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Should You Invest in Senior Housing for 2021?

By Matthew Frankel, CFP® – Dec 8, 2020 at 7:23AM

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Senior housing hasn't exactly done well in 2020. Could 2021 be a different story?

While many forms of healthcare businesses have held up very well throughout the COVID-19 pandemic, senior housing is a big exception. With lockdowns and virus concerns, move-out rates at senior housing facilities have been quite high, while move-ins have been far below normal levels.

However, could 2021 be a different story? In this Nov. 17 Fool Live video, three experts from The Motley Fool's real estate brand -- Millionacres real estate analyst Matt Frankel, CFP, Millionacres editor Deidre Woollard, and Millionacres contributor and senior housing expert Jason Hall -- discuss the near-term and long-term outlook for senior housing, and whether it's worth an investment now.

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Deidre Woollard: One last thing I want to bring up as we close out is, senior living. Senior living, you mentioned earlier has just been so hard hit and I think even the news of the vaccine doesn't really have the same impact quite yet on senior living from what I've seen because it's still way too early. Do you think it's going to take until there is a vaccine, until we get to that third stage roll out where you're going to see senior living start to come back even a little bit? Or is it really going to take more time because there's a big psychological component there as well?

Matt Frankel: Well at any moment Jason's going to start screaming about Care Trust Realty (CTRE 3.51%).

Jason Hall: I'm bidding my time, I promise.

Matt Frankel: Senior Living has been the weakest part of most of the major healthcare REITs and for good reason. Move out activity has been high. Move in activity has been low. A lot of them are reporting that tours are down. Prospective residents coming to look are way down.

Jason Hall: There's also a lot of local regulation that you could have like a big player, like Welltower (WELL 2.62%) that's in dozens of municipalities that each individual property has different guidelines and is an investors heart to figure all that out.

Matt Frankel: That's true. When Welltower specializes in high barrier markets like say, the New York City suburbs, where a lot of people might just not be allowed to accept new movements right now.

Jason Hall: Right.

Matt Frankel: You're going to see that come back. Senior living is a long tailed growth market, there's no question about that. The 85 and older population, which is their bread and butter is expected to roughly triple over the next 30 years. It's going to be a huge growth market. The question is, how long does this take to come back, and will all the senior housing operators survive? Because a lot of the senior housing operators, not the REITs, the companies that actually operate them are not in the best financial condition and weren't before the pandemic. The question is, like Brookdale Senior Living (BKD 2.55%) for example, they are not the most financially secure. Brookdale is not the best example, but there's a lot of them that are struggling financially. That's the question, will this come back in time for all of them to make it through the pandemic nicely? It could take a few years. I'm guessing about a three to four-year window before senior housing really returns to pre-pandemic health levels, I guess you'd say.

Jason Hall: But it's important to say too, you have to think about you as an investor. What is your stock? What are you looking for, if you're looking at REITs for income today? Stay away from the sector. Because you're building in risks to something that you have to have. But if this is a 20 plus year portfolio, maybe the REITs makes sense because it creates opportunity to buy.

Matt Frankel: For sure. There's definitely some opportunities here. I prefer to look at the diversified healthcare REITs, I've mentioned, Healthpeak (PEAK 3.00%), where about a third of their money is in senior housing, a third is in life science like you said. The other third is in medical offices. It's a nice diversified approach.

Jason Hall: Pure play baby, pure play.

Matt Frankel: I'm not as adventurous on it as Jason is and I think life science is a big potential market.

Jason Hall: True.

Matt Frankel: I like the ones that have exposure to both of them. I like Healthpeak, they were in bad financial shape because of some of their senior housing properties. They ended up divesting their skilled nursing assets a few years ago and I don't think the markets ever really forgiven them for that. I think they're a totally different company now and they're still not priced like it. But that's my thought on senior housing, it will come back eventually, just not yet.

Jason Hall: Yes, and I agree, and like I said too, think about what are your goals as an investor and then you can find what's appropriate, what's not.

Deidre Woollard has no position in any of the stocks mentioned. Jason Hall owns shares of CareTrust REIT and Welltower. Matthew Frankel, CFP owns shares of Healthpeak Properties, Inc. The Motley Fool recommends Healthpeak Properties, Inc. The Motley Fool has a disclosure policy.

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