WHY MEDICAL REAL ESTATE IS SO RESILIENT IN TIMES OF RECESSION.
In the aftermath of the markets crashing on Monday morning as panic trading takes place amidst the fear of the impact of covid-19 on the world’s markets, its important to understand why OrbVest keeps saying medical Real Estate is resilient during times of recession and market uncertainty.
OrbVest invests in brick and mortar; they are not susceptible to global sentiment. While each investment is listed on the Seychelles Stock Exchange (MERJ) as a separate entity in order to ring-fence your investment, it is not a floatable equity as MERJ is not particularly liquid. What this means is that the value of the equity depends on the underlying asset, which is the building. As medical tenants tend to have long-term leases, that value is not really going to decline.
If you think about your local doctor, or specialist, they don’t move around a lot so you are generally looking at 10-15 year leases in these buildings. And whereas technology is disrupting the real estate industry and having negative effects on retail, the effects on Medical are quite different. Advancements in medical technology are helping people to live longer, but with that comes a greater need for more constant medical care. In the USA you have over 10,000 people turning 65 every day, and the average life expectancy now at 80 years old.
What this means is you have retired baby boomers who are living longer but require visits to the doctors 4-6 times a year more than the younger generation. The technological advancements have also seen a big decline in hospital visits because you can now go to a doctor’s room and have a procedure that previously would have you spend a few days in hospital. With this move towards out-patient facilities coupled with the fact that over 90% of the population in USA have access to some kind of health insurance, OrbVest have positioned themselves perfectly in this niche. Technological advancement can already be seen in one of our buildings, Old Milton Medical 25, where in response to Covid-19, LifeHope Lab is one of the first places in Atlanta that has started virus testing.
On the exchange rate front, the rand plummeted by 8% on Monday morning almost crossing the R17/$ threshold. While it has recovered slightly from that it is still hovering around the R16/$ mark. This means that clients who invested $100,000 (from SA) a month ago have made R100,000 profit with us just from the exchange rate alone. While the rand may recover to a certain extent over time, on average the rand has been devaluing against the dollar by almost 5% year on year since 1987.
This is why OrbVest’s investment model is a great opportunity, especially for local South African investors, to safeguard their future by investing in stable, income producing assets in the USA and earn an income in US Dollars.
In times when businesses are temporarily shutting down all over the world and travel, trade and tourism almost coming to a standstill, medical health care continues to be in demand.
Article by Devon Thomson
Investment Consultant at OrbVest Ltd
Devon is an authorized representative and has an Honours Degree in Business Management. He has been involved in finance and property investment for the last 4 years.