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Health Care Real Estate Could Be A Coronavirus Safe Haven

It’s hard to imagine many stocks will do well through the coronavirus pandemic. But health care stocks and real estate investment trusts tend to be defensive sectors that investors flock to because they pay huge dividend yields.

So what happens when you combine the two?

Health care REITs might be a good bet in this scary market environment. Many are positioned well to help manage the COVID-19 coronavirus crisis, particularly companies that own and operate hospitals, medical offices and life sciences and biotech facilities.

“Health care REITs are generally the most defensive, economically resilient property type in the REIT industry,” said CFRA Research analyst Kenneth Leon in a report last week. “The group offers steady cash flow, low risk of rental rate volatility, and stable occupancy levels.”

Leon said that three in particular that he’s recommending are Alexandria Real Estate Equities (ARE), Healthcare Trust of America (HTA) and Medical Properties Trust (MPW).

Healthy Dividend Yields Are A Big Plus In Uncertain Times

The recent interest rate cut by the Federal Reserve may also help boost health care REITs — and all real estate firms — because of their solid dividend yields.

The three healthcare REITs that Leon recommends pay dividend yields ranging from 2.7% to 5%. With the Fed widely expected to slash interest rates again at its meeting next week, perhaps all the way back to 0%, the income that REITs generate will become even more tantalizing to investors flocking to safe havens.

“While COVID-19 has created near-term economic uncertainty, the REIT industry’s strong earnings, solid balance sheets, and high occupancy rates demonstrate that they are entering this situation well-positioned to handle a potential economic slowdown,” said Steven A. Wechsler, president and CEO of the Nareit trade group.

Senior Living Centers Look Risky

But not all health care real estate firms will thrive. Leon thinks investors should avoid companies that run senior living centers, because they won’t be able to safely show their properties to prospective new residents. He noted that many went into lockdown mode during the flu season of late 2017 and early 2018. And the COVID-19 outbreak is even scarier.

“Coronavirus may limit senior housing operators from showing their properties to prospective residents,” Leon wrote. “Precaution is a top priority for health care operators to better control an elevated death rate from severe flu conditions for the elderly.”

Leon remains wary of companies that operate senior housing centers, most notably Healthpeak Properties (PEAK)Ventas (VTR) and Welltower (WELL). Their rental revenue and profit growth will probably be squeezed by the admission of fewer residents.

“Operators cannot conduct visitor tours and sign up new residents.
Senior housing is in effect quarantined to new prospective residents and their families,” Leon wrote.


Source: CNN Business

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Co-Living, Senior Housing Can Produce Higher Returns: ULI Panelists

Developers are counting on demand to be strong for co-living apartments in Wynwood, offering lower rents, shared common areas and amenities geared to promote face-to-face interactions among residents.

“There is a real vibe in these buildings,” said Swiss real estate developer Ralph Winter, whose company, W5 Group, is developing a Wynwood co-living project with the Related Group. “It is very comparable to student housing except here you have people coming from all over the world [as roommates]. They really like it.”

Winter joined Alberto Milo Jr., president of Related’s affordable housing division, and Greg West, CEO of ZOM Living, for a panel discussion on the latest trends in multifamily development at the Urban Land Institute’s Housing Opportunity Conference on Monday. Ron Terwilliger, chairman of Terwilliger Pappas Multifamily Properties, was the moderator.

Winter said his project with Related, called w28 and designed by Arquitectonica, will likely take two-and-a-half years to complete. As the lead equity partner, W5 Group is providing 80 percent of the capital to build w28. The project will have 200 co-living apartments and 3,600 square feet of ground-floor retail. The development is set to rise at 33, 45, and 51 Northwest 28th Street, three parcels Related bought for $6.5 million in June.

Apartments at w28 will be fully-furnished, have shared common areas and include streaming services such as Netflix — features that appeal to millennials, Winter said. He said kitchens are designed to encourage interactions between an apartment’s tenants, such as drinking beer on a dining counter.

“This is more of a prime concept to bring people together,” Winter said. “We have seen in our research that the loneliness factor for a 25-year-old is much higher than for a 65-year-old. [Because of smartphones] they are not really connected in a face-to-face manner. That is what we try to do in these buildings.”

Winter said a co-living tenant can expect to pay 15 percent less than the average monthly rent for a studio. However, a room in a co-living apartment averages 140 square feet, he noted. Winter explained co-living apartments are attractive to young professionals who may not stay rooted in one city or often travel for long periods of time for their jobs.

“We have guys from Google and Apple who could easily pay $3,000 a month for an apartment,” Winter said. “You are paying to be part of a membership, an exclusive circle….They say, ‘Oh that is a cool place, and I want to be a part of it.”’

On the flip side of the demographic spectrum, demand for luxury apartment buildings geared to senior citizens is booming, according to ZOM Living’s West. His company is developing the Watermark at Merrick Park in Coral Gables and the Watermark at West Palm Beach, two mid-rise multifamily projects strictly for people near retirement age.

West said senior housing monthly rents can produce about an 8 percent yield compared to the typical 6 percent yield of regular apartment buildings.

“The exit [rate of return is] higher than conventional multifamily,” he said. “We’d sell apartments in the 4 [percent range]. In senior housing, you will sell at 6 [percent].”

However, multifamily owners have to employ more people to provide property management services. And achieving full occupancy takes longer in senior living buildings, West said.

The three-day ULI conference featured two days of panels on Monday and Tuesday. The event concludes Wednesday with site tours of various projects in Miami-Dade, including Related’s Liberty Square redevelopment project, the Link at Douglas transit-oriented development by The Adler Group and 13th Floor Investments, and condo buildings that allow short-term rentals.


Source:  The Real Deal

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