As we know, healthcare REITs suffered during the pandemic, with share prices hitting lows in March 2020. It was a long battle to regain previous values and even longer to sort out the various tenant problems. Balance sheets have been cleaned up, tenants and properties have been replaced, but there are still many legacy problems. Is now a good time to start a REIT with a clean slate?
Well, 1031 Crowdfunding thinks so. It has just launched Covenant Senior Housing REIT, which out of the gate has three assisted living/memory care properties with a value of $51.25 million. The communities are located in Oregon and California with an average 89.0% occupancy. They plan to buy cash-flowing properties as well as value-add communities. By the end of next year, they hope to have at least $100 million in assets, which seems to be a modest goal, and then keep on growing.
If you assume, like Welltower CEO Shankh Mitra has, that 2024 will be the best buying opportunity in the seniors housing market ever, then now would seem to be a great time to start a healthcare REIT focusing on seniors housing, especially with no legacy problems to clean up. The issue is whether they will be able to access the debt markets at a reasonable cost. They are planning to raise the equity from retail investors with $5,000 minimums. To grow, they will need a lot of those investors, and while the yields will be attractive, the markets have been anything but stable of late, for anyone.
We look forward to tracking their progress on acquisitions, but they will have a lot of competition, especially for those properties with solid current cash flow. But we agree, now would seem to be a very good time to start investing with a clean slate, if you can obtain the capital at a reasonable cost.
