WSJ: Investors Warming Up to Senior Housing Backed Bonds

Investors are cozying up to “senior” debt with municipal-bond investments, despite relatively high default rates for certain types of retirement communities, reports the Wall Street Journal.

Earlier this month, Municipal Market Advisors said 2.13% of bonds tied to so-called continuing-care retirement communities are in default, the sixth-highest of 46 types of municipal debt tracked by the research-and-advisory firm.

Optimistic investors, however, note that an improving real-estate market and legions of baby boomers approaching retirement age bode well for the industry. These types of bonds, which often carry higher yields than safer debt issued by states or cities, had returned more than 5.5% this year as of Thursday, according to the Barclays Capital Municipal Bond index. In contrast, 10-year investment-grade municipal debt returned about 1.3%.


Downsides remain. Many of the facilities are start-ups that are exposed to higher construction or economic risk than the typical municipal investment, leading to higher default rates. That can make the bonds less liquid during difficult times.

Overall, about $28 billion worth of municipal debt tied to continuing-care communities is in the market, according to Municipal Market Advisors. Another $6.5 billion has been issued by facilities that offer less-comprehensive services, such as only independent living, assisted living or nursing care.

A couple different continuing care retirement communities (CCRCs), located in Illinois and Ohio, recently made the news for defaulting on their bonds, but defaults for assisted and independent living and nursing homes are actually higher than for CCRCs, the article says.


Read the full article here.

Written by Alyssa Gerace