sheet). The contractor’s construction financing will be provided by the end investor and this end investor will get a return in the form of interest payments as early as during the construction period.

From an end investor’s perspective, the structure holds more risks for the buyer. They’ll acquire a property project under development so it’ll be important that the instalments paid to the contractor during the construction phase do not exceed the value of the current stage of the construction project, but are aligned with the value of the completed elements of the project.

If the end investor provides part of the short-term construction finance during the construction period, it’s important that the inter-creditor agreement protects the end investor if the contractor cannot complete the project and, in the worst-case scenario, the contractor enters bankruptcy or restructuring proceedings.

It’s particularly important to ensure that the other bank providing construction finance – and typically having advanced a more substantial construction loan to the SPV so they hold “better cards” in terms of security – cannot simply sell the project to a third party to cover losses. Both lenders should agree on the best solution in the interests of both parties.

The most favorable structure for co-housing projects will depend on the parties involved, the amount of capital available for investment, risk tolerance and return expectations.

The last few years have seen good activity levels within forward purchase transactions, particularly as a result of available construction finance and access to construction materials, but the most recent developments (fluctuating prices of materials, more expensive bridge financing options) have meant a slight slowing of activity levels.

But we do still expect to see more co-housing projects in development in the years ahead, for the simple reason that there’s a specific need and demand for this type of housing.