Bask in Harbor Park in Fort Lauderdale, Florida is a 310-unit luxury apartment community built in 2018. It is situated along Fort Lauderdale’s fast growing 17th Street corridor and it is the latest acquisition made by Cardone Capital.
This acquisition brings Cardone Capital’s portfolio to 8,983 units across 28 properties in Florida, Texas, Alabama, Georgia, and Maryland, with total assets under management now at $2.1 Billion. The property will be renamed 10X Living at Fort Lauderdale to fit with CEO Grant Cardone’s 10X brand.
Cardone Capital seeks to provide accredited investors with institutional grade real estate investment opportunities in high-growth markets using a crowdfunding model, and their stated focus on acquiring and managing income producing Class A multifamily properties is given excellent expression with this acquisition.
The development consists of 310 units in a single midrise building with 8 stories. Built on a site of 2.95 acres, or 128,501 SF, a total of 28,610 SF (22%) is dedicated to various amenities. The parking ratio is 1.9 parking spaces per unit. A review of the building details and location information, the property can be described with three words: Location, Amenities, and Space.
The location on 17th Street provides proximity to major employers in Downtown Fort Lauderdale, Port Everglades, Fort Lauderdale International Airport, and along the I-595 Corridor. In addition, for life beyond work, the location also has proximity to a wealth of shopping, dining, and entertainment opportunities, many within walking distance of the property. The property itself provides renters with a variety of amenities including a business center, a fitness center, and outdoor space, such as a clubhouse and a pool. Finally, the property has above average unit sizes compared to the average of other similar properties and properties under construction in the area, which is 1,074 SF compared to the average of 900 SF. The property also has the advantage of having been built with a higher number of two-bedroom units which is attractive in a rental market with a growing number of people that work from home.
Based on these features, the property seems likely to give renters the features they want in their living space, which in turn is likely to meet the investment objectives of investors. In its prospectus, Cardone Capital is projecting a 15.09% Internal Rate of Return
The purchase was made by Cardone Capital’s Cardone Equity Fund XI, LLC. On the sell-side, Cushman and Wakefield PLC played the role of broker, and on the buy-side, New York Community Bank assisted Cardone Capital and provided the financing, a full-term interest only note.
Hotels have struggled throughout the COVID-19 pandemic. With business travel still being significantly reduced, supply is outstripping demand. This has created a lingering weakness in the Hotel & Hospitality industry. Are Hotel REITs overpriced for the profit they can offer?
The Hotel Industry Had Great Metrics and Market Conditions in Early 2020
One metric that captures the strength of the Hotel industry at any given moment is RevPAR (revenue per available room). This figure was at all-time highs when 2020 began. Under these conditions, hotel stocks and hotel REITs were priced bullishly.
The COVID-19 Pandemic Hit the Hotel Industry Hard
In March 2020, the COVID-19 pandemic began to take hold. One of the landmark cultural moments that signaled the seriousness of the pandemic was the cancellation of the NBA season. With it, came all the travel and hotel accommodations that NBA teams would need throughout the rest of the season. The pandemic soon spread throughout the entire economy, having devastating effects on hotel traffic.
REIT Indexes Seem to Be Recovering, But There are Technical Divergences That are Cause for Concern
The MSCI US REIT Index plummeted from $1,345.33 in the week of February 24th, 2020 to $790.88 by the end of the week starting March 16th. By April 23, 2021, the REIT index had recovered to $1305.18. There are technical signs, however, that the recovery is not to be trusted. There are significant divergences on both the MACD indicator and the Relative Strength Index (RSI). This means that despite being almost at the same price level as before, it is not really on the same level from a statistical perspective.
REIT Fundamentals Also Suggest an Overvalued Sector
It is also obvious from a fundamental perspective that Hotel REITs are overpriced. These price levels would only make sense if revenues were recovering. That is not the case, however. In fact, it appears that travel patterns may change forever—having serious long-term consequences for the hospitality industry. For example, Prologix is the largest component of the MSCI US REIT, and its PE ratio rose from 32.67 in March 2020 to 57.15 in April 2021. Similarly, Equinix also exhibited the same kind of increase, from 104.27 in March 2020 to 171.80 in April 2021. These multiples were justified in the great market conditions that existed before the pandemic. But now that the landscape has changed the fundamentals, they are no longer justified.
Hotel REITs opened 2020 in a great position to continue their growth. But in March 2020, that all changed with the COVID-19 pandemic. It dramatically changed the landscape of the travel and hotel industry, perhaps permanently. In April 2021, the REIT industry is demonstrating prices that suggest the sector is recovering. However, if you look at the weekly charts of REIT indexes like the MSCI US REIT Index, you will see divergences that would give pause to any technical trader. Furthermore, the fundamentals simply do not support the price levels that were seen before the pandemic.
If you are an investor that is seeking a steady and reliable income builder to add to your portfolio, consider looking into REITs as a viable option.
What is a REIT?
REITs, or Real Estate Investment Trusts, are the equity equivalent of owning a diversified portfolio of real estate holdings, and act as an excellent hedge against market volatility and downside risk. We mentioned that REITs provide a high dividend return to unitholders and that has to do with the regulatory conditions REITs operate under.
By law, REITs have to pay out at least 90% of their net income in the form of dividends, which are typically paid out quarterly or monthly. In all, there are hundreds of different REITs that span nearly every imaginable industry from cell towers to malls to apartment buildings to data centers. There is a REIT for every possible form of real estate.
Sabra Health Care REIT
Sabra Health Care REIT (NASDAQ:SBRA) is a healthcare REIT that operates over 425 different healthcare facilities across the United States and Canada. Sabra actually has a total of 609 investments which includes a joint venture that has them oversee 158 senior facilities which are owned by operators instead of leased.
Sabra’s current stock performance
The REIT has a market cap of $3.77 billion USD at the time of this writing, and boasts an enterprise value of $6.5 billion USD. Sabra REIT is presently trading near its 52-week high price at $17.88 per unit, and has a 52-week trading range of $10.65 to $18.95, but hit rock bottom in March of 2020 at $5.11 per unit. Trend-wise, Sabra is trading right at its 50-day moving average and higher than its 200-day moving average signalling an upward trend as it heads into its Q2 earnings call on May 5th.
Outlook for Sabra Health Care REIT
The healthcare industry presents several bullish factors that help to present the case for Sabra’s potential long-term strength. First, most hospitals and senior facilities have residents that are subsidized by government healthcare plans which are about as stable as it gets for consistent income. Secondly, senior facilities were hammered by the COVID-19 pandemic, but with the ongoing mass vaccination efforts, positive cases have plummeted by 99% according to Welltower (NYSE:WELL), one of the largest senior facility REITs in America. Finally, the Aging Boomer era is coming, with early estimates of 3 million Americans turning 65 every year until 2029, and by 2030, 20% of the total population is expected to be 65 or older.
Sabra also has excellent fundamentals with an FFO of 182.9% over the past five years and one of the highest FFO rates in 2020 during the COVID-19 pandemic amongst healthcare REITs. FFO or Funds From Operations, is a method in which REITs calculate their cash flow from operations. Sabra is anticipating to continue to increase its dividend yield which is currently at 6.6%, one of the highest in the healthcare REIT industry. With a weighted average of eight years remaining on aggregate lease terms, and an impressive 20.5% NOI CAGR or compound annual growth rate, since 2011, Sabra makes for an intriguing investment on the future of the American healthcare system. With a strong dividend yield and a balanced asset mix, Sabra is a solid REIT to add for steady income flow to a diversified portfolio.